Offshore Banking and Offshore Bank Accounts

Any bank and bank account that is opened outside of the depositor resident country can be considered offshore banking. The financial services from offshore banks include deposit taking, money transmissions, and provision of foreign exchange, trade finance, credit facilities, investment custody, investment management, fund management, trustee services, and corporate administration. For the most part there is little difference in many of the services and benefits between a bank in the U.S. and a bank located offshore, however offshore banking or offshore banks is discuessed more commonly with regards to banking with the objective of asset protection, financial privacy and reduced taxation.

Offshore banking has increased dramatically in the past twenty years. Most of this growth is due to economic growth in developing countries and the reduced boundaries and increased liquidity of world financial markets.

Many countries require residents to declare their income on a worldwide basis, where tax is payable on all your income. For this reason, most countries have no restrictions on where your business interests, investments or bank accounts may be located. It is simply the legal responsibility of the individuals to report income to the appropriate tax authority.

Most popular offshore bank account jurisdictions have strict confidentiality rules and regulations in place that help to ensure that the identities and transactions of investors and depositors are safe from the casual probe or prying eyes. While this confidentiality is almost legendary, it is not possible to guarantee absolute privacy and anonymity.

Many people consider opening an offshore bank account for very legitimate financial reasons. The primary reasons most people choose offshore banking locations and offshore bank accounts in such jurisdictions is because they charge less tax, have more secrecy laws and offer better interest rates. For some non-U.S. residents of a politically or economically unstable country may arrange for an offshore bank account in a more stable country. The central reason to have a financial account of any type in Europe is for convenience, geographical and political diversification. With the advent of electronic banking, the holder of an offshore bank account can easily conduct routine transactions without traveling abroad. Those who travel frequently to Europe or the Orient may benefit from an offshore bank account in England or Japan. By using an off shore company, it may be possible for you to secure a number of advantages, mainly revolving around taxation but could be useful for the protection of assets. Many offshore banks offer very competitive interest rates on deposits in addition to the banking privacy and secrecy benefits.

Some offshore banks may operate with a lower cost base and can provide higher interest rates than the legal rate in the home country due to lower overheads and a lack of government intervention. Interest is generally paid by offshore banks without tax deducted. This is an advantage to individuals who do not pay tax on worldwide income, or who do not pay tax until the tax return is agreed, or who feel that they can illegally evade tax by hiding the interest income. All financial institutions the world over have an implicit legal obligation to report and comply with investigations into suspected serious criminal activity.

In recent years, however, the rules governing an offshore bank account have become much stiffer. Reputable and stable offshore banks follow strict anti-money laundering and anti-fraud procedures and require significant backup documentation. The tightening of anti-money laundering regulations in many countries including most popular offshore banking locations means that bankers are required, by good faith, to report suspicion of money laundering to the local police authority, regardless of banking secrecy rules. Each offshore banking jurisdiction has its own requirements for successfully opening a bank account there.

Many offshore bank facilities have agreements with the Internal Revenue Service and the U.S. Justice Department for exchange of information on suspected criminals, tax evaders and terrorists. Honest people, however, do benefit from reasonable bank privacy in these jurisdictions.

Different jurisdictions tend to be havens for different types of taxes, and for different categories of people and/or companies. A significant amount of the economic activity in tax havens today consists of professional financial services such as mutual funds, banking, life insurance and pensions. Popular offshore banking locals provide highly efficient and low-cost environments for institutions to acquire and invest capital, protected by the rule of law. This is why many of the world’s big banks operate in the same jurisdictions, as well as hundreds of insurance companies and thousands of institutional mutual and hedge funds.

Offshore private banking is usually more accessible to those on higher incomes, because of the costs of establishing and maintaining offshore accounts. However, simple savings accounts can be opened by anyone and maintained with scale fees equivalent to their onshore counterparts.

This entry was posted on Sunday, October 12th, 2008 at 11:48 am and is filed under Banking and CD Guide. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.