25 Frequently Asked Questions about offshore banking




Fintech and banking

Q: What is offshore banking?

A: Offshore banks are banks that are in a different country from that of the depositors, and therefore different jurisdiction and banking laws. Countries that allow the practice are known as offshore financial centers. Banks which offer this service exclusively to non-residents are not allowed to offer banking services to residence until they are approved by the Central Bank in order to set a clear distinction between offshore and domestic sectors. The practice of offering offshore accounts to depositors who do not live in the country is what is referred to as offshore banking.


Q: What is an offshore bank account?

A: An offshore bank account is an account opened in a bank by a non resident of the country. The typical reason for an individual or company to have an offshore account is to benefit from low tax jurisdictions among other favorable conditions for banking.


Q: What is an offshore jurisdiction?

A: Offshore jurisdiction is a term used to define a geographical area away from home shores. Offshore financial centers are referred to as offshore jurisdictions.


Q: Is offshore banking illegal?

A: When the term offshore is related to financial practice it is often regarded with illegal or immoral activity. On the contrary, offshore banking is not illegal in itself.


Q: Is offshore banking safe?

A: The most attractive thing about offshore banking is that the authorities in the country are a bit relaxed about the banking process. However, this could also present a problem in a jurisdiction that does not have sufficient regulations.
Some offshore financial centers do not have enough regulations to ensure that depositors' funds are secured enough.

Banks which offer offshore accounts usually have a compensation scheme through which they refund the monies of affected clients, however, the money deposited over this amount is at risk and has no guarantee of being refunded in the event of a crisis. For instance the amount covered by the compensation scheme may be 50,000 pounds. An account holder with a deposit exceeding this limit faces the risk of losing the excess when a crisis occurs.


Q: Can individuals get an offshore bank account?

A: Offshore banking is available for both corporations and individuals. Any person can open such an account and the requirements to opening one are usually the same applied in one's home country. The process of opening an offshore account is a straightforward affair that can be done in a matter of days.

Apart from the requirements needed to verify your identity such accounts also come with anti-money laundering requirements. These are put in place to make sure that the account is not being used to stash away money made from illegal business. Anti-money laundering requirements oblige the party opening the account to state the origin of the funds they will be depositing in the account.

It is also prudent to have a financial advisor who can help you decide on the right jurisdiction considering your nationality and place of residence. This is a delicate matter that should not be rushed.


Q: Do you have to be a high net worth individual to get an offshore bank account?

A: Contrary to popular belief, you don't need to have a high-level of financial sophistication to have an offshore account. Such accounts are not always opened with the sole intention of benefiting from favorable banking terms, there are scenarios where an individual needs such an account to run their day-to-day affairs oversees. Such individuals may need an offshore account to avoid things such as currency fluctuations or simply to receive their salary in a foreign country.


Q: Does an offshore account pay interest?

A: As a matter of fact higher interest rates may be one of the reasons a person opts for an offshore account. This would, however, make financial sense if one was dealing with large sums of money whose gained interest is not a negligible factor. Domestic banks have manipulated interest rates to an-all-time low and when compared to the rate of inflation, depositors may find themselves losing money banking at home than benefiting from the prevailing interest rates.


Q: Can I get a credit card from an offshore bank?

A: The average person may find it very difficult to obtain an offshore credit card. This is due to the fact that extending a credit line to an offshore location is much too risky for the bank. Such credit cards are issued only to individuals whose credit history is reliable and known to the bank or have a long-standing relationship with the bank. However, debit cards are usually provided with such accounts.


Q: Do offshore banks have checking accounts?

A: It is not a common occurrence to have an offshore account that allows the client to draw checks from the account. The main reason for this is that it opens the account to risk of fraud where the bank has few or no options for legal redress. The most common type of offshore accounts for individuals are current accounts which can be accessed at any time and place in cases where the bank keeps up with current mobile banking options and such like conveniences.


Q: Do offshore accounts have Know Your Customer (KYC) policies?

