Offshore banking has always been an interesting and intriguing topic, with many people feeling they will make more money if they keep it offshore. Unfortunately nowadays in the media, offshore banking has got a bad reputation, with many people thinking it is slightly illegal or unsafe – a way of simply avoiding tax in your home country. We look at the pros and cons of off shore banking and see what it really is all about.
- Reduce the amount you pay in tax, legally
Countries with low or no tax create the perfect haven for those wanting to keep the money they work for. For many small countries such as the Cayman Islands, with small populations and little investment opportunity, having no tax is a great way of increasing the amount of money brought to the country and improving its economical situation. Putting your money into an offshore account is completely legal, but must be done correctly and must be declared in some countries such as the US where worldwide income is taxable.
Offshore accounts are completely confidential with strict laws in place to protect the owner of the account. This isn’t to protect anything illegal happening, as any suspicious activity can be reported to the authorities, but instead it is to protect those who want to make investments anonymously. For example, a high-profile investor, such as a political figure, may receive a better investment by being anonymous.
- Diverse opportunities
There is no limit of the range of investments to be had in offshore banking. A person can use his or her money to invest in any industry or place, which is sometimes blocked in other countries. There are also many opportunities in developing nations, such as China, where some industries are now becoming privatized.
- Accessibility restrictions
Access to your money is slightly restricted. You can access your money and extract it from the offshore account when you wish, however there may be rules or regulations to follow on the same. For example, some accounts must have a certain amount of money for a certain amount of time and many cannot be used to transfer money to your home bank account. This is fine for long term investors, but those who are looking to safely store a small amount of money for a couple of years may find better options.
- Tax Laws are becoming stricter
For citizens of the US, putting your money in offshore accounts is now not as attractive as it used to be as all income worldwide must be declared to the taxman. They are trying to stop money being invested outside of the US, as this reduces the amount of money they earn on taxes from their citizens. Many other countries may follow suit in the future, especially as the negative image of offshore banking in the media continues to grow.
- The cost implications
Offshore banking can be very costly, with many requiring legal fees and admin fees to set up. Many investments also only accept a minimum of $100,000 in the account, which is a huge investment to make. Although legitimate offshore accounts are safe, there are many illegal or ‘below the line’ systems out there, so investors should always make sure they are complying with both local and international tax laws.
Overall, there are many advantages and disadvantages of offshore banking, On the whole, offshore banking is limited to a few, with the costs being too high for the average investor. If offshore investments are in the pipeline for you, make sure you consult with a legitimate company beforehand and ensure your taxes are in line to protect yourself against any extra tax fees in your home country.