Credit portal




What is offshore banking

Everything You Ever Wanted To Know About Offshore Banking

(But Did Not Know Who To Ask):

A good number people are under the impression that such an idea is only for the very wealthy, CIA super spy types, or even criminals. The fact is that most people who do establish a bank account offshore are not any of these things. They are average people just like you, that either want to take advantage of investment opportunities not available in their home country, or want to safeguard their savings by having it safely tucked away someplace else. Regardless of what the motivations are, it is not illegal for you to have a banking or investment account abroad. This is a key and very important point, which we will discuss a bit further later on. Also, while some governments do not like to see their own citizens with funds, shall we say, out of reach - the only thing of concern is of course that such citizens pay any applicable taxes on the earnings (more of this later on as well).

First and foremost, what is an offshore bank or offshore account? Most people affiliate the term offshore banking with a bank located in some idyllic palm tree lined tropical tax haven. The truth of the matter is, the term offshore really means anywhere outside of where you are living or residing right now. If you are an American living in the United States, and happen to have a bank account in Canada - then it could be said that the Canadian Bank Account is offshore for you. Similarly the same case is true with a German citizen, living in Germany, but banking in the United States as well. This brings us to a very interesting point. Many countries have policies, laws or regulations in place that allow for bank account interest to be tax-free either for its own citizens, foreigners only or maybe both. In fact, there are many, many countries where this is true and it makes perfect sense. The United States, as just one example, allows for foreigners (non US citizens) to enjoy no or zero local taxation on any capital gains resulting from stock investments via a US brokerage account. The idea is to encourage foreigners to invest in the US stock market. However, if you are an American Citizen, then you might feel this is very unfair since you have to pay taxes for the same thing - and the foreigner pays nothing. On the other hand, you can be the foreigner someplace else and get the same benefits.

Exploring this idea a bit further, the first group of places you might consider are some of the so-called traditional English speaking tax havens in Europe or the Caribbean, such as the Isle of Man, Channel Islands, Bahamas, Cayman Islands, and so on. However, the fact of the matter is you should probably NOT focus on some of these places. Some of these jurisdictions, such as the Bahamas, have already buckled under pressure from the OECD and are not advantageous jurisdictions any longer. Banks, Investment Firms or Life Insurance companies located elsewhere, while perhaps making no changes to current legislation, such as the Isle of Man using just one example, may simply refuse to accept you as a client simply because you are a US or EU country resident (or citizen). Stated another way, a reporter once asked the famous bank robber, named Willy Sutton, why he robbed banks. Willy Sutton promptly replied: Because that is where the money is. Similarly, the OECD has gone after all the traditional tax haven locations because they think anyone with an offshore account must have one there, in one of these places. US tax authorities have of course focused attacks on places such as the Bahamas, Bermuda and other English speaking jurisdictions located fairly close to the US mainland, because they assume - that is where the money is.


As we already have mentioned, there are a large number of countries that allow foreigners to bank or invest in their country - on a tax-free basis. Every country is really in competition with each other to find foreign investment capital, and making this attractive certainly makes sense. The OECD (Organization for Economic Development) and the WTO (World Trade Organization) claim they are trying to root out what they claim is unfair tax competition and harmful trade practices. The bottom line or simple translation is, they want to kill the competition. It is very ironic though, that one of the main supporters of these organizations, the United States, has not taken away their OWN tax incentives for foreigners to invest in the US, but of course they want every else to do away with such things. They even went so far to mix it up with the European Union, in essence asking the Europeans to act as tax collectors and reporting agents in terms of US citizens banking or investing with financial institutions in Europe. The Europeans said sure, and now you can do the same for us in terms of Europeans that have all those tax-free brokerage accounts inside the US. The US politicians said: Well, Umm, we do not know, Umm, Ah, Umm, we have to get back to you. And so it was left. Then they started chasing a few Arabs hiding out in the mountains of Afghanistan. Then they brought up the subject again, although now the reason is catching bad guys with bank accounts and not taxes. So, the reason for these pressures have changed, but the goal is still the same - make it as difficult and cumbersome as possible for citizens to have accounts elsewhere (outside the home country)..

Anyway, there are many, many countries you would never even think of as being a great place to bank or invest - yet they are out there just the same. Plus, these places are not on the radar screen, which is probably why they have not come under attack. So, the idea is to forget about the so-called tax haven countries or the nations on the OECD black list (of very naughty countries that have no taxes, or very low taxes). For obvious reasons, I will not mention them all, but for example, have you ever thought about banking in Hong Kong? How about the Czech Republic or Taiwan? How about Bahrain or Brazil? Even one of the EU countries can be a great place providing you are not a resident from one of the EU member nations. In fact, some of the countries with the highest income tax rates in the world for their own citizens often enough provide tax-free banking policies for foreign owned accounts.


