Offshore banking is a legitimate financial exercise or a legal banking activity in which the bank in which the deposits are held in located in an offshore financial center, where confidentiality is strict policy, and the tax structure of the offshore jurisdiction is normally inventory friendly, with no taxes.
Regrettably, the term “offshore” is erroneously associated with money laundering and tax evasion. The real truth is: offshore banks, offshore banking and the associated offshore bank account are legal all legal vehicles which allow the depositor:
In fact all offshore-services and products such as offshore Companies or IBCS, offshore trust, and offshore foundations are legal entities which all enhance the features and benefits of the offshore bank account.
Most if not all offshore banks are established in low or no-tax jurisdictions which provided added benefits and advantages over an onshore or domestic account. In addition to the privacy and confidentiality of offshore accounts and the security features there are other great advantages to offshore banking and offshore bank accounts. There is (in most cases) NO or extremely low taxation, easy access to accounts, protection against financial instability- a concern in most domestic markets. Last but not least, offshore bank accounts are a sure way to protect wealth and assets from political, personal, economic, financial turmoil and instability where assets might be at risk on domestic soil.
The history of offshore banking is a long one, in which the principles of offshore banking, i.e. privacy, secrecy and confidentiality and lower taxation, dates back in some countries over 200 years. The emergence offshore businesses and banking really did take surge in the last three decades, and the popularity of offshore entities and offshore bank accounts continues to grow in light of economic turmoil and financial crises. International Banking and offshore banking are an integral part of global economics, without such establishments’ international trade and business would be hindered to a great extent that negatively impacts global financial markets.
Advantages & Disadvantages of Offshore Banking
As of 2008, there are hundreds of jurisdictions in which offshore banking services exists. Offshore banking centers have many advantages over onshore and even fewer disadvantages. Through an offshore bank account wealth and assets are protected from political, financial, social and economic instability; there is ultimate privacy and protection from seizure, domestic lawsuits; wealth can be accumulated and grow and benefit from low or no taxes and tax free interest gains; the depositor has global access to funds and account management; and with friendly regulations and flexible formation, set up, and administration of accounts is easy; offshore banks tend to have more attractive and competitive interest rates; a diverse range of retail and customized services sometimes not offered in domestic banks, such as rate negotiating, anonymous accounts; and lastly, offshore banks are also economically beneficial to the host country by providing jobs and revenue for the country; offshore accounts facilitate otherwise difficult global trade through offshore vehicles such as offshore companies (IBCs).
The downsides of offshore banking are minimal and certainly avoidable and controllable. The most common misfortune placed on offshore bank accounts is the harmful concept perceived by many about the offshore environment of product and services. This view is slowly being changed as offshore jurisdictions revise and implement legislation in which regulation, management and conduct of offshore banks is regulated. There are several international bodies and organizations which strive to have offshore jurisdictions conform to guidelines to minimize and eradicate illegal activities such as money laundering, terrorist financing etc., as well as provide guidelines on corporate governance, compliance and reporting policies.
For these agencies their main concerns lie in tax competition, and money laundering and tax evasion avoidance. Then there is the concern over the remote locations of most offshore banks: through email and offshore internet banking and offshore online banking this no longer is an issue. To remain competitive, it is necessary bank apply online banking and use the most up-to-date in communication medium. Offshore bank accounts are set up remotely via online, fax, email and courier. Few banks require face to face interviews of the applicant and most territories use the services of intermediary offices such as lawyers, and other professionals to handle account applications. Bear in mind that the use of a 3rd party to assist in the application and bank introduction - does not guarantee the bank will approve an application, but it does help if the intermediary used is reputable.
Another draw-back form some clients looking into offshore accounts is the Know Your Customer (KYC) directives in place. This directive is there to ensure that banks have adequate knowledge on the client in terms of : identity ; source of funds: business activity. It is at this junction where the banks will set out to filter “good” money from”bad money.
Lastly, the cost of setting up an offshore bank account can be a drawback for some. In more established financial centers the initial deposit requirement is still designed to attract high net worth individuals (HNWI), making those banks unavailable, however, many jurisdictions now facilitate initial deposits as low as US1000.00 thus making the idea of offshore bank account very real for many.
Offshore Banking Services
The services offered by most offshore banks include the full suite of banking services offered by onshore banks, but offshore banks are far superior in customer service and the range of banking services due to a combination of innovative technology, increased confidence of clients and offshore account popularity. While other some banks are more specialized, focusing on money management of HNWI and portfolio an investment management. The range of services will vary from bank to bank so due diligence is required before selecting a bank. The more elusive and exclusive “private banks” that cater to HNWI will offer personalized and customized first class services where client may have their own offshore bank account managers who treat their accounts with utmost privacy .
Although, the full list of bank services will vary with jurisdiction the financial center, and the type of offshore bank account here are some of the primary and secondary services offered by offshore banks are:
Regulations Offshore banking
Offshore banks are governed and regulated by local agencies, and not foreign bodies. Offshore bank operations are defined by the legislation of the offshore jurisdiction. In almost every offshore financial center, the offshore banks activities and offshore bank accounts are protected by legislation which enforces privacy, secrecy confidentiality and have zero or no taxes applied- the features that define offshore accounts. However, there are international bodies such as Organization for Economic Cooperation and Development (OECD), Financial Action Task Force (FATF) which an office of the OECD, and International Monetary Fund (IMF) - who are intent on imposing regulations which affect the general banking operation as it pertains to compliance, governance and reporting. In some individual countries, legislation regarding anti-money laundering is revised to include measures that curtail the illegal activities thereby protecting the reputation of the offshore jurisdiction, and entails due diligence (KYC) requirements by banks, confidence in source of funds. These international directives are sometime supported by independent local legislation.
The EU Savings Tax Directive – affects individuals of EU member states and territories. It does not impact companies or groups. Under this order, offshore banks may either report account information to tax authorities about interest payments made to EU residents, or to withhold tax from the interest paid. Many offshore banks have elected to simply withhold the taxes rather than submit account information in order to maintain integrity and reputation for confidentiality and privacy laws which govern their legislations. Other countries have direct have agreements with IRS and US Justice Department. The US Patriot Act authorizes the US authorities to seize the assets held in a bank, where it is believed that the bank holds assets for a suspected criminal.
Aside from the monitoring of clients’ activity, there are supra-national bodies such as the IMF that focuses on the quality of the regulations of banks operations, thereby safeguarding clients and assets held within the banks. Such seek to ensure that the financial body maintains capital that is adequate to cover deposits and operations are in accordance with international standards and reporting requirements are met- in order to be in good standing
Despite these challenges faced by offshore financial centers worldwide, and the desire for some countries and organizations to control offshore banking to address concerns of tax competitions, money laundering, and transparency, tax avoidance, it is rather unlikely that offshore business or offshore banking will ever be none existent since the very foundation of most successful economies largely lies on the offshore structure, and as such without the offshore bank account, global economies would be adversely affected.