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Exchange Arrangements and Controls
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Exchange Arrangements and Controls
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Offshore money normally seeks to keep clear of exchange controls and restrictions.
In IOFCs that have exchange restrictions, special provisions normally govern non-resident
or external accounts (i.e., the accounts of account holders not regarded as resident
or carrying on business in that country) and the facilities and limitations attached
to such accounts.
However, offshore operations do very often start onshore where they may be subject
to domestic exchange controls and restrictions.
The exchange control system of a country is a body of statutory and administrative
regulations and rules the principal objects of which are to control that country’s
liquid resources abroad and the international movement of currency owned by its
residents. The main heads of classification employed by the International Monetary
Fund in its Annual Report on Exchange Restrictions are the administration of control;
the prescription of currency; non-resident accounts; imports and import payments;
payments for invisibles; exports and export proceeds; proceeds from invisibles;
capital; and gold.
Exchange control is an essential factor to be taken into account in the creation
of an international tax plan, since restrictions on convertibility and transferability
of funds may have the effect of making a contract unenforceable or of rendering
any international transaction, operation, or relationship unworkable.
The problems attendant upon the appreciation of this factor are considerable, as
it is necessary to take into account not only existing restrictions but also likely
future developments. This kind of prediction is often difficult in the case of short
term developments and is nearly always impossible in the case of long-term developments.
It is therefore advisable to seek undertakings from the appropriate authorities
prior to investing in a foreign country, with a view to insuring the right to transfer
and convert current profits and (on the realisation of the investment) the capital
proceeds.
In certain cases, import and export restrictions may affect a project, and it may
thus also be advisable to obtain undertakings from the appropriate authorities with
respect to future rights to import and export.
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Next - Currency and Exchange Rates
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