You do not need to be a millionaire, in order to be treated like one. Many banks will allow you to establish a savings account in US Dollars for anywhere from US$300 up to $2,500 or more (it all depends upon the bank). In addition, you will gain access to three things I am sure you do not have at the moment: Privacy, the ability to enjoy bank account interest free from local taxation, and personal attention plus banking services beyond what you have at the moment. Today's banking industry is highly regulated yet private, physically far away yet very accessible via e-mail - fax or telephone, attentive yet discreet about your affairs. In addition, access to your money is always possible with a bank or Visa debit card that is accepted worldwide. However, the ability to have accounts in different currencies, or the ability to access investments not available at home is not the only reason some people make seek out an offshore, or non-local account.

Asset protection is of course the other motivation. With this said, there as those that claim the offshore banking industry caters to criminals, be they political or otherwise. For sure, there certainly may be these types of people setting up such accounts or investments. However, it is not the vast majority and of course no financial institution wants to willingly get mixed up with a client that can cause problems down the road. So, this argument attacking issues such as zero taxation or zero reporting (banking privacy) is sort of like attacking everyone that has a cell phone simply because some criminals have them also. In other words, the logic of the argument is, all criminals use cell phones to conduct business therefore anyone with a cell phone must be a criminal - no? This logic is of course ridiculous, but just the same it is the theory put forth to the general public in order to sell the idea of a crack down.

In any event, the truth of the matter is, many people might establish accounts abroad to safeguard against potential local threats in their own home country - war, civil uprising, government confiscation, lawsuits and so on. What many governments do not like it when citizens have the ability to move funds to another country, as it can make it even that much more difficult to confiscate it or track it. In terms of tax collection it is much of the same thing. Which is to say, how many governments are willing to report accounts or assets owned by foreigners inside their own country to another government? How many governments are willing to act as a tax collection agent or reporting agent for another government? There is no incentive for this. Plus, in some cases, bank account interest may be tax-free in a particular country, which translates into the fact that such accounts are not even reported to the local government where the account is located, never mind anyone or anywhere else. In other cases, banking privacy might be codified into law, making the reporting illegal. However, once again using the United State as one example of a country leading the charge against banking privacy issues and offshore banking in other nations, it is very ironic that many foreigners keep assets inside the US for the very reasons we just mentioned. In addition, in many cases, the US government has refused to turn over assets or even allow the reporting of such assets to other governments, so the hypocrisy is quite blatant (and ironic).

Establishing an Offshore Bank Account

Banks if many offshore jurisdictions do offer a number of services that you are currently accustomed to, plus some additional services as well. For those investors seeking time deposits in foreign currencies, foreign exchange, and the personal attention of a bank officer that may be in a position to help with more than just banking

then an offshore banking relationship is ideal. Contrary to popular belief,

such services are not always expensive either. Competition has meant that more services than ever are available to banking clients, with fees that are highly competitive.

Most offshore banks will look for references from your existing bank in order to establish a relationship. In addition, since your relationship will most likely be a very personal one, many require that you visit the bank to sign signature cards and other account forms. Some banks may permit an account to be established by mail, but the majority have taken the cautious route after being forced to due so under pressures from the US regarding money laundering. The truth of the matter is, this pressure seems to be more of a tactic to make it more difficult for the average person to move their funds offshore (with regards to taxes) than to combat illegal activity. Regardless, this is the current situation for many banks in both tax haven and non tax haven countries. Since the majority of individuals are honest and hard working people, it is hard to imagine that the goal of any client is geared in this direction. This is why we say, its about taxes, not money laundering.

Even though it has become more cumbersome to establish an offshore bank account, than it was in the past, it is not really as difficult as you may think. Also, in conjunction with an offshore foundation

trust or IBC structure, it is a must if you want true asset protection and tax advantages. The truth is, like any other banking relationship, an application form (and copies of your incorporation documents) is really all it takes.

How Do I Know that My Money is Safe?

This is probably the number one question that we hear, and quite frankly an understandable one. For US citizens especially, this concept of FDIC insurance is one that makes them fearful of banking in another country or jurisdiction. In reality, most modern banking jurisdictions have very strict and stringent regulations in place to ensure liquidity, and the safety of depositors. These regulations or systems may be different than what exists where you are doing your banking now, but that does not mean that the protection is less. As a case in point with both the Dominican Republic and Panama (two banking markets we know the best), a central banking system exists to regulate local banking and to ensure stringent accounting practices. In both cases, a banking license is not so easy to obtain. Banks must prove certain reserve or capital requirements before they can even open their doors to the public. In addition, special reserve deposits are maintained with the central bank at all times.

This is often in contrast to some other jurisdictions, where Brass Plate banks may be permitted. The meaning of a Brass Plate bank is, a bank that perhaps is legitimate, but is operating from an obscure location with just a few employees and a bare minimum of operating capital. This is the type of bank most people are fearful of, and is also the type of bank that has caused problems for investors in the past. It is ironic, but the majority of the problems of this kind have all seemed to have surfaced in English speaking - Common Law jurisdictions. It is quite interesting that some countries whereby people are most afraid to invest (I am thinking about Latin America) often have stricter banking regulations and requirements than the English speaking countries in the same region. Go figure.

