Last Updated on May 25, 2022 by Steven
How to open an Offshore Bank Account
Whenever how to open an offshore bank account is mentioned, most people think about illegal business deals or tax evasion. Others believe that offshore accounts are only a thing for high-end investors or rich people only. Well, the truth is very far from these two assumptions. In fact, opening an offshore bank account is the same as having an account in a local bank — except for the difference in the location. Some of the services you get might be slightly different, but a lot will be all the same.
If you are planning to hide your cash in an offshore bank account to evade taxes, sorry, but this is not possible.
Every country is stringent when it comes to tax laws, and avoiding this civil obligation is an illegal activity, which means you will not succeed.
If you get caught trying these illegalities, which include money laundering, you will face hefty fines or a jail term.
However, opening offshore accounts is legal as long as you are doing it for the right reasons, and you have fulfilled all the requirements for opening this account.
What Is Offshore Banking?
Offshore banking is a term used to define activities that you carry out with a bank account that you opened outside your home country. Such activities include banking services such as deposits and withdrawals, company operations, and investments. Some countries are more popular when it comes to offshore banking, and this is something we will tackle in detail later on — various countries come with different benefits.
For those who believe that offshore banking is only for wealthy people, this is just but a mere assumption. The only truth in it is that most wealthy people tend to open a new bank account in a different country, maybe to protect wealth or diversify their investments, among other reasons. However, this does not mean that you can’t own an account offshore — it is open for everyone.
You only need to go for a banking institution that suits your needs and financial capabilities or wealth. Ensure that you have done some research before starting your application process.
What Is an Offshore Bank Account?
An offshore bank account is a financial account that you maintain with a bank that is located in a different country than where you reside. As a depositor, you open this account in a different country to take advantage of legal jurisdictions, tax benefits, financial, economic, and political differences.
Before you consider offshore banking, make sure you understand how they work, why you need it, and the process involved, among other relevant details. They say that information is power, and you will get to gain this power through this post.
4 Things You Need to Know About Offshore Banking
Opening an Offshore Account Is Easy, Fast, and Affordable
Some people think that opening an offshore account is very difficult and expensive — this is not true. As long as you understand why you need the account, you will know where to start.
The good news is that you can also rely on an agent to help you open the account, making everything much more manageable. Remember that you do not need to visit the bank in person, which is the only thing that might make the entire process too expensive.
Therefore, understand the requirements of the bank you have chosen and start processing the documents while preparing the minimum opening deposit. Minimum balances depend on the bank you have opted for.
Finally, all the forms get submitted through an email or the bank’s website, and documents are delivered via courier services.
Most Transactions With an Offshore Bank Account Can Be Expensive
While opening an offshore bank account is not expensive, do not ignore other costs involved, especially after opening the account. Most banks offering offshore banking services are solvent, which means that they are full-reserve banks.
They will keep your full amount without lending it to borrowers — it is one of the main reasons why people go offshore bank accounts. However, they will also charge you maintenance and transaction fees for every service rendered.
Some of the services you can get include online trading, precious metal investing, or managed services, among other banking-related services. Most of these come with operational profits, which might make sense if they are charging you any fee. All you need to do as a depositor to the offshore bank is to understand all the costs and investments carried out on your behalf. You will know whether it is worth it or no.
It is your duty to inform the tax authorities about this account
There is no excuse for this! Remember that it is necessary to inform the local authorities about your offshore bank account – otherwise, you may be treated like a criminal trying to evade taxes. They face hefty tax penalties of up to $500,000 or a maximum prison sentence of ten years – in the U.S.
Why would you risk such consequences?
If you are not sure how to manage your assets or remit taxes as expected, look for a reliable CPA who understands offshore banking operations.
You Are Responsible for Identifying Offshore Structures That Will Protect Your Wealth Better
It means that you cannot just open an account and sit there, hoping for services that you never thought of. For instance, if you are planning to relocate to the country, you opened a bank account, or you just want to visit the country, then set up the account is just enough.
However, if you want to protect your wealth in that country, multiply it, or take advantage of tax benefits, then you have a lot more to do. You need to strategize on offshore asset protection through the banks and companies located in that country. Consider the jurisdictions of these organizations to ensure maximum services while minimizing risks.
