Offshore stock trading is the practice of setting up a company or brokerage account in a foreign country, and then using that corporation or account as a means through which to buy and sell stock in order to greatly reduce the capital gains tax that comes from stock market profits. In some cases, it is possible to avoid paying tax on stock profits altogether. All because the transactions are governed by the laws of the foreign land where the company is based, rather than the exchange where the purchases are being made.
Commonwealth of Dominica
An example of a small island nation that has set itself up in such a manner is the Commonwealth of Dominica, located in the East Indies between the islands of Guadeloupe and Martinique. They offer two different tiers of offshore stock trading accounts, and handle all the paperwork for a basic fee. They essentially make it very easy for an individual to set themselves up in this way, with their interest coming from the transactional revenue that they will receive from each purchase or sale of IBC based company or account. An offshore stock trading account on the island of Dominica is attractive to investors for the same reasons that an incorporation in Nevada appeals to businesspeople in California. The tax breaks are bigger.
Tokyo Stock Exchange
Another type of offshore stock trading is less nefarious, in a sense. It is simply the ability for traders in one country to access the exchange of another. In November 2010, the Tokyo Stock Exchange began opening itself up for the first time to foreign, offshore stock trading accounts. The first foreign exchange it chose to give access to its floor, on a remote basis, was the Hong Kong Securities and Exchange Commission. Local offices or locally licensed officials are now no longer required. Cleverly, this also means that various U.S. and European brokerages can now do offshore stock trading into the Tokyo Stock Exchange, as many of them have branches in Hong Kong.
Island of Dominica – Offshore Brokerage Accounts, Retrieved November 21, 2010 from http://www.dominica-taxhaven.com/trade.html
Bloomberg – “Hong Kong Brokers First to Get Direct Access to Tokyo Exchange”, November 15, 2010, Retrieved November 21, 2010 from http://www.bloomberg.com/news/2010-11-15/hong-kong-brokers-allowed-to-trade-directly-on-tokyo-exchange-tse-says.html