What Is An Offshore Bank Account?

What comes to your mind when you hear about an offshore bank account? Most likely, it's illegal activities and tax evasion. The reality is most offshore bank accounts are used for legitimate reasons and are not that much different from your local bank account. Moreover, contrary to popular opinion, offshore bank accounts can be set up by anyone and not just a preserve of the super-rich.

So, what is an offshore account? This is an overseas bank account set up in a country you are not a citizen of or reside in. You can use the bank account to receive or make payments, save money, hold finances, or make investments in multiple currencies.

Essential Facts About Offshore Banking

Though offshore banking is in many ways similar to your local banking, there are also a couple of differences. Here are the essential facts you should be aware of;

1. Opening an offshore account is usually straightforward, quick, and affordable. You have the option of using an agent/offshore service provider who can make the process much smoother or do it yourself.

2. Offshore banking transactions can be costlier than your local banking transactions. This is because most offshore banks are solvent, which means they are full-reserve banks. Therefore, to meet their operational costs, they have to charge a high fee for every transaction.

3. You bear the responsibility of informing the tax authority in your local jurisdiction about your offshore account. You might risk heavy fines and even a prison sentence in your country for tax avoidance.

4. It's your obligation to identify and take advantage of the offshore structures available to protect your wealth better, like lucrative tax benefits.

Why Do You Need An Offshore Bank Account?

1.   Political risk diversification: When a country hits an economic crisis, most citizens relying on local accounts lose much of their wealth, like during the US's 2007-2008 economic recession. If you have some of your wealth in an offshore account, that will be protected from the crisis.

2.   Guard your wealth: There have been numerous documented incidents of bureaucrats taking control of government and going after certain individuals' personal finances and assets. Having an offshore bank account places some of your wealth in a different jurisdiction beyond the reach of such oppressive bureaucrats and protects it.

3.   Higher interest rates: - A good number of banks in offshore banking jurisdictions offer higher interest rates than most local banks. Therefore, thanks to the higher interests, you can better protect the value of your wealth.

4.   Use different currencies: - While using your local banks for international transactions might force you to use your local currency, having an offshore account allows you to use foreign currencies. Thus, you enjoy lower prices for international trade.

5.   Tax benefits: - Though your local government will likely require you to pay taxes on your offshore bank account, the amount will be much lower than with a local bank account. This way, you can legally reduce your tax burden.

Are There Any Downsides To Having An Offshore Account?

Opening an offshore bank account raises red flags in many jurisdictions. Therefore, you may be subject to an investigation once you start depositing money to your offshore account.

Some offshore bank accounts might not be as secure as proclaimed. Make sure you check the policies of the prospective offshore banks before you open a bank account.

Conflicts with your offshore bank account might be costly and time-consuming to resolve as you might have to avail yourself in person.

The high charges associated with offshore banking transactions can take a heavy toll on your assets.

Which Are The Best Offshore Banking Destinations?

The offshore banking destination that's suitable for you will depend on what you need. Here's an insight;

The Cayman Islands has a reputation for outstanding tax benefits

Mauritius is preferred for its political stability

Singapore offers unmatched wealth protection

Switzerland provides world-leading asset protection

Belize offers high interests rates

Nevis is suitable for corporate offshore accounts

Puerto Rico is favorable for the not-so-rich

Whether you decide to open an offshore account by yourself or seek professional help, you should do sufficient research about what suits your needs and your local tax regulations. If you have more than one need for an offshore bank account, you can open more than one account in different destinations.