What Is Offshore Banking? Its Advantages And Disadvantages
Offshore banking is keeping money in a bank account in a country other than the account holder’s country. People practice offshore banking for asset protection, higher interest rates, security, tax benefits, and whatnot.
This does not rule out the fact that there are some risks associated with this type of banking. These are increased regulatory scrutiny, the possibility of the offshore bank failing, or the high fees of opening and maintaining offshore bank accounts.
Be aware that creating an offshore bank account has costs. They are frequently far more expensive than what you would pay to open an account with a neighborhood bank, particularly if you require legal aid to open an account. The bank can also have a high minimum deposit requirement.
| S/N | OFFSHORE BANKING |
| 1 | Foreign Bank Account (FBO) |
| 2 | Non-resident Bank Account (NRA) |
| 3 | International Bank Account (IBA) |
| 4 | Resident Foreign Currency Account (RFC) |
| 5 | Non-Resident Foreign Currency Accounts (NRE/FCNR) |
How to Open an Offshore Bank Account
Offshore banking is all about having a bank account in another country that is not yours. For instance, you, as a Nigerian, can have an offshore bank account in the United States while you reside in Nigeria. As an offshore account holder, you can use the account to open savings and investment accounts in different currencies, make savings, and make payments.
Moreover, offshore banking does provide some tax benefits; however, hiding money from tax authorities is not a legal use of these accounts. You will still be required to declare any interest that you earn on the account and to report your income to the appropriate taxing authorities.
Your identity must be verified as a prerequisite to opening an offshore account. This is about providing proof of identification to enable the successful creation of your account. You’ll need to present identification verification to open an offshore account.
Another feature of offshoring banking is that the bank you use for this practice may request to know the source of the money you use as a deposit. This prevents fraudulent activities like money laundering or scams with the account. In the meantime, you can get access to your offshore account by wire transfers, and you can at the same time use debit cards at ATMs for cash withdrawals.
Why Should I Use Offshore Banking for my Transactions?
Offshore banking can provide you as an individual with flexibility and security. With the proper offshore account, you can readily do business in another currency and have money domiciled in a foreign location outside your country of residence.
There is every likelihood of paying less or no income tax in some countries as they tend to leverage these tax benefits and diversify your investment in the land of your offshore banking.
Where Are the Top Offshore Banking Locations?
Many factors chiefly determine the location of offshore banking across the world, but one crucial factor is the tax haven. A tax haven is any foreign location or individual at which you can keep money while you pay little or no tax for the savings.
Over the years, some popular tax havens worldwide are the Bahamas, Bermuda, and the Cayman Islands. These Caribbean countries have been offshore banking destinations for individuals and businesses.
However, the prevalence of financial misappropriation through money laundering made law enforcement agencies more proactive than reactive to ensure that the relevant information of every offshore account holder is accessible to the authority for a thorough assessment. These countries used to be reputed to keep secrets and maintain adequate security. This is not the case again.
Today, you can have an offshore bank account outside the Caribbean in countries like Switzerland and Hong Kong which are widely known as the financial destination of the world. These two countries have good financial security and tax benefits for foreign bankers.
Advantages Of Offshore Banking
1. Easy Access To Funds
You can have easy access to your money anytime you want when you have an offshore bank account that has a highly customised service. Some of its benefits include internet transfers, telephone banking and ATMs. You will also have a direct point of contact in addition to the relationship manager, who will take care of your needs.
2. Foreign Investment Opportunities
A reputable offshore bank will offer an extensive selection of investment choices that are typically unavailable in the home nation. One of the simple and profitable solutions is to move forward with the offshore bank because it will give you many opportunities to expand your investment portfolio.
3. Topmost Privacy
To retain tight confidentiality and anonymity regarding their funds and investments, business investors prefer to use offshore banking. The investors are not opening their bank accounts in private, despite what privacy means. The offshore bank will be in charge of verifying your identity and place of residence and will be able to offer official documentation where necessary.
4. Capital Security
Some businesses or investments require travelling to different countries to initiate transactions. But offshore banking has allowed you to keep the bank account in one location. Regardless of your presence or absence in the country, your capital security is assured.
5. Save Tax On Deposits
One attractive feature of offshore banking is its little or no tax; as such, business owners and investors use offshore banking for tax exemption.
Disadvantages Of Offshore Banking
1. Different Processes
There are different processes of opening an offshore bank account from any location in the world is relative as it varies. For instance, creating an offshore account will require a different KYC procedure than opening the same account in the United States. Also, you may have to do some reconnaissance to know the best offshore bank account that meets your needs.
2. Expensive Than Local Bank Accounts
The cost of opening and maintaining an offshore bank account is higher than local bank accounts. This is because offshore banks that wealthy people mostly use offshore banking services to access foreign accounts, so they tend to place a high fee on their statements.
In some instances, you could have to pay expensive legal costs in the country if you want to set up an offshore company, and you might even have to buy some fixed assets like land there before you can legally do business there.
Conclusion
Offshore banking has a lot of benefits and drawbacks. Depending on your needs, you should decide whether or not to open an offshore account. To avoid issues, anyone wishing to open an offshore bank account should do due diligence on the bank’s alternatives, terms, and conditions before opening an offshore bank account.
