Offshore Banking | 5 Facts You Should Know
Offshore banking: A guide to establishing an offshore bank account, What you need to know before you put your income in offshore accounts
What is offshore banking?
Offshore banking: Offshore banking? Is it a common thing? No, but yes. It is worth remembering that more than half the world’s wealth is held via offshore companies, if not necessarily in offshore banks! Millions of accounts are opened every year in foreign countries no matter what your home country.
Please invest 2 minutes of your time to watch the offshore bank video below. It spells out how you can benefit. Or if you prefer to read, then feel free to skip the video and go straight to the text below:
Free offshore banking is a misnomer, but low deposit offshore accounts are simply those held in banks located in tax havens such as Seychelles, Mauritius, the British Virgin Islands, Dubai or Ras Al Khaimah [RAK] in the United Arab Emirates [UAE], the Cayman Islands and others.
Banking regulations are simpler and more flexible with offshore banking, allowing more products, and lower costs of offering them.
Therefore, you end up with a choice of products not necessarily available to you in your own country because of governmental and commercial banking regulations.
Your money held in offshore accounts is also not taxed in the tax haven, so it grows faster than if it was in your country of residence. In this case, your capital can gain interest to help you with estate planning. This can be a good method to avoid issues for your future beneficiaries.
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5 Facts you should know
Fact 1: Investment growth is high and tax-free but you should consult a professional investment planner to help in the management of your accounts
Offshore banking is all about investments. Investments offered in the money market segment of the financial market are some of the most common investments available offshore. These have short maturity dates and your financial planner can give you appropriate advice.
Offshore destinations are tax havens where taxes are low or nonexistent, and as such, you can grow your savings at a faster-compounded rate and get better terms.
You can invest funds via a company incorporated in an offshore tax haven by yourself or with a group of investors, or even into a mutual fund registered in a tax haven which will offer greater tax-free returns.
You can even start an offshore company and make it your holding entity to invest in your operating companies in other countries.
Fact 2: Privacy in offshore banking: It’s not a big secret
Offshore banking is not just for the elite! For offshore bank accounts, Switzerland just happens to be one of the oldest and most preferred countries because of its legendary banking privacy laws. It offers privacy and stability while helping to increase savings in a Swiss bank account for customers.
However, now Swiss banks disclose information to governments in cases of tax avoidance.
Individuals who have offshore bank accounts do not access them often; rather, they spend money from their accounts in a local bank. Offshore deposits are kept for future or emergency uses. For these reasons, these accumulate considerably over a long period of time.
Not only do you limit your tax burden with offshore banking accounts, but you also get many more benefits that strengthen your finances:
- You get asset protection benefits
- Personal advice advantages
- Access to better account structures and services
Fact 3: Your minimum balance can be a small sum if you choose the right locations
Anyone irrespective of wealth can open an account. There may be certain regulations regarding the amount of money required to open an offshore account, but contrary to popular belief, it is not a massive sum.
Along with wealthy clients, even small business owners or middle-class individuals can have an offshore bank account. In this way, you can do business, earn money and save profits since the tax system for offshore destinations is investor friendly.
On the other hand, offshore banking indirectly develops the local economy as the money that comes in helps to speed up local economic activities. Both national and international economies benefit from these practices.
Traditional tax havens and offshore bank accounts were and continue to be, expensive with high minimum balances and high transaction costs. Even the incorporation service providers charge high fees in these tax havens.
However, many newer ones, such as Mauritius, the Seychelles or Dubai, United Arab Emirates are quick, less pretentious, and costs start from around $ 3,000 (USD) for company incorporation and bank account opening!
The minimum balances for the accounts could be as low as US$ 100,000.
Fact 4: Disclosure may be required by your country’s tax laws: Don’t panic, this is a case by case situation
So, why are offshore investments treated as “shady” or “quasi-legal’? Most tax authorities would like you to tell them about your offshore banking accounts, and they would like that you pay taxes on those assets that you are required to report.
However, most offshore investors and offshore account holders want to escape the clutches of their local tax departments through tax shelters such as offshore companies, double tax treaties, or through non-disclosure of overseas assets in order to limit their tax liability.
In many countries, it is necessary to inform your relevant tax authority before placing your assets offshore and if you fail to do so, then your investment can be considered illegal, technically. Many US residents know this to be true.
So, before making any decisions about offshore investments, you should take offshore banking advice from qualified financial consultants in your tax jurisdiction of residence. Offshore banking account structures are very flexible and accessible; pay better interest; have lower charges and multiple currency transaction facilities.
With all these advantages, you may be convinced that investing offshore is a wise step to take. There are certain factors that need careful consideration before you make the final full decision that can affect the rest of your life.
Fact 5: Passing down the account to your descendants is easy if you have your offshore company own your offshore account
Offshore banking is normally possible via an offshore company. It rarely makes sense to own an offshore bank account in your personal name. Privacy considerations dictate that you must make your offshore company own your bank account.
Taxes are also lower on companies than on individuals.
This also makes it easier to transfer the bank account to your descendants through a trustee or a Will upon your passing away than if you had to go through traditionally controlled estate planning methods.
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