What to consider when opening an offshore bank account

There are a number of factors you need to consider before you decide on the product that best suits your personal requirements:

1) Economic and political stability of the offshore location, stability and reliability of its banking and financial system and the existence of the deposit guarantee scheme

2) Reputation and the financial strength of the offshore bank, its requirements for opening an account such as the necessary documentation, minimum opening balance and opening fees

3) Legal issues such as common or civil law, corporate disclosure regulations, bank secrecy regulations, international affiliations (e.g. being the EU Savings Tax Directive signatory and any exemptions to it) , double taxation treaties for offshore locations that do not have a zero income tax rate, etc.

4) Future running costs

Offshore Centers and Banks

This is a list of some offshore locations for you to consider:

Europe: Andorra, Channel Islands (Guernsey, Jersey, Alderney, Sark, Herm), Cyprus, Gibraltar, Isle of Men, Lichtenstein, Luxemburg, Malta, Monaco, Switzerland

Asia: Brunei, Dubai, Hong Kong, Labuan, Lebanon, Macau, Qatar, Ras al-Khaimah, Singapore

Caribbean: Anguilla, Antigua and Barbuda, Aruba, Bahamas, Barbados, Belize, Bermuda, British Virgin Islands, Cayman Islands, Curacao, Dominica, Grenada, Montserrat, Panama, Saint Kitts and Nevis, Saint Vincent and the Grenadines, Turks and Caicos Islands

Other: Cook Islands, Delaware, Madeira, Marshall Islands, Mauritius, Nauru, Seychelles, Vanuatu

Local or International Bank?

When seeking the suitable offshore bank you typically have two options. You can choose a national bank that only operates in the offshore center of your choice or you can use a subsidiary of a reputable international bank operating in this jurisdiction. If you decide on some big multinational name you should be aware of the fact that the entity in the offshore center is a legally separate corporation (not a branch) that operates under the jurisdiction of the offshore center. Thus, banking secrecy and confidentiality are guaranteed and you can further benefit from the global presence of such bank and its financial strength. Clients who prefer local (national) banks do it because they believe such banks are safer as they are free from international pressures.

Legal Issues and Banking Secrecy

Offshore banks in all jurisdictions must ensure that they do not become havens for money laundering activities and organized crime, especially drug trafficking and for financing terrorist activities. Therefore, the banks need to know the identity of the person owning a bank account. Apart from that, if you are opening a bank account you should know that most of the offshore centers became the signatories to the EU Savings Tax Directive (the European Union withholding tax and exchange of information directive) and are thus levying 15% withholding tax on interest income of the European residents or otherwise they would have to permit full exchange of information with the country of the account owner's residence if no withholding tax was applied. Some offshore centers that have not signed up to this agreement are Bermuda and Barbados as well as Hong Kong and Singapore.

In spite of the strict requirements of the offshore banks for opening accounts, banking secrecy remains one of the cornerstones of offshore banking. It implies that information about the client, though known to the bank, is strongly protected by the law under severe financial and criminal penalty for its unauthorized disclosure. Confidential information about the bank's client may only be divulged to the third parties such as foreign government authorities upon delivery of the court order from the local court (court in the offshore center), following a proper criminal investigation.

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