What is Offshore Banking?

What is Offshore Banking?

The meaning of “offshore”

The term "offshore" was coined when people began investing in islands like Jersey, Guernsey and the Isle of Mann, which are found off the coast of mainland Britain. It now refers to investment or deposits made in a foreign bank or corporation, that is, one that is not in the investor’s country of residence.

Offshore banks as tax havens

Offshore banks these days are not necessarily literally offshore, but the accounts are held in countries that are regarded as tax havens. What this means is that the interest or income earned from the investment is subject to minimal or no taxation, while earning higher rates of interest than if the investment was made in a residential account. However, most countries expect their citizens to declare income on an annual basis and pay tax on such income. It should be noted that every tax regime is different, and tax would only be payable on money that was repatriated to the investor’s country of residence.

Access to offshore accounts

Offshore accounts can be opened by anyone – both individuals and companies. Such accounts are often opened by people or organizations that have millions or even billions to invest and are subject to high taxes on the income they earn in their own countries, but can also be opened by individuals with smaller amounts to invest. People moving freely from one country to another to work or settle, (the so-called ex-patriots) may want to invest savings in an offshore account rather than opening a bank account in the country in which they plan to work or settle.

Most legitimately established banks can advise potential investors about offshore investment opportunities and such accounts can be opened and operated from anywhere in the world, via credit or debit cards, the internet, telephone banking and ATM machines. Access to funds is therefore possible at all hours of the day or night and the investor is not restricted to normal business hours.

There are no exchange control restrictions on offshore accounts which means that capital can be moved from one account to anothereasily and without having to go through the formality of applying for permission from a regulatory authority to transfer funds.

Offshore account holders also enjoy legal benefits

  • In most instances, privacy and confidentiality of the account is maintained except where the bankers are obligated by law or international agreements (such as the EU Savings Tax Directive 2005)to disclose certain information.
  • Most countries have laws that protect personal information from being divulged so to that extent the account holder is protected, provided that the account is not being held for illegal purposes such as money laundering or terrorism.

Risk management

  • The investor can hold investments in several different currencies.
  • The offshore countries are usually very stable politically and economically so there is a good chance of maintaining the value of the assets which might be affected if the investment was made in a politically or economically unstable country.
  • An investor may also reduce risks to his estate from death or inheritance taxes.

It is recommended to consult with a qualified and registered financial advisor before committing himself to anything.

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