Tamarindo Banking

What is an Offshore Bank Account?

An offshore bank account refers to the use of banking services in a foreign jurisdiction; where the individual resides outside the jurisdiction where the bank is located. If you are a UK person with a bank in the U.S. for example, you are using offshore banking. The term offshore is really just used to separate domestic and foreign banks.

Many banking and financial services performed by institutions located in offshore environments differ from local domestic services primarily because of the jurisdictions' banking laws which allow for broader use of services with fewer regulations.

Offshore banks are regulated by laws defined specifically within each jurisdiction and exist as per their regulations. Each banking entity operates under a Banking License governed by that specific state or governmental authority. To exist as a banking institution it must also comply with international banking standards and regulations that must be meet regularly to continue dealing with correspondent banks.

An offshore bank operates in many ways like a traditional bank. An individual or corporate body can open an offshore account with a foreign bank outside of the country of their residence and have access to the same services such as deposits, payments, withdrawals, and online transactions. The differences, however, are that offshore accounts benefit from a number of advantages that come from being located in international offshore jurisdictions. 

Why Open an Offshore Account?

Offshore banking in a foreign jurisdiction isn’t as distant and exotic-sounding as the name sounds. By some estimates, there are nearly 3 million people in the United States who have foreign offshore bank accounts. So it's definitely catching on, but that's only 1% of the population, so it still hasn’t caught fire.

Many see the value in having a back-up-plan, a Plan B in case something goes wrong, but somehow using an alternative banking apparatus is still not seen as a solution for tomorrow's what if’s. Global offshore banking gives the ability to ensure your future. You become more autonomous in your ability to exist outside the confines of any one system; and

  • should that economic system collapse (Venezuela)
  • if your domestic assets get frozen (Cyprus)
  • or if you get slapped with a lawsuit (1 in every 2 Americans)

you will have your offshore back-up-plan already in place.

Having an offshore bank account isn’t what the headline say it is. Its not about tax evasion, secret stashes of cash, or shady dealings, its about ‘going where you the customer is treated bestt’. Going to a country that is economically sound, politically stable, with a banking environment that is fully functional, where you are able to reap the benefits of establishing multiple financially secure asset structures.

Offshore banking doesn’t necessarily mean going to a traditional tax-havens such Bahamas, the Cayman Islands or Vanuatu, though there are still opportunities to be had there, it also extends to financial centers in modern ‘onshore’ environments such as Hong Kong, UAE, Liechtenstein, Singapore, and Georgia.

The simple fact is, there are many foreign jurisdictions that have banks that are safer, more fiscally sound and exist in a country that has a more durable economic outlook. Banking systems in the West are abysmal for a number of reasons. If we take the US for example, it suffers from a profoundly sick system controlled by the federal government which has the highest debt in history, currently at roughly 20 trillion dollars.

The Federal Reserve is insolvent and it supports a system that allows local banks to engage in dangerous banking practices leaving them like 2008’s financial crises, overexposed with much greater liabilities than is safe and little capital reserves to meet deposits.

Should the economy turn and people start to withdraw their money, all it takes is a fraction of depositors, something like 3-5%, and many banks will not have enough capital should their investments fail to cover the demand for customers’ withdrawals- creating a perfect storm (think 2008 crises). After such a shock it might be a signal to start looking for a more solvent banking alternative.

Global Banking Regulations: Some Considerations

Consideration should be placed on how important banking secrecy is above other factors for your type of business. This may depend on your country of residence and what information-sharing agreements it may have.

As of 2014, the United States' Foreign Account Tax Compliance Act (FATCA) makes it very difficult for any U.S. citizens or residents to obtain any type of banking secrecy. This is due to the United States' reporting obligations forcing foreign banks to send tax information regarding any assets held by a US citizen. If they refuse they risk losing their banking ties with American correspondent banks, being blacklisted and essentially cut-off from all American capital.

U.S. citizens have for several years now been required to report their ownership of any foreign held account with deposits of more than US$10,000 through FBAR. The only thing that has changed is that now the United States government has made it much more difficult for individuals and their corresponding banks to get away with not reporting their foreign accounts.

For many other countries, (106 as of 2019) there are other pieces of legislation drafted by the OECD known as the Common Reporting Standard (CRS) that have been widely enacted in an attempt to encourage the Automatic Exchange of Tax Information. These new pieces of legislation have changed the privacy of global banking, as a result, we can not recommend to anyone who now tries to hide money away from the government.

Banking offshore is not about hiding, but global tax restructuring. This legislation along with the threat of being excommunicated from the global banking system has, as a result, made the global banking system much more transparent. That is not to say that there is no such thing as privacy. There definitely is. It will just not be available to everyone, and must be carefully structured, as it will depend upon the individuals':

  • Citizenship
  • Tax residence 
  • Nature of their business; and
  • The offshore jurisdiction