It may be necessary for you to consult a qualified attorney or financial professional to ensure that you are moving in the right direction with your assets and investments.
Comparison of the Top 5 Offshore jurisdictions
Benefits of Offshore Banking
You Enjoy Political Risk Diversification
Diversifying investment options has always been a smart move for most business owners. Maybe you have invested in real estate, the stock market, precious metals, cryptocurrencies such as bitcoins, and government bonds, among other investments. This is good because you are reducing the risk of losing everything in case one of the investments falls.
However, what if an external force causes a downfall to all the investments in your country?
If you remember the economic recession in the year 2007-2008, most people in the United States lost almost everything. When you hold some of your assets under offshore banking, then you are reducing the risk of losing everything when a crisis hits your country.
Protect Your Wealth
While it doesn’t happen regularly, the government may face a financial crisis, and they may end up targeting your personal assets. The question is, how easy are your assets reachable?
Banking at home exposes your wealth to inconsiderate bureaucrats who can decide to freeze your finances even if they do not have proof for criminal charges yet. This is why you need offshore banking. It will protect all your assets from the access of all these officials.
Creditors, aggressive lawyers, ex-business partners, or ex-spouses are also easily denied access to the money you have.
Keep your wealth out of reach through offshore banking.
Possibility of Higher Interest Rates
Different banks come with various policies, which means you can get better services, including interest rates for deposits. And while most banks and financial institutions in the United States offer nearly the same rate, look for better rates outside the country.
You might find a double or triple rate out there, and all you need to enjoy it is to open a savings account with an offshore bank. Get to understand the conditions of your offshore bank to ensure you enjoy maximum benefits.
For instance, some banks might require you not to withdraw any amount from your account within a year so as to earn the full amount of interest.
Get informed, then decide.
Take Advantage of Different Currencies
While most countries in the western world are involved in unhealthy currency wars, opening an offshore bank account can help you dodge the consequences. You do not have to keep losing your wealth due to instability in currency caused by these wars.
In this case, you have two options, which is investing in precious metals such as gold and silver or go for an emerging market currency account.
Some financial institutions in these regions accept more than ten currencies, making it easy for you to diversify your wealth in different currencies.
Those who do not want to use other currencies can also invest in the U.S. dollar, with a return of more than 5%.
Boost Your Confidence in the Banking
Like any other business, bank institutions also fail in case a financial crisis hits them. If you remembered the great recession in 2007 -2008, this is precisely what happened — banks in the United States, Australia, Panama, Germany, and Andorra were profoundly affected.
What if depositors in these banks had diversified their savings by maintaining a foreign account?
The impact could have been less because their money would have been safely kept in a reserves account offshore. In case the US banking system fails, you can only get 1$ for every $200 to $300 of your deposits. This is something you do not expect to receive from offshore banks — they do not take such risks.
Therefore, offshore banking boosts your confidence, knowing that your savings are safe and stable.
Offshore Banking Comes With Some Tax Benefits
Everyone wants to lower their tax burden as much as possible, and this could be one of the reasons why wealthy people consider offshore bank accounts.
The good thing is that you are reducing your tax burden legally. The main tax benefits you will enjoy with offshore banking include the fact that your income gains will not be taxed or low tax rates will apply. This is the reason why we told you that you must strategize by understanding the jurisdiction of your offshore bank, among other international tax details.
This includes your tax obligations, such as tax reporting and filing of returns at the end of the year.
Drawbacks of Offshore Banking
Almost everything that has advantages has several cons as well.
Here are the main disadvantages of offshore banking.
- Offshore bank accounts are not always financially secure. And this depends on the policies of the offshore bank you choose to bank with. For instance, during the great recession, some investors lost their money because their funds were not insured in the country; they deposited their money. Apparently, those who had banked with the same institutions onshore got all their savings. This means that there are risks involved, as well.
- Depositing with an offshore bank makes you a subject of investigation. The reason for this is the fact that an offshore banking account is usually associated with criminal activities. These include money laundering, tax evasion, and funding of terrorist groups or criminal gangs, among others. It makes some people hesitant to open these accounts. However, these accounts are perfectly legal for anyone as long as you meet the requirements.
- Some charges for maintaining the offshore bank account can be too high, especially if you are not receiving effective investment services. You need to understand all the fees involved in your account, including charges for failure to maintain a minimum balance. Also, get to know some of the most valuable services you should utilize.
