The Lure of Offshore Bank Accounts
The growth and liquidity of the world's financial markets has resulted in the rapid expansion of offshore bank account venues over the last 4 decades. Offshore banks offer a full range of bank accounts and banking services such as deposit taking, money transfers, money exchange between currencies, credit cards, and investment management.
Fundamentally, the concept of offshore bank accounts originated to provide banking access in politically and economically stable offshore jurisdictions for the residents in areas wherein the banking institutions were unstable or corrupt, or the regions themselves were unstable politically. Offshore bank accounts offer services that may be unavailable in many countries. Most offshore bank accounts are covered by bank account deposit protection insurance; this is a feature that anyone interested in an offshore bank account should insist upon. Offshore banks must fulfil all capital adequacy requirements in accordance with international standards. They must submit quarterly financial reports to demonstrate their solvency.
Offshore bank accounts may pay a higher interest rate than is available in other locations and countries but these institutions cannot prevent assets from income tax scrutiny by governments. The personal income tax of most countries does not distinguish between interest earned in local banks and that earned abroad. United States residents must declare their offshore bank accounts and the interest earned from them on their personal or corporate US income tax returns. Offshore bank accounts are were not designed for individuals to hide their assets in order to minimize or avoid paying taxes on their earnings. Unreported offshore bank accounts are a prime reason for audits by the United States Internal Revenue Service.
Offshore bank accounts offer a definite service to residents of, or those doing business in, developing countries, but what is the appeal to those individuals who can access secure banking locally? Some offshore have lower operational costs and can offer higher interest rates. Offshore bank account interest is usually paid without tax deduction. This is advantageous to those who pay deferred taxes. Also, some offshore banks offer banking services that may not be available from domestic banks such as anonymous bank accounts, higher or lower rate loans based on risk and unique investment opportunities because offshore banking is often linked to offshore companies, trusts or foundations, which may have specific tax and asset protection advantages.
Statistically, the majority of individuals, not corporations, who have offshore bank accounts are from Europe, Australia and North America. They are predominately retirees and expatriates who need the convenience of accessing an offshore bank account, as opposed to one in their place of origin.
by Sally.Anderson 19 years ago