The one thing that is certain in life is that things are going to change; what may have been easy one day, becomes difficult the next, this is certainly true with offshore banking. There are multiple factors to consider, some positive, other not so much, but each requiring a careful look at how they will affect your overall financial strategies.
With the war on terrorism and other political factors, “tax treaties” (and other legal agreements) were established between major nations with lesser nations following suit, sometimes willingly, often not. Based on that, it is now a fact that your offshore records can (and sometime are) disclosed to government agencies, often with little reason given. And while some nations (Switzerland and Panama) strive to maintain privacy and anonymity, it is now criminal for bank clerks to withhold any activity deemed “unusual”.
Don’t lose faith; enter the Offshore Trust, an interesting vehicle that allows some to enjoy the benefits, without the (current) negative aspects. An Offshore Trust is a legal agreement between you and the bank (called an IBC or International Business Company) stating the entity you created (and not you personally) will be the one that conducts business with the bank.
Are there benefits to establishing an Offshore Trust? There are many and each should be considered and weighed against the difficulties involved.
• Privacy (in most situations a strong level of privacy is ensured)
• Protection from excessive taxation
• Protection from litigation (the trust and not you would conduct business)
• Financial diversification
• OffShore trading accounts can be established
• Reduced (often nonexistent) estate taxes
• Tax free compound interest (this depends on which jurisdiction holds your IBC)
IBC DEFINED: An IBC or International Business Company is an entity incorporated in a country that looks favorably on local taxes usually assessing only a small annual fee, as opposed to a percentage of profits. The stipulation being that this entity would not conduct operations (business) in the country where it was established.
Anyone considering such an IBC, should of course consult their own tax attorney, there are legalities much too complex to adequately define here. In this, as in life, it is wise to measure the pros and cons in order to make a more informed decision.
Pros:
• Allows you to diversity investments
• Protect assets
• Personal freedom from much taxation
• Tax-free compound interest from earning
• The diversification of currency
• World-wide investment opportunities
• Protected estate planning
• Easy access to funds
Cons:
• If you are a US or UK citizen your government may believe you are hiding assets.
• If you investments are in smaller countries, political situations could change affecting your deposits.
• While funds are usually easily accessible via a debit card, should the card be lost, stolen or deactivated, obtaining a replacement could be troublesome.
• Being a foreigner, you may not be entitled to free checking
• The initial deposit may be fairly high
Offshore banking or investing isn’t for everyone, but it is for those who are seeking diversification and the ability to operate on the world stage.
Offshore banking where an individual has a bank account held offshore has established itself as a critical component of international finance. While once the mere mention invoked whispered conversations about tax evasion and money laundering, those days are in the past. Offshore banking is completely legal, in most cases backed by government entities, and a vital tool to help companies and individuals conduct business internationally.
WHO NEEDS AN OFFSHORE BANK?
- Expatriates
- World Travelers
- Businessmen with world-wide interests
- Selected businesses that incorporate offshore
- Individuals who desire banking privacy and flexibility
The Definition of Offshore Banking
Stated simply, it is simply the establishment of a bank account located outside the boundaries of the depositor’s home country.
OffShore Banking Statistics
Current estimates place half of the world’s capital in offshore banks. Statistically speaking tax havens control approximately 27% of the world’s capital, with Swiss banks holding (approximately) 35% of private and institutional funds. Based on reports by Merrill Lynch and Gemini Consulting (based on 2000 data), one third of the liquid assets of the world’s elite are held offshore. This translates to approximately $6 trillion dollars.
TAX HAVENS DEFINED: A tax haven is simply a geographical location that levies taxes at an attractive or nonexistent rate. The most ideal tax havens have privacy policies in places, the legalities of due process and a stable government.
Benefits of an Offshore Account
Attractive tax rates, distribution of wealth, exemption from taxes on gains, plus the fact multi-national corporations can meet their payroll with local currency is both smart and efficient. An offshore bank is a useful tool for the wealthy (and certain corporations) to protect (a portion) of their assets and enjoy the benefit of lower taxes, confidentiality and the opportunity to invest globally.
While certain privacy laws have been amended in recent years, the tradition of secrecy in Switzerland dates to the Middle Ages, made law in 1934, it is controlled by the Swiss Financial Market Supervisory Authority (FINMA). This law is strictly enforced and can be amended only by subpoena by a Swiss Judge.
FACT: Paypal (an eBay company) holds the records of one hundred million accounts spread throughout the world. In effect, every time you make a transaction with eBay or Paypal, you are delving (or at least exploring) the world of offshore banking.
FACT: The IRS estimates there are multiple millions of Americans using offshore bank accounts via a debit card, i.e. American Express, Master Card, or Visa.
Creating an Offshore Account
Today’s offshore banks are friendly, courteous and pleased to do business with you. It’s likely to be no different than opening a savings account locally. The services offered aren’t strange and mysterious; they simply make deposits, offer credit, wire money, etc. And unless you’re planning an unlawful activity, you are completely within your rights morally and legally to benefit from using an offshore bank.
What Can You Do With an Offshore Account?
- Diversify your investments
- Protect your assets
- Strengthen your financial positions
- Bank with privacy and flexibility
- Compound your earning tax-free
- Diversify which currency you use
- Easy access to funds
- Reduction of estate taxes
Whether you choose to use offshore banking is of course your decision, but it may offer peace-of-mind along with diversification.