- It is always hard to be there in-person to solve a conflict or acquire most information regarding your offshore bank account. And when the need arises, it is quite expensive.
The Process of Opening an Offshore Bank Account
Opening an offshore account is easy, but you might opt to hire someone to take you through the process. So, the question is, should you hire someone or do it yourself? Learn more below.
What Are the Benefits of Hiring an Offshore Service Provider (OSP)?
- When you work with an OSP, your work will be only to fill the necessary forms while the provider handles the paperwork. You will also provide them with the documents they need to complete the application. These documents include a utility bill or a bank statement to prove your physical address and a notarized copy of the passport.
- An OSP can assist you in getting a reference if an offshore bank has such requirements. They take away that burden from you.
- OSPs have experience dealing with offshore banking, which means they have already build a positive relationship with most of the banks. The whole process will be easy and fast with such connections and knowledge of the requirements.
Disadvantages of Working With an OSP
- An OSP deals with a limited number of banks — say 10 to 20 offshore banks, and maybe you do not believe in any of them. That’s not a reasonable limitation.
- It will cost you money, between $300 and $1,000. If you were to do it yourself, it would only charge you notarization expenses and courier fees for the documents.
- By providing your documents to an OSP, you are literally revealing your financial information to a third-party — sometimes, it could be an unregulated OSP, and it’s risky.
- You will only acquire any agreement with an offshore bank once the account opening process is completed.
Whether you choose to work with an OSP or handle the process by yourself, make sure you are making an informed decision. Either way can be messy if you miss something important. That said, make sure that your chosen OSP provides you with a list of all banks they work with, including the services they offer. You need to know the services you can utilize from offshore banking to ensure that you choose the best.
- Does the bank provide a debit or credit card?
- Can you use the card online or in your home country through an ATM?
- Do you need an offshore bank that offers loans, and are you eligible?
- Does your bank provide multi-currency accounts?
- Will they invest your money, and what are the returns for you?
In case an OSP is not willing to reveal the banks they work with, then that’s a red flag. If you opt to open the bank account on your own, then you need to understand the options available for you.
You Can Decide to Visit the Offshore Bank
For you to fly to another country just to open a bank account, you must be planning to conduct an earnest business.
And remember, you need to have the money and time to travel all the way. It is not recommended for small businesses or start-ups that are already struggling with a budget for other operations.
It will only make sense later after the business is established to fund such expenses. The good thing is that you can open one account now and later on, add another one — after the business grows. However, if you can afford it, some benefits come with it. These include acquiring a human relationship with the bank, access to a variety of banks, and reduced requirements. In some instances, the cost of visiting the bank can also be lower as compared to that of hiring an OSP since you won’t pay for courier or notaries anymore.
What Do You Need to Open an Offshore Banking Account?
The requirements will highly depend on the offshore bank, but generally, this is what you require for personal and corporate accounts.
- A notarized copy of passport or an apostille
- A bank statement or a utility bill to prove your physical address. An apostille may work for some banks.
- A reference from the bank showing that you have been a great and reliable customer
- A professional reference (lawyer, accountant, or auditor) to provide a confirmation that you are a person of good character — a different bank reference can work as well.
- Evidence of your sources of income such as payslips or notarized proof of investment returns
In addition to the first four requirements of personal offshore banks, you will need two more requirements:
- Your Notarized company documents and these include the memorandum and articles of association. Others are incorporation certificate, register of directors, a certificate of good standing, list of shareholders, and your company structure in a diagram.
- Your company’s business plan. This must reveal company goals, an estimate of your revenues, competition analysis, and marketing strategies used in the company.
Other Steps Involved in Opening an Offshore Bank Account
I. Choosing the Currency for Offshore Banking
Local banks usually hold your deposits in the local currency, but offshore banks offer the possibility to diversify currencies. Apply due diligence to ensure that you choose the most suited currency for your savings.
Things you need to know:
- If you hold your funds in particular currencies, you might make yourself liable to pay some foreign taxes.
- You might be required to keep on changing currencies when doing a deposit or a withdrawal from the offshore bank. Sometimes the exchange rate and fees involved can be too high.
- Holding your money in a different currency is advisable in case your domestic currency is depreciating or has been unstable for some time.
II. Making Deposits and Withdrawals From the Offshore Bank
You will be depositing money into your offshore bank via a wire transfer. Expect to be charged some fees, and these amounts depend on the bank you are using. Apparently, this is the only option you have to put any deposit into your account.
Things you need to know:
- Checks cannot be used because they are not acceptable overseas.
- You cannot deposit money in cash. Some banks have actually banned cash deposits — you might become a suspect for money laundering.
- Making an international wire transfer is very easy via the bank’s online platforms.
Many people wonder how they would withdraw money from offshore bank accounts, and here is an eye-opener. For instance, your bank provides an ATM card that you can use in the same way as other debit cards. It makes it easier to access your money anywhere in the world.
Things you need to know include:
- You will be charged some fees with every withdrawal transaction.
- You can minimize the fees by withdrawing large chunks of money rather than withdrawing numerous times — every time you withdraw, you will be charged a fee.
- While some banks can give you checks, they are not the best option. They are not confidential and are not accepted everywhere.
- To avoid the hefty withdrawal fees, you can set up your account in such a way that your wired money goes directly to your domestic bank account, whereby you withdrawal your funds with less cost. This is more convenient and also comes with optimal confidentiality as compared to checks or ATM cards.
The Best Countries to Open an Offshore Banking Account
The best country may not be the same as your friend or relative used to open an offshore account. The country you choose should depend greatly on your needs or the purpose of opening a bank account overseas. That said, here are some of the best countries you can consider based on what they are best at.
Cayman Islands — Known for the Best Tax Benefits
The Cayman Islands (opens new window) is known as tax heaven for most investors. In other words, it has an international reputation by offering both individuals and businesses minimal tax liability. Why wouldn’t anyone open an account in their banks just to enjoy these tax benefits? Again, the country is also economically and politically stable, which means your deposits are not at risk.
There are no direct taxes in Cayman, and this is why offshore banking is thriving in this country. They do not charge any tax on corporations, capital gains, property, payrolls, and withholding incomes. Also, you are allowed to deposit and save your funds in any currency because no exchange control is available. This allows free transfer of money in and out of the account.
Important; however, you need to know that while this tax heaven does not tax your income, your home country may tax you on the income you earn anywhere in the world.
Mauritius — Known for Political Stability
A politically stable country is perfect for offshore banking.
Mauritius (opens in a new tab) is not only known for this stability but is also one of the leading financial hubs in Africa. They have a robust financial and banking system, which offers a variety of banking services for personal and corporate gains.
The deposit for offshore banking in Mauritius starts from $50,000 to $100,000, and this depends on the services you wish to receive from the bank. The minimum balance is $10,000.
You can open the account online, and it will only take about a week or two. You will have access to different currencies, and you can enjoy different online banking services.
Here is my report on Mauritius:
Singapore — Perfect for Wealth Protection
Singapore is the best country if you want to protect your assets. The country has strict banking policies making this protection an easy task. You can open an offshore bank account in Singapore online without the need to visit the country. For instance, Banks naturally strengthens security measures while typically allowing potential customers to instantly access their assets from the country in which they generally reside.
Services you can enjoy from banking institutions are brokerage houses, wealth management services, mutual funds, and savings accounts with interest. Keep your money in different currencies as provided by the banks. Above all, these banks have qualified wealth management teams. Who are available to help you strategize your finances for maximum profits. Here I write more about Singapore Business.
Switzerland — Perfect for Asset Protection
You have some assets that one would like to hide and protect from the access of other parties. An offshore bank account in Switzerland would be a perfect option. Hiding money as long you are doing it the right way is allowed — after all, it is your money.
Switzerland has very strict privacy laws, making it a perfect place to hide your money. For instance, banks are forbidden from sharing your account information unless you give consent! Suppose your offshore bank decides to violate this law. They might be jailed for up to six months or face a penalty of up to 50,000 Swiss francs.
Therefore, if you are facing any criminal charges, your account information might be disclosed to help in investigations. And most importantly, Switzerland is also known for low-risk investments, because of the security its banks provide to protect assets.
The political and economic environment is very stable in the country, which improves confidentiality to many offshore depositors. In the conclusion, Switzerland does not charge taxes on dividends, interests, or inheritance, as long the Swiss bank is not earning these profits.
