Home in Rio, broker in Luxembourg, shares in Tokyo

Expatriates with an eye to their financial affairs are likely to set up offshore deposit accounts, and might well invest in o. shore funds or insurance bonds. But what are the offshore options for those keen to trade in stocks and shares, and what are the advantages in making use of offshore brokers rather than sticking with a broker in your home country?

According to Howard Lowe of UK-based expatriate tax specialist the Fry Group, the tax advantages of offshore brokers over their onshore cousins are marginal. "If you're a UK non-resident and you're buying overseas stocks and shares, there are generally no UK income-tax con sequences," he says. "Even if you buy them through a UK broker, they would still count as overseas assets . If you're buying UK shares, then dividends are taxed at source."

However, it is possible that non-residents with British income from other sources (rental income from letting their home, for example) as well as from a UK share portfolio could find their total UK income amounted to a sum exceeding the tax-free allowance.

Capital gains considerations are complex, and hinge on whether you have been UK non-resident for five full tax years. If you have, you are free to sell shares at any time before you come back to Britain without liability to UK capital-gains tax. If you haven't, and you sell shares that you bought before you left Britain, you may have to pay tax on the gains. "Basically," says Lowe, "it's your own residence status, not where you bought the shares, that makes all the difference."

However, other issues may make offshore share-dealing a sensible choice for a particular type of equity trader, according to Robert Glaesner, general manager of Internaxx.

Non-residents of a country may find it difficult to open an account with an onshore broker . "Some won't deal with expatriate clients at all, partly because of the administration involved and partly because the compliance process may be too arduous for such a small volume of trade," says Glaesner. Offshore brokers deal with inter national clients as a matter of course.

Neil Jamieson of UK broker Comdirect observes that although British brokers are not allowed to market their services outside the country, most brokers would allow non-residents to open an account and trade. But extra administration is involved. "Comdirect would require evidence of a UK bank account," he says, "and applicants would have to provide supplementary documentation, such as a copy of their passport countersigned by the British embassy where they live."

There is also the matter of access to international markets. Research by Internaxx finds a much greater demand for global markets from expatriates than from domestic investors, with 85% of expat respondents requiring their main broker to provide access to international equities. "Expat investors expose themselves to much more diversified and risk-optimised portfolios than domestic investors. Together with their 'home' stocks, they continue to be attracted to the volatility of technology shares and commodities, US stocks and stocks available in their country of domicile," it comments.

Glaesner says half the trades placed through Internaxx are on US rather than European exchanges. The broker's 10 most-bought stocks for last month contained seven listed on a US market (five of those on Nasdaq) and seven hi-tech stocks, including Apple, Google, Alcatel and Cisco. A similar pattern was evident in January.

Again, a look at Comdirect's experiences is illuminating. "We do have clients in Asia, Africa and the Middle East and elsewhere, but I think most expatriates using Com direct want to have access primarily to the UK market," says Neil Jamieson. "We cover the western European markets and the main US markets, but around 85% of what we do is UK equities."

He points out that despite the increasing globalisation of investment trends, stock-market trading still tends to be a relatively local business, so internationally active traders are likely to have several accounts with local brokers in different markets around the world. In part that's because they may get better rates locally and access to more in-depth information about that market.

But perhaps the key consideration is currency. "We operate only in sterling , obtaining prices in sterling through a London market-maker, and that's the catch as far as expatriates are concerned," admits Jamieson. "It's probably OK for someone trading from time to time, but it's not so good for frequent traders. For someone wanting to trade actively in the US markets, for instance, it would probably make more sense to open an account with a US broker."

That's where offshore brokers again score strongly against their onshore counterparts, as they provide accounts in several currencies as a key part of the service. Internaxx, for example, works in US and Canadian dollars, euro and sterling, while Thales Securities has yen and Swiss franc accounts available.

But offshore share dealing isn't necessarily the most appropriate solution for every small investor. Glaesner says expatriate equity investors fall into three camps. Some stay with their onshore broker, perhaps because they trade infrequently, are happy to focus mainly on the local market, or are overseas for a couple of years only. Over time, as they become more familiar with the stock market in the country where they're living, they may set up an account with a broker there.

Others register with their offshore bank if it offers a trading arm, which means they can take advantage of the multi-currency aspects of the service and link it to their current bank account. However, banks don't necessarily offer such a range of stock markets, nor do they charge the low prices available from discount brokers; they therefore tend to be better suited to less frequent or adventurous traders. One relatively competitive service from HSBC International is avail able online or by phone to customers with an offshore bank account. It charges $30 per trade, but offers only UK and US shares.

The third choice, arguably most attractive to active traders, is to use the services of a fully fledged offshore online broker where dealing prices are likely to be keenest. But these are thin on the ground. Several internet searches threw up only two: Internaxx, based in Luxembourg and backed by TD Waterhouse and Banque Generale de Luxembourg; and Thales Securities, based in Panama. Internaxx offers access to 11 exchanges in the US, UK and Europe, with dealing from just E19.60 per trade. Thales Securities tops that with more than 30 exchanges on its platform; most trades cost $30 each or the currency equivalent.

Offshore investors who are likely to be many thousands of miles from their money place a lot of emphasis on knowing their provider, as well as on price. According to the Internaxx survey: "In judging the most important virtues of a provider, investors are looking for a reputation for trustworthiness, integrity and transparency, which were ranked equally with accessibility and cost." In that respect the names of familiar banks or financial institutions count for a lot.

The jurisdiction where the broker is based is another consideration. Is it fully regulated? Panama has a somewhat shady reputation and the Thales Securities website goes to considerable lengths to provide evidence of its credentials as a fully regulated bona fide broker in a properly regulated offshore centre.

Assuming that you decide an offshore online account could work for you, how do you go about opening one? A trip to the website in question is the first step; you should be able to download an application form, although it will have to be completed and sent off with some ID by post.

Glaesner says the broker then does the rest, setting up the account and contacting your bank; a minimum of E1,000 is required to open the account, although that's not really enough to start trading. "We also call you to find out about your investment experience and make sure you understand what execution-only trading entails," he says. You are then sent an account number and away you go; the whole process should take no more than two to three weeks. It is not necessary to have accounts in all the currencies in which you want to trade, however. "If you have a euro trading account and you want to make an investment in US dollars, you can either phone us and convert the whole sum to dollars, or, for a smaller single transaction, simply place the trade online and choose euros as your settlement currency," says Glaesner. "The money is automatically converted to dollars as part of the transaction."

As well as conventional trading, both these offshore brokerages offer contracts for difference (CFD) trading, enabling customers to go both long and short on stocks, and foreign exchange platforms, allowing them to hedge their portfolios by speculating on currency movements.

How, then, do investors use offshore brokers? Their clients tend to be relatively experienced investors, typically trading several times a month and running portfolios worth tens of thousands.

"A minority save regularly into their cash account and make a trade - typically a stock or an index tracker - only when they have accumulated, say, .5,000 ," says Glaesner. "They will generally hold it at least in the medium term, with a view to building up a portfolio, so this is an investment strategy rather than a speculative exercise."

Most are more speculative. Usually they will do their research, using the internet to get up-to-date information to pick stocks with potential. "They'll hold a stock for a day, a week, a month, but rarely as long as a year."

Others use the CFD platform to play two stocks within a specific sector against each other, going long on the one they believe will perform more strongly and short on the likely loser. Or they may trade speculatively before a company's annual or quarterly results are announced, in the expectation of volatility in the aftermath. Charting analysis - whereby investors study historical price movements and buy or sell only when a certain price level is breached - is another approach favoured by some traders.

Your choice of offshore or onshore broker will depend on a number of factors: how long you are likely to be non-resident in the UK, how large your portfolio is, how often you want to trade and how adventurous you want to be.

If your financial situation is complex and you are worried about potential liability to British tax, it would be sensible to consult an independent tax adviser.