International Offshore Banking
The HSBC Expat Explorer report last week revealed some interesting data regarding expat wealth throughout the world. In addition to this, the report also disclosed that many expatriates were failing to make the most of the financial advantages that living overseas offers them through the use of international offshore banking: “The use of offshore centres for saving and investing appears to be under-utilised, with the most popular investment vehicles for expats being managed funds (16%) and foreign exchange (12%)” (Expat Explorer Survey 2010, p. 10).
In this special report we take a look at the offshore advantages that are available to expats and reveal methods by which expats can effectively manage their wealth.
What is International Offshore Banking?
The term Offshore banking originates from the fact that the banks that historically offered tax advantages were located offshore from the mainland, e.g. in the UK, many people took advantage of small offshore islands like Jersey, Guernsey and the Isle of Man as tax havens.
Today, international offshore banking involves depositing money in a bank that is in a different location from that in which you live. An offshore bank is usually located in a low tax justification and therefore offers investors a tax advantage that they can’t achieve in their base location. While offshore banks are regularly associated with illegal activities such as tax evasion, money laundering and terrorism, they do offer an advantage to honest investors and expats who are looking for effective methods of managing their income streams.
Should Expats Engage in International Offshore Banking?
“Get your money out of country, before your country gets the money out of you!” (WG Hill, The Perpetual Tourist).
If you are living and working abroad there are four main reasons why you may wish to consider engaging in international offshore banking.
The biggest advantage of offshore bank accounts is that they are global in nature. They offer true international banking, cash management systems and multi-currency accounts that you can access from anywhere in the world at any time. This will mean that you will have better access to your investments and funds, regardless of which currency they are in and where you are currently based. If you live in Singapore and have a bill to pay in the United Kingdom- no problem! In addition to this, the better offshore accounts offer support services 24 hours a day, something that is incredibly handy if you often cross timelines.
2) Tax benefits
Probably the biggest reason why many expats opt for offshore banking is to take advantage of their tax benefits. Depending upon where you live and where you’re tax resident, you can often find that offshore companies can offer you tax-exempt investment and saving mechanisms.
A further advantage of offshore banking is that it is strictly private. Offshore banking is protected from creditors and tax authorities by legislation. However, they do not offer everyone exemption from declaration of assets. The EU Savings Tax Directive of 2005 stipulates that residents of the member countries–
Andorra, Anguilla, Aruba, Austria, Belgium, British Virgin Islands, Cayman Islands, Channel Islands, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Isle of Man, Italy, Latvia, Lichtenstein, Lithuania, Luxembourg, Malta, Monaco, Montserrat, Netherlands, Netherlands Antilles, Poland, Portugal, San Marino, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turks & Caicos and UK.
are automatically obliged to exchange information about customers who earn savings income in one EU State but who reside in another EU State.
However, there are means of legally avoiding the reporting requirements and a good financial advisor will be able to assist you with this.
Many people open offshore bank accounts because they are seeking full protection for their assets. Offshore banking centers are highly reputable and have a long history of secure operation. This offers the investor protection against hostile litigation and asset seizure.
4) Access to a wider range of banking products
Many expats are based in developing countries, where the financial markets are not yet fully developed. This offers them very limited investment opportunities and they therefore seek better options with offshore banks where they can access a better range of banking products.
Would You Benefit From International Offshore Banking?
If you answer, “yes” to many of the following points then you would probably benefit from opening an offshore bank account.
1) You often need to move money between different bank accounts
2) You bank or earn money on different currencies and countries.
3) You need 24 hour access to banking support services
4) You’re seeking anonymity in your banking operations
5) You wish to invest in products that are not available in your home or host country.
6) You wish to pay lower tax on your savings and investments
7) You wish to gain maximum protection for your assets
Choosing an Offshore Bank
There are literally thousands of offshore banking options available and selecting one that is right for your needs can be a little overwhelming. The best approach to take is to start by choosing a jurisdiction that can meet your needs; not all jurisdictions are equal. Fully research the rules and regulations governing that jurisdiction and ensure that it gives you what you are looking for. It will then be easier for you to select a bank within that location. A comprehensive list of offshore banks can be found here.
Things to look out for:
1) Consider the geographical area in which the bank operates and check if there are any information sharing treaties or tax-collecting agreements in existence between that country and the one in which you reside.
2) Who is the money and security behind the bank, look out for a name you know and trust.
3) What history does the bank have? Is it stable? This is very important if you are considering a smaller bank.
4) What services and support can the bank offer you? Will these services meet your needs?
Opening an Offshore Bank Account
Generally speaking anyone is free to open an offshore bank account.
The account opening procedure for offshore bank accounts will vary from bank to bank but, in general, you will usually need the following information and documents:
1) A completed application form
2) A signature sample. This many need to be certified by a Public Notary (which you’ll usually find in large legal firms). This process involves having a Notary witness your signature and adding his Notary seal and signature to prove that he did so.
3) A copy of your passport. Again, this may need to be certified by a public notary.
4) Proof of address
5) A bank reference from your existing bank
6) A satisfactory credit score or rating
The majorities of international offshore banks require a minimum balance and will usually charge a monthly fee for their services, especially if you have an account manager.
A Word of Caution
When it comes to money and investments everyone is different and has different needs and requirements. This article is intended as an information source only and should not be used to influence your financial decisions. When considering engaging in international offshore banking make sure that you consult a registered financial advisor; they are much better placed to provide advice on your financial decisions.
If you’re looking for further information about international relocation or expat banking then see our expat relocation guides. They contain everything you need to know about banking in major cities throughout the world.