How do you know the difference?

For starters, we suggest you look for a local bank that is operating as a regular full service bank. In other words, choose a bank that has local depositors and not just foreign clients. Since in some jurisdictions, bankers actually go to jail if they mismanage customer or the bank's funds, you can be well assured that a bank, which is serving the locals, is one that will be well scrutinized. This is especially true if local businessmen, and government officials, have their money on deposit. Local depositors and businessmen are no less concerned about the safety of their money than you are. So, just because the front door to a bank located offshore does not say FDIC on the window, it does not mean it is unsound or unregulated. Often enough, it is more secure if it is located in a country that takes regulatory responsibilities seriously.

I contrast this to the US savings & loan scandal from a few years back, which had taken place. Many of the bankers ended up playing golf, with the US tax payer footing the bill for the bail out. Depositors were paid, some after two years of waiting and plenty of paper work (and after the government raised additional account insurance money from the sale of bonds to cover the huge short fall in the old FSLIC - The Federal Savings & Loan Insurance Corp. the sister insurance company to the FDIC). A safety net for depositors is only as good as the material it is made from - or the people managing it.

We look for, and suggest, local full service or commercial banks to our clients that meet certain standards. In truth, size is not as important as is the quality of management, accounting practices and services. There are a number of very large banks, or banks with that seem to be good because they have many branch offices, that we in fact stay away from for this very reason (lack of quality or competence in one or more of these areas). Bigger is not always better.

Is it Legal for a US citizen to have an Offshore Bank Account?

We often get this question, and the answer is Yes

it is perfectly legal for a US citizen to own an offshore bank account, offshore annuity policy or offshore mutual fund. The only stipulation is the folks at the IRS want to make sure they know about it, so you can pay taxes on the interest or earnings. For Canadian citizens, it is interesting to note that while offshore accounts are still exempt from Canadian tax liabilities, Revenue Canada now wants you to start reporting what you have offshore (Hmmm, very interesting).

Since many banks or investment firms in other countries do not report customer account information to foreign tax authorities (or their own government for that matter), it is the responsibility of the account holder to do so. However, if you are a US citizen, then the exception to this rule might be the US Bank located in a foreign country, that you think it is an oh-so-safe bank simply because it is a bank owned by a US banking entity (a bank in another country with same name as a US bank, is really a locally licensed bank that is a wholly owned subsidiary). Many US banks with divisions abroad (we will use the word division rather than branch, because it really is not a branch of the US bank at all) have started to voluntarily reporting accounts owned by US citizens to US tax authorities. This is quite interesting when you consider that they may not be required to report to the local government where they are located and probably do not do so, yet they are reporting account information to what is technically a foreign government (the US is our example). Not only that, many people will feel warm and fuzzy thinking they have an account with XYZ bank, because they think it is the very same bank they know of back in another country. Not so.

The bank in a foreign country with the XYZ name is a local bank, separate and apart legally from the parent company in another country. This is very important to understand, because the parent bank in another country is not legally responsible to step in and save the day. You may think that they are morally responsible to do so, but what you may think and what a board of directors from the parent bank in another country might think, might be two very different things. You want a real life example? Look no farther than Argentina. The nice people in Argentina thought the foreign owned banks would be safer for the same moral reasons you might think, but they were sorely mistaken. Many of the foreign owned banks folded up and the parent bank in another country simply wrote them off. The local banks in Argentina however, stayed the course and are still open today (2005). They had no choice but to weather the storm. The other foreign owned banks? They yanked their money out and ran, leaving depositors high and dry (regardless if the account holders were foreigners or locals).

I would say I good idea is to use what I like to call the visa approach, and no I am not referring to a credit card. When anyone applies for a tourist or travel visa to visit another country, the consulate usually looks for or ask for certain things such as proof of home ownership, proof of a job, bank account, etc. etc. What they are really looking for are ties to the country. In other words, they want to see of the person has some reason to come back and not an incentive to stay in the other country illegally. The same thing can be applied to banking. Which is to say, make sure there is some reason the bank will not cut and run. Of course, there is much more to it than that when choosing a bank, but certainly the argument (and proof) is there when it comes to a local bank versus a foreign owned one.


Banking is another country does not necessarily mean risk and it not an idea for criminals either (see our article about Rhett Butler on the main directory page). Also, with the communication mediums we have today (telephone, fax, internet) it is very possible to live in one country and bank in two, three or more countries abroad for different reasons. In fact, many money managers often seek out higher returns for bank deposits globally and move assets around accordingly to take advantage. While this idea was very difficult for the average investor many years ago, today it is very possible and maybe even necessary (if you are living off the income from your investments or deposits). So, do not be dissuaded from those that would have you believe that banking or investing in another country is a foolish idea. In reality, the reverse is true. However, just like anything else is life - do your homework, investigate, read and look around. What you find out may very pleasantly surprise you.

Category: Bank

Similar articles: