Meet me halfway

The distinction between onshore and offshore is commonly understood. But the rise of the 'mid-shore' jurisdiction offers a new flavour to the mix of financial centres. Jurisdictions such as Singapore, Hong Kong, Ireland and (as far as trusts are concerned) New Zealand, have claimed this 'mid-shore space'. The term implies it's a halfway house between onshore and offshore, but what does this mean?

In my view, a mid-shore jurisdiction is an otherwise onshore jurisdiction that has legislated certain tax and other offshore-modelled incentives for financial services. In doing so, it attracts the flow of international capital to its shores in much the same way as a traditional offshore centre. Typically, offshore jurisdictions are principally propelled by their financial services, such as legal, tax and trust, but by contrast, mid-shore jurisdictions tend to possess a broader economic base. For example, Singapore and Hong Kong are buoyed by their status as global trading hubs.

However, the leading mid-shore and offshore jurisdictions have much in common, including transparency, tax neutrality, low-tax frameworks, sophisticated infrastructure, an educated talent pool, and strong legal and regulatory systems.

There is a perception that the law of the mid-shore jurisdictions is perhaps more conservative than their offshore rivals. Yet it is interesting to note that neither Hong Kong nor New Zealand require a trustee to be licensed. No doubt, finding the right balance of regulatory substance and remaining competitive is key to the success of any international financial centre (IFC). Perhaps well-established offshore jurisdictions, such as Guernsey and Jersey, can teach their mid-shore counterparts about having strong compliance and regulatory regimes while still remaining strong and relevant in the global economy.

If you want a seat at the main table of IFCs, certain regulatory standards are expected. Therefore, we've seen trends such as reforming anti-money laundering laws in Singapore and New Zealand. There is also a move towards having a strong double tax agreement network, rather than a number of tax information exchange agreements.

Singapore has announced that it will strengthen international tax cooperation and has rightly criminalised certain tax evasion activities. That Hong Kong has yet to implement such reform remains an enigma, but perhaps the muscle of China has a bearing on this.

Changing world

So, how should the offshore world view the mid-shore jurisdictions as they continue to adapt? It would be foolish not to recognise the significance of these emerging jurisdictions and the impact they will have (or are having) on the international financial landscape.

However, Offshore Incorporation's (OIL) 2012 survey Opportunities and challenges facing the offshore industry continued to rank offshore jurisdictions, such as Guernsey and Jersey, highly - despite the emergence of Hong Kong and Singapore. Exactly how this trend develops is likely to depend on how each jurisdiction continues to adapt to meet the needs of an increasingly international client base, and deals with the regulatory influences of major onshore jurisdictions.

For all the perceived distinctions between onshore, mid-shore and offshore, the reality is that each jurisdiction plays a role in the make-up of the global economy. How investors, trust companies, investment managers and the like choose to use those jurisdictions depends on which is best equipped to satisfy their needs.

One thing is certain: while the growing choice of jurisdictions adds a level of competition, it also opens up a world of opportunities.

Marcus Hinkley is a group partner and head of the Singapore office for Collas Crill

He writes a regular blog about Asia for Private Client Adviser

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