Nevis — Works Perfectly for Corporate Offshore Accounts
Nevis (opens in a new tab) is the best country to relocate your business. You should expect benefits such as asset protection and low costs. No additional tax regulations will be imposed on you. You are always protected under the Financial Services Commissions’ world-class standards. Once you move your company to Nevis, you are free to merge with companies in the country, and you will face fewer standards than what you would expect in most countries.
For instance, no need for shared capital, and directors of the company are allowed to declare their own dividends. In case a shareholder is not satisfied by the company’s operations, they can leave the company at fair value. Don’t miss my Nevis Business advice.
Your company’s shares can be listed on the stock exchanges in different countries, including the London stock exchange( opens in a new tab), NASDAQ (opens in a new tab), and International Securities Exchange (opens in a new tab), among others.
Belize — Best Country for High-Interest Rates
Are you looking forward to taking advantage of high-interest rates on deposits, then Belize (opens in a new tab) is the country to consider for your offshore banking. The country has an interest rate of 2.54%, and its inflation rate is almost 0%.
Some people may argue that other countries have better rates than Belize, and what they do not know about those countries is their inflation rate. If the inflation rate is too high, then the actual interest rate on deposits is quite low. Do not just go with the figures. Apart from the favorable interest rates, Belize is also politically and economically stable.
Finally, your account is not taxed locally, and you will not face any currency restrictions with offshore banking. When it comes to privacy and information confidentiality, it is highly upheld in their banking system, especially international ones, which only allows clients from abroad. Read more on Belize Business and see my advice.
Puerto Rico — Best Account for the Not so Rich
Most people believe that offshore banking is for the rich, but this is one of the countries that tell us otherwise. Puerto Rico (opens in a new tab) has a great relationship with the United States, but they have their own rules and regulations when it comes to fiscal policies.
With as little as $500, you are allowed to start offshore banking, and it will only cost you around $550 to get the account opened and started. You do not need to go to the country to open the account, and within one or two weeks, you will be an offshore account owner.
You see, there is an account for everyone.
It Is Legal to Set up an Account Offshore
It is very accurate that some people use offshore banking services to evade tax, launder money, or carry out illegal businesses, among other things. These are criminals. Do they make the entire offshore banking system illegal — the answer is no — it is perfectly legal. Unfortunately, a lot of individuals, including some global organizations, are totally against the system — they want it scrapped from the business world altogether.
For instance, in the year 2016/2017, anti-corruption institutions started the Open Ownership campaign, which was aimed at revealing the secrets of the offshore business world. They called for total scrutiny of everyone involved. Such moves could lead to too much openness, which means that the government might take over control of your money or wealth, and it is not a good idea.
To avoid such complications, make sure that you have set your offshore banking in the right way. If you do not understand the terms of the process itself, avoid DIY — a reputable International corporation services provider can help you, and everything will be completed seamlessly. It will definitely cost you some money to enjoy these services, but if you think about the benefits you get, and it will be all worth it.
Can You Open an Offshore Bank Account Online?
If it were a must for everyone to travel to another country to open a bank account, then only a few would ever open these accounts, especially the rich. Therefore, if you are wondering whether you can open a foreign bank account online, the answer is yes. However, you need to understand all the requirements as detailed above for both personal and corporate accounts.
Once you get hold of all the documents required, you will also need to fill different application forms as directed by your offshore bank of choice. You will either fill them directly from the online portal on their website or download the form, fill-in the details, and send them through an email. How you submit the forms will be specified by your offshore bank.
As for other documents such as notarized passports, references, proof of income, and company documents, you will need to use a courier for safe delivery to the bank. Once the bank is satisfied and the account is opened, you will receive your ATM card through a courier to the physical address you provided. From there, you can continue with your online banking transactions, which include wiring deposits and withdrawals.
How to open an offshore bank account the bottom line
If you are thinking of opening a bank account abroad, do not allow subjective assumptions to overtake your progress. If people tell you it is illegal, always remember that it is not. Even if they tell you that you are not rich enough to think of offshore banking, again, remember there is an option for everyone.
Offshore banking is quite secure, and all you need is some research to identify the best country that will serve you better based on your needs. Get all the required documents ready and submit them through the provided channels. You also need to specify the reason why you need this account.
If you are not sure how to go about it, look for a reliable OSP to get your application process started and done.