Can you trade with foreign countries? The answer is a clear yes! How can it be otherwise in this era of internet revolution! The world is one family—isn’t it?
But while trading international, you need to know the ‘family’ problems related to the entire world and take care of them in advance meticulously. Do it carefully, extremely carefully. Mistakes in dealings in foreign countries can prove disastrous!
Foreign tour and foreign investment are desired much and people are crazy about them. Foreign tours have a limited objective, a pre-determined budget and almost no risk. The latter option taxes the brain. The performance of indexes in the past in some of the countries is tempting. In 2003, SETI in Bangkok appreciated more than 100%in 2003. Russia’s RTS Index gained 72% in the first nine months of 2005. Incredible in a communist country!
1. One of the approaches to invest in foreign countries is to buy the stocks. Many procedural issues are involved in investing, as compared to the domestic trade. See that the company is listed in the Foreign Exchange and contact your brokerage firm to ascertain the feasibility of the service. If the answer is in the affirmative, the broker will have to get in touch with a market maker or an affiliate in the concerned country. See whether the broker is able to get the specific access to the shares that you are interested in. The other alternative is to create a brokerage account with the brokerage firm in that country.
2. Study well the risks related to the foreign investment. Whether you have access to authentic details about the foreign companies that you are interested in? What are the rules and regulations for transfer of funds from there to the home account? Are your funds taxed on such remittances? Be well informed.
3. An investor can also think of mutual funds and ETFs (Exchange traded funds). They are less risky and these are ideal options to get exposure to the foreign markets. They can be purchased through a full-service or discount broker.
4. Tax-incentives are the main attraction about offshore investing. This is done by the inviting country as a deliberate arrangement to attract foreign investment to increase the economic activity. Offshore investors generally form a corporation in a foreign country. USA also has this tax exemption facility to many foreign companies for their investments. There is a definite advantage of investing through corporations than as an individual. The risk element is also well taken care of by the corporations. But tax laws can be tightened anytime and the USA government is aware of the revenue loss due to liberal laws of the country.
5. Offshore investing can be a mode to restructure ownership of assets. Wealth ownership can be transferred to other legal entities. This is mainly done to stall seizure by local revenue authorities and to avoid other domestic troubles. But all these legalities are complicated and needs to be done with expert professional advice.
6. Offshore investing offers confidentiality, and the investor’s status gets the benefit of secrecy legislation. Corporate and banking confidentiality is granted as per laws enacted by the country.
7. Many opportunities exist for investment in the developing nations, especially when government encourages privatization of the sectors that were formerly under the exclusive control of the government. Take China for example. Investors are forming the bee-line to invest, with the willingness of the leadership of the country to privatize certain industries.
Some of the disadvantages:
- With more and more investors swarming in, the tax laws are given a fresh look and being tightened in some of the countries.
- Setting up offshore accounts is an expensive proposition, like legal fees, registration fees, and proof of owning the property in the country where the investment will be done. In some countries the minimum stipulation for investment is from $100,000 to $ 1 million. Only the wealthy can have such choices.
Finally, a thorough knowledge about the foreign exchange regulations and the impact of currency fluctuations is needed to commence trading in foreign stocks or any other form of foreign investments.
