This site is an accounting website, and one part of accounting is dealing with banks. Readers especially seem intrigued by what is known as an offshore account. This article is intended to be a starter’s guide on the subject and will hopefully dispel some of the mysterious nature that has been promoted by movies.
First of all, let’s talk about what an offshore bank account is. It is simply an account that is held in a different country than where the person going to the bank lives. So if you live in the U.S. then having an account in England or Mexico or Switzerland would be considered an offshore account.
Why Have an Offshore Banking Account?
Probably the number one reason people set up these accounts is for tax purposes. Note: before you try doing this to save yourself some money, I recommend talking with your certified tax accountant. If you don’t have enough money to have your own tax accountant, then you probably don’t need to worry about offshore banking in the first place.
Back to the tax savings. The idea is that you place your money in a bank account in a different country that will charge little or no taxes. This way as your money grows, it will grow tax free. However, don’t think that your national government will not consider this a taxable gain because in some countries it is considered as such. In the United States, it is likely that your odds of being audited by the IRS go up if you have an offshore account.
One other popular reason for having an account overseas is for the security. Because these overseas banks serve in a different jurisdiction, if you were to be sued or litigated against in some way, the litigators may not be able to get access to these funds. This is not to say that your local government would not be able to punish you in different ways, but they may not be able to get a hand on the money if it is in one of the offshore banking accounts. I personally don’t think money is valuable enough to use it for this reason, but to each his own.
Many companies operate in multiple countries. So for this type of company it makes perfect sense to have a bank account in a different country.
Other Tidbits about an Offshore Account
Minimum deposits in these types of accounts are usually around $10,000. So you don’t have to be Bill Gates, but you have to have saved up a little money.
You don’t actually have to fly to Switzerland to have an account there. Thank goodness Al Gore invented the Internet.
Switzerland is known for its bank accounts and its secrecy. However other emerging overseas accounts include Singapore and Luxembourg.
Remember when considering an offshore account that you are still subject to the laws in your country. One of the main differences is that most overseas accounts will leave it up to you to report any gains whereas banks in your own country will likely report your income to your local government.
