There are many myths about international banking, and a stigma attached to the phrase ‘offshore banking’. Both can conjure stories of illicit financial activities on small islands and neutral, private banking institutions with renegade accounting tactics not condoned by reputable jurisdictions. These misconceptions sometimes arise out of context from extreme legal cases.
Definition: A tax haven is basically a low tax, or no tax, jurisdiction. Traditionally, tax havens have offered confidentiality to account holders and provide little or no information to foreign tax regulators.
Offshore banking is not unlawful. In fact, banking overseas is one of the most commonly used financial services by individual, entrepreneurs, large businesses, and investors. Below are some common myths that abound.
- Offshore banking is legal because it’s not tax-free. Many traditional banking jurisdictions do not charge account holders tax on their deposits, but some countries do charge withholding taxes on the income earned from accounts held by foreign individuals and companies. It is also crucial to remember that some countries, such as the US, tax worldwide income. Different jurisdictions will have different requirements in terms of required due diligence but an experienced corporate service provider can guide you through this process. Provided you follow the correct procedures of the jurisdiction in which you are setting up a bank account and meet the legal obligations of your residential jurisdiction, offshore banking can be used for legal tax planning and protection of financial assets.
- Offshore banking is most common in Western economies. The legitimate purpose of offshore banking is not to evade tax. Offshore accounts can enjoy all the benefits of a local bank account such as debit cards, online banking, ease of multi-currency transfers and more. While small jurisdictions can offer attractive rates for foreign investors, some of the most technologically advanced jurisdictions in the world are just as competitive, such as Singapore, Hong Kong, even the U.K. In fact, the US is discussed by some as being amongst the largest tax haven economies in the world, by technical definition.
- You do not need to live in a foreign country or travel abroad to open a foreign bank account. It is not always necessary to travel to the jurisdiction to open an offshore account. This does depend on the offshore banking jurisdiction but working with an experienced corporate service provider can aid in completing the bank account opening process with minimal inconvenience.
- You don’t need millions of dollars to open an international bank account. The multi-currency accounts give flexibility for doing business. They are for corporate purposes, but use is not restricted to mega corporations only. Your account can be opened with just a few thousand dollars. When you decide to start your offshore bank account, you will need to provide due diligence. These requirements can vary according to the jurisdiction but, in general can include company incorporation documents, copy of passport, bank reference letter and address details.
Remember, not all myths are true. Entrepreneurs looking to expand their business to international markets can enjoy a number of benefits by setting up a foreign bank account. The benefits of international banking are usually focused on taxation strategies, but offshore bank accounts, or an offshore company, can also provide operational efficiencies, increased asset protection, and access to international business opportunities. Globalisation and competitiveness between jurisdictions to attract foreign investment means there are fewer barriers to investing in other countries. The end result is often more incentives for savvy business people to take advantage of and successfully expand their business operations and personal wealth.
Healy Consultants is a leading corporate services firm that assists entrepreneurs and investors with the processes required to complete offshore company formation, along with a range of other corporate services, such as corporate bank accounts. More information on company incorporation can be found by visiting www.healyconsultants.com.