Offshore Banking: Benefits & What to be aware of

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What do you think of when you hear the term ‘Offshore Banking’? Most people often associate offshore banking with illegal activities, a way to avoid paying tax or banking exclusively for the ultra-rich. However, as a matter of fact, offshore banking can be a legal, cost effective and efficient way for businesses to manage financial transactions and business operations abroad. Having an offshore bank account is extremely useful for global companies who conduct business in several countries and make transfers in multiple currencies.

What is an offshore bank account?

An offshore bank account is an overseas bank account that is located in another country where you don’t currently live. Despite its negative light, offshore banking is very common and is not illegal. However, it is illegal to hide assets in these accounts in order to avoid tax obligations.

Reasons people open offshore bank accounts

There are many reasons why people may use an offshore bank account.

For example:

  • You live or work abroad.
  • You own assets in other countries. A lot of offshore banking customers use their accounts to manage their overseas businesses, investments and property.
  • You conduct business operations abroad.
  • You get paid in a foreign currency. Offshore accounts can allow you to save, hold and invest money in multiple currencies.
  • You wish to hold funds in another country with a more desirable tax rate. However, it is important to note that failing to disclose accounts can be illegal in many cases.

What are the benefits of offshore banking?

Different banks will offer different offshore bank accounts, which means it will come with different benefits.

  • Currency Diversification: Putting money into offshore accounts in various countries is an excellent way to diversify your portfolio. You can also manage foreign exchange risk and fluctuations by holding multiple currencies.
  • Tax Benefits: It is no secret that companies and individuals open offshore bank accounts in tax havens to enjoy more favourable tax benefits. A lower tax rate or even a zero-tax rate can massively impact profit margins. You can use offshore bank accounts to plan your tax strategy; however, you should not cross the line to tax evasion.
  • Convenience: If you conduct business in multiple places then having an offshore bank account can allow you to easily access your funds and make transactions around the clock. You can also hold, make and receive payments in multiple currencies.
  • Access international expertise and investment advice: By having an offshore bank account, you can access international expertise and investment advice. You are no longer limited to just your home country.
  • Higher interest rates: Many offshore banks can offer desirable interest rates on savings, which is a very attractive feature for businesses and individuals.
  • Bank with confidence: Countries with uncertain and unfavourable economic environments, as well as frequent risks such as high inflation, recession or bankruptcy, can lead to insecurity for your bank account. An offshore bank account, especially in a reputable and efficiently operated jurisdiction, will offer a high level of safety where your money can be well-protected against such cases. For example, Singapore is a popular location for offshore banking because the economy and political environment is stable. The banks are also well connected to major financial hubs around the world (, 2020).

What should business owners and individuals be aware of?

Before opening an offshore bank account, you must do thorough research and understand the different requirements. Here are a few things to be aware of:

  • Country of choice: A large number of countries offer offshore banking. Some countries have become well-known areas of offshore banking such as Switzerland, Singapore, Hong Kong, Bermuda and Panama. Different countries and their banks will have different requirements, features and benefits.
  • Policy and fee requirements: SMEs and startups should assess the fee requirements between the different banks as choosing the wrong plan could potentially become quite costly. When  opening an offshore bank account, you must be aware of the bank’s policy and fees, such as monthly maintenance fees, transfer fees, minimum balance requirements and minimum asset requirements.
  • Necessary documents: Opening an offshore bank account is similar to opening a bank account in your home country. Offshore banks will ask for your personal information and other identifying documents e.g. passport or driver’s license. Moveover, many offshore banks will ask for additional verification documents as a way to stop illegal activities from happening. If you are opening a corporate account, you may also be required to show a certificate of incorporation, business plan and share certificate.
  • Online vs In-Person: Some banks will allow you to open an account online, while others require that you show up in person. Some banks will require an appointment, while others won’t and you can simply walk into a branch and speak to a staff member.
  • Choosing a currency: Holding foreign currencies is a great way to diversify your portfolio risk and protect your purchasing power as a business. While this may be an attractive feature, it is important to understand the consequences of holding your account in different currencies. For example, it could become a big expense for businesses depending on the fee structure and exchange rates offered.
  • Bank charges: Sending a wire transfer is a simple operation, but almost all banks charge international wire transfer fees to send or receive funds. High international transaction fees can add up quickly, which can directly impact profit margins. Therefore, be sure to look out for deals as pricing for wire transfers varies between banks.

Having an offshore bank account is often necessary for businesses that sell products and services across international borders, work with foreign suppliers or hire employees from different countries. While it is relatively simple to open an offshore account, there are still many requirements, paperworks, fees and rules that can become a hassle for SMEs and startups. For smaller-sized companies that are just starting out, the cost and time of opening an offshore account may add up. Therefore, why not look for an alternative?

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