In financial services the term ‘offshore’ comes originally from the Channel Islands, which are off shore from mainland Britain. These Crown Dependencies have always maintained certain fiscal and taxation autonomy to the United Kingdom, and were among the first jurisdictions to be referred to as offshore financial centres.
Today there are about 70 offshore financial centres in the world, as defined by the likes of the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD). However, if you choose to bank in any jurisdiction other than the one in which you’re living, yours could be considered an offshore bank account.
Banking offshore has many potential benefits; particularly for certain demographic groups such as expatriates for example. Others who may benefit include those seeking flexible company bank accounts, those seeking privacy of their assets and transactions, and anyone who requires an international account.
Offshore Financial Centres
As stated, according to lists compiled by the IMF, OECD and the Financial Secrecy Index/Tax Justice Network, there are around 70 offshore financial centres operating in the world today. However, if you scan your eyes over such a list you will see real diversity in terms of the perceived legitimacy of the different nations.
You have well-respected countries such as Austria, Belgium, Cyprus, Gibraltar, Ireland, Jersey and Guernsey on the one hand – and perhaps less economically strong or stable countries and states such as Costa Rica, Dominica, Guatemala, the Philippines, Uruguay and even the Vatican City on the other!
Therefore when it comes to choosing an offshore bank account, one of the most important considerations is the jurisdiction in which the bank is based.
Regulation and Consumer Protection
Some of the criteria you can apply to your country search include how financial services institutions in the jurisdiction in question are regulated, and what investor or consumer protection schemes are in place for anyone who holds an offshore bank account therein.
In the recent past the world has learned of the importance of these investor protection schemes when certain banks have failed as a result of the global financial crisis.
For example, the Isle of Man, which was considered a reputable offshore haven in the past, has so far failed many who were affected by the collapse of Kaupthing, Singer & Friedlander.
Their depositor protection scheme only covered the first £50,000 of saved wealth, meaning anyone who lost over this sum was not covered for the full extent of their loss. Their fight to recoup all of their money goes on.
As an individual considering opening an offshore bank account you must ensure you choose a reputable offshore financial centre, and one where your privacy as well as your assets will be well protected.
Who Banks Offshore?
In terms of those who legitimately utilise the benefits of an offshore bank account they can include the following groups of people: -
- Expatriates - anyone who moves abroad can benefit from the flexibility that many offshore bank accounts offer. Some expats have to bank and transact in multiple currencies, others have to handle financial affairs in more than one nation – offshore bank accounts from many of the leading providers are ideally designed to be of maximum benefit in such situations.
- Frequent Travellers - whether you travel extensively for work or leisure, an offshore bank account can be a valuable asset. It can allow you to more cost effectively access your money no matter where you are in the world, and it can allow you access to more suitable account management services, which are not restricted by time zone for example.
- Foreign Property Owners - if you reside in one nation but have additional real estate assets in another or other countries, an offshore account can make the management of your cross border financial affairs simpler.
- Business Owners - if yours is a business with international clients, an online, global facing business or a company which buys or sells between different nations and currencies, having one centralised and flexible offshore company bank account can bring plenty of benefits.
Which Banks are Offshore?
Any bank you have ever heard of probably has an offshore arm. In part this is because it’s a way for the bank in question to manage their own global tax affairs more efficiently and cost effectively, and in part it’s because international or offshore banking is very big business.
All the high street names in the UK have an offshore presence for example, and many expats choose to stay with a name and brand they know when they go offshore. Other banks are specifically housed in a single offshore jurisdiction. Such banks are often only open to private banking customers – i.e., high net worth, personally introduced clients.
The choice you have is broad therefore, and you should be guided by the security of the jurisdiction, their local compensation scheme, and the legitimacy of the banking institution in question.
If in doubt about any bank, research its parentage and its pedigree to ensure it is fiscally sound.
Should You Open an Offshore Bank Account?
As an expat, if you have reason not to keep all your earned and saved wealth in the nation in which you’re currently residing, because perhaps the local economy is not secure, the local banking system is weak or because you have no obligation to remit your entire wealth to your current country, an offshore bank account could serve your needs well.
Alternatively, if you need international access to funds, you need to earn in one currency and transact in another and you have a requirement to service debts in more than one nation, the flexibility of an offshore bank account could suit you.
If you’re seeking greater account privacy and security, having your account offshore may add another layer of complexity to your financial affairs and potentially deflect unfair and speculative litigious behaviour for example – although there are no guarantees.
And finally, if you want to benefit from the centralisation of all your banking activity, an offshore bank account may suit you.