1 September 2020

Get Started with Offshore Banking

If you are new in the offshore world, you may not be aware of how important it is to have an offshore bank account. Many people associate offshore banking with tax reduction, but this is just a drop in the sea of opportunities and benefits. Before we move on with those, let’s first establish what offshore banking is all about.

What is offshore banking?

Offshore banking is nothing more than a bank located and operating outside of your country of citizenship. This type of bank can be connected with an offshore corporation located in the same or different jurisdiction.

How to choose an offshore bank?

Finding the right bank can be quite a challenge. There are many jurisdictions offering offshore bank accounts and they are pushing hard to attract customers.

Every year, Global Finance Magazine publishes a report on the best World Investment Banks, the best World Private Banks and also the safest ones. This may serve as a guide, but it won’t necessarily help to find the best bank for you.

So how can you do this? Firstly, you need to define your needs and goals – is the level of privacy important to you? Do you want to establish a personal or business bank account? How much of an initial deposit is appropriate? Does the tax rate matter to you?

Clearly defining your needs and expectations will certainly help you narrow down the offshore market.

Choosing the right offshore jurisdiction for your bank account will depend on your personal or business needs and expectations.

The next step should be to compare the essential aspects of the various jurisdictions. Surely, you must pay attention to:

  • Bank Location: It is very important to choose an economically and politically stable country to avoid currency manipulation and drastic changes in inflation and/or interest rates. Moreover, every jurisdiction has different privacy laws, tax rates and account restrictions. Also, you should take into consideration the language used in public institutions.
  • Customer Service:When your account is oceans away, you need to be able to trust and communicate with the staff. Confirm how you can contact them: website, application or phone? Do they offer 24-hour customer service? Take note of how quickly they respond to your initial questions or concerns.
  • Accessibility and ease of use in the digital age: You probably won’t be in the country where your bank is located very often (if ever), so find out beforehand how well the online system banking works. Certainly, you do not want to be in a situation where several phone calls are required to perform a basic transaction. The more valuable the online banking is, the easier it will be to access and manage your finances.
  • General costs: Outside of the initial deposit, you will surely meet other expenses. Find out what the fees are for maintaining the account, what the average cost of international transactions is and if you bear the charges for using an ATM overseas.

What are the benefits of offshore banking?

Now that you know what to pay attention to, let’s move on to why one should open an offshore bank account and what you can gain from it. One of the main reasons why people are opening bank accounts abroad is to protect their finances.

There are many cases of wealthy people who have gone bankrupt due to the economic crisis. Frequently, they tried to secure their assets by separating them among bonds, real estate and/or shares, but they did not think about geographical diversification.

The economic crisis of 2008 is an example – many people who invested their money in the United States markets lost almost everything.

Another example of why you should protect your assets was the situation in 2011, when the Hungarian government forced its citizens to give up their private pension plans and return to state pension plans (or lose the right to future state pension payments, despite continuing contributions).

The second reason to open an offshore bank account is to ensure privacy. Some offshore jurisdictions – Nevis, BVI, Belize, Switzerland, to name a few, have very strict privacy laws to protect the banking and personal data of account holders.

Many people decide to open an offshore bank account to reduce taxation. In some jurisdictions, earned interest on offshore accounts and investments is paid without the deduction of tax. There is also a possibility to reduce the tax liability in your home country by transferring savings and investments to an offshore bank account.

Offshore banks often provide much better interest rates than your local bank. For example, banks located in Germany offer zero interest rate, which can even reach negative levels (for new customers). So instead of losing money, open an account in a jurisdiction that will allow you to get up to a 5-fold interest rate.

One more advantage of offshore banking is the possession of multiple currencies, which can significantly reduce the costs of foreign transactions. Banks in financial centers like Hong Kong or Singapore support more than 10 currencies.

Is offshore banking legal?

There are several misconceptions that link offshore banking to criminal behaviour, money laundering and illegal tax evasion. This may have happened in the past; currently offshore banking is perfectly legal and represents a powerful tool for asset protection, real estate planning and business development.

If you would like professional advice on how to start with offshore banking, please contact our team.

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