An offshore bank is a bank which is regulated under international banking license often called offshore license, which usually prohibits the bank from establishing any business activities in the jurisdiction of establishment. Due to less regulations and transparency, accounts with offshore banks are often used to hide undeclared income. Since the 1980s, jurisdictions that provide financial services to non-residents on a big scale can be referred to as offshore financial centres. Since OFCs (offshore financial centres) often also levy little or no tax for corporate and/or personal income and offer, they are often referred to as tax havens.
One big fact is that offshore banks are popular with money launderers especially for layering funds; layering conceals the source of the money through a series of transactions and book keeping trick. Offshore banking are famous with tax evaders and corrupt officials. Money launderers like to keep funds in offshore banks because their fixed term deposit accounts provide interest.
A tax haven is a country or place with very low “effective” rates of taxation for foreign investors. In addition the Tax Havens also offer financial secrecy. For example Caymans Islands is best known for its Tax Benefits. The Caymans have become a popular tax haven among the American elite and large multinational corporations because there is no corporate tax or income tax on money earned outside of its territory. Most of the top tax havens are island nations like the British Virgin Islands, Samoa, and Malta. In these countries offshore corporations pay an annual licensing fee directly to the government.
The world’s top tax haven, the British Virgin Islands, holds more than 5,000 times the value of what its economy should hold. The self-governing overseas territory of the United Kingdom is home to about 35,802 people, was one of 30 countries blacklisted as a tax haven by the EU in 2015.
With worldwide increasing measures for combatting the financing of terrorism (CFT) and anti-money laundering (AML) compliance, the offshore banking sector in most jurisdictions was subject to changing regulations. Since 2000 the Financial Action Task Force issues the so-called FATF blacklist of “Non-Cooperative Countries or Territories” (NCCTs), which it perceived to be non-cooperative in the global fight against money laundering and terrorist financing. An account held in a foreign offshore bank, is often described as an offshore account. Typically, an individual or company will maintain an offshore account for the financial and legal advantages it provides. I list here below some of the advantages offshore banking offer:
Greater privacy
Swiss banking secrecy was first codified with the Banking Act of 1934, thus making it a crime to disclose client information to third parties without a client’s consent. Almost all banking secrecy standards prohibit the disclosure of client information to third parties without consent or an accepted criminal complaint.
In many countries, bank deposits do not have the same protection as you may have been used to at home. By using an offshore bank, based in a highly regulated, transparent jurisdiction, such as the Isle of Man for example which is crown dependency, you can feel secure that your money is safe. The Crown Dependencies are not part of the UK but are self-governing dependencies of the Crown.
Security
Switzerland has been one of the largest offshore financial centres and tax havens in the world since the mid-20th century. Despite an international push to meaningfully roll back banking secrecy laws in the country, Swiss social and political forces have minimized and reverted much of proposed roll backs. The main benefits of Swiss bank accounts include the low levels of financial risk and high levels of privacy they offer. Furthermore, Swiss law requires that banks have high capital requirements and strong depositor protection, which practically ensures that any deposits will be safe from financial crisis and conflict. According to latest research Swiss Banks are one of the most liquid banks in the world. Famous for their secrecy laws bankers are legally barred from sharing any information about their clients. This goes as far as even confirming the existence of an account.
I want to cite another contradicting example here of Cyprus which became ambitious to be become one of the Tax Havens in world.
Remember what happened in Cyprus in 2013? Expats were suddenly blocked from taking any money out of their accounts and out of the country. Like many other small islands, Cyprus turned itself into a tax haven; it turned into a money-laundering centre. Lot of money poured in from Russians so, what did Cyprus banks do with all of this money? Well, they invested it where they thought they had a competitive advantage, in Greece. After all, southern Cyprus is ethnically Greek and the northern half is occupied by Turkey, and the Greek economy, which then was 12 times larger than the Cypriot one, looked like an ideal place to expand. But it so happened that Cypriot loans to the Greek government and businesses have opened black holes on bank balance sheets. In 2012 alone, two of the biggest Cypriot banks, Cyprus Popular and the Bank of Cyprus, lost a combined 3.5 billion Euro on Greek Bonds. That’s over 10 per cent of GDP in a €31.8 billion Cypriot economy. The Cypriot banking system got saved because of European Central Bank (ECB).
Personalized Service
Offshore bank accounts usually provide a highly personalised service, giving you round-the-clock access to your money through online and telephone banking, seven days a week, 365 days of the year. A relationship manager may also be assigned to your account, so you will always have a personal point of contact. The best banks offer the highest service levels, which can be appealing for expats who have international financial obligations and opportunities. An expatriate (often shortened to expat) is a person temporarily or permanently residing in a country other than that of the person’s upbringing. The word comes from the Latin terms ex (‘out of’) and patria (‘country, fatherland’)”.
Convenience
Since an expatriate, can keep his account in place, no matter how many times he moves countries, this becomes a major benefit. In fact, this reason alone is enough for many people to open an offshore bank account. The top 5 countries with the highest share of expats in total population are Qatar, UAE, Kuwait, Jordan and Singapore.
Tax advantage
Most offshore banks offer expat tax advantages, but sometimes it depends on which countries the expats reside in. Tax benefits can range from keeping your money outside of the tax jurisdiction of your home country, to protecting it from taxes in the country in which you are currently living. An offshore bank account can also be useful when it comes to estate planning in some cases.
Advantage in investments
A good offshore bank provides customers with a wide choice of funds and investments that are not usually available in their home country. Investing through an offshore bank is straightforward, to top it, investors get good advice from seasoned bankers appropriate to the investor’s risk profile. Lot of investors have achieved great outcomes.
Foreign Exchange Service
Because of multi-currency accounts usually coming as standard, transferring money between accounts becomes fast and free. Investors can easily transfer money between currencies. Some offshore banks provide a competitive foreign exchange rate, compared to a regular banking service. This is one of the biggest advantages of offshore banking facilities for expats with international financial obligations.
Lending credit
It’s been observed that some offshore banks offer much more flexible lending and credit facilities tailored to their customer’s needs. For example, very competitive mortgage rates are available for property, particularly if the property is in a mainstream market like the UK.