International investing refers to the choice of investments in projects, businesses and other forms of investments available outside an investor’s home country, undertaken with a view to capitalize on many of the advantages resulting from such investments.
Advantages
The major advantage of international investing is that many countries offer wide range of tax incentives to foreign investors. Asset protection is another distinct advantage resulting from international investing where, many of the investment jurisdictions offer the benefits of structuring the suitable form of organization and transfer the individual wealth to these organizations without much hassles. These jurisdictions also ensure confidentiality of investments and secrecy of the investor so that the wealth and income thereon are not taxed in the home country of the individual. In some of the countries there are regulations which restrict the people from making investments in other countries. Such kind of restriction often hinders the chances of holding a diversified portfolio by the investors. Under such circumstances, offshore accounts appear to be more flexible providing the investors much more freedom in deploying their funds in varied overseas securities and stocks in international markets. With diversified investment instruments the investor would be able to switch the international investments to such type of investments which offer him/her more returns and to this extent the international investments can be considered flexible. It is to be noted that a broad international investment portfolio would protect the investments against the economic changes in the different countries since the negative changes in some countries will be offset by the positive changes in other countries. Moreover the growth rate of international investments is faster because of the rapid economic growth in these countries, especially in the case of developing countries where the growth rates are much higher than the industrially advanced countries (Investopedia, 2009).
Disadvantages
Despite having some major advantages, international investing also suffers from certain drawbacks. Tax agencies in countries like United States have started tightening the tax laws in respect of investments made through offshore accounts. Once the offshore investments are brought under the tax net of the home country, the investor has to pay a higher rate of tax on the investments which hitherto were enjoying tax free status. Apart from the taxation, the cost of setting up and maintaining international investing appears to be expensive. Depending on the investment destination, type of organization and type of proposed investments, the offshore investment companies charge exorbitant charges. The prescription of minimum amounts in respect of international investments is another disadvantage which needs to be taken into account. Investments in international companies also suffer from a lesser amount of disclosure by these companies. There is also the currency risk which the investor may have to face. Legal issues is another serious concern as the developing countries often formulate new regulations and tax laws which affect the international investments heavily (WladenUniversity).
Reporting
International investments are to be reported in accordance with the standards laid down by the International Financial Reporting Standards (IFRS) governing the international investments. The investments are to be shown in the balance sheet at original cost. The investment balances at the end of the accounting period are to be adjusted based on the exchange rates prevailing on that date. Any loss or gain on the investments due to exchange differences is to be treated as gains of the business for the period under consideration.
References
Investopedia. (2009). Pros and Cons of Offshore Investing.
Wladen University. (n.d.). Investing Advice: Advantages of Investing your Money Globally. Web.