A: The process of opening a new account with banks is no longer about verifying identity alone. The need for banks to carry out due diligence before accepting new clients has become more and more important in order to prevent illegal use of the service. As is the case with banking institutions at home, offshore banks also have Know Your Customer (KYC) policies even though the exact form of the policies varies with different jurisdictions.


Q: Do you need to provide national ID to open an offshore account?

A: Opening an offshore account is much like opening one at home. One of the mandatory requirements is a national ID or passport to verify the holder's details. The exact requirements for different banks are, however, variable.


Q: How do I get an offshore bank account?

A: The first thing is to check the requirements, do research on the offshore financial center and bank you intend to open an account in and consultant a professional. Apart from this the process can be done online where the bank can continue correspondence through the contact details you have provided, once you qualify and are eligible according to their criteria.


Q: Do individuals with offshore bank accounts have to pay taxes?

A: The issue of taxation is a multi-faceted one when it comes to offshore banking. Holders of offshore accounts are legally required to declare their income to the relevant authorities. This is a matter that is often downplayed, but could get a person on the wrong side of the law with large fines to pay and possible jail time.


Q: What are the advantages of offshore bank accounts?

A: Opening an offshore bank account is advantageous for many reasons; here are a few that you may find apply to you too;

· Offshore banking presents the option of keeping one's money in an economically and politically stable jurisdiction. This is mostly important if the client feels like their home country may fall into turmoil and cause their assets to be seized, frozen or disappear.

· It also enables the account holder to act quickly when the situation requires quick action. An offshore account gives you the ability to take protective action against some government policies. Having one even if it does not have much in it keeps you prepared for whatever arises in the future.

· Banks abroad can have much higher interest rates on savings than the institutions at home have. For this reason, it could actually be much more beneficial to have a saving account in an offshore jurisdiction than open one at home.

· Having an option between different currencies is a great way to protect your purchasing power. Since local banks offer few options for currency diversification, offshore accounts are a better option since you can use diversified currencies.


Q: What are the disadvantages of offshore banking?

A: There are a number of drawbacks involved with offshore banking; here are some you should know about before you decide to have your offshore account;

· Offshore banking is not the kind of thing that you can access physically at any time. The jurisdictions involved are usually far from the clients' geographical area. This has been alleviated by the use of new technologies such as mobile and online banking; however, it could always pose as a challenge.

· Developing countries can also face a challenge from slow transactions which may inconvenience account holders.

· The existence of offshore financial centers also makes the illegal act of tax evasion much more alluring. The problem is, though, that the legal system is stringent about tax evasion laws and does not consider ignorance of the law as defense.

· The cost of setting up an offshore account is also a bit on the higher side after considering charges such as legal fees which may be exorbitant. Other offshore bank centers also have requirements such as property ownership in the country which may shut some people out.


Q: How does someone with an offshore bank account access their funds?

A: Access to the money deposited in an offshore account is straightforward. The account holder can use debit cards as well as online wire transfers to access and move money around. The development of banking using technological has made it possible to access the money from anywhere in the globe. Apart from cash withdrawals and debit cards, clients can also use travelers' checks and bank transfers to access their funds.


Q: Is there a minimum balance required for an offshore bank account?

A: The minimum balance required for an account varies greatly according to the type of account. The amount varies between a few thousand dollars to a million. Usually the minimum balance lies around a figure equivalent to 1,000 to 5000 USD, GBP, Euro or the equivalent in other currencies.


Q: How does one deposit funds into their bank account?

A: There are a lot of safe ways to deposit money into an offshore account. The safest way of doing it is using a wire transfer which will send the money directly to your account from wherever in the world you are located. Another common method is to use FedEx or such a courier to transport the money using international money orders.


Q: Can I receive and send wire transfers with an offshore bank account?

A: Using wire transfers is among the preferred methods of moving money around in offshore accounts. The idea is also more convenient and safer and also opens the account up to local banking facilities.

Q: What are the documents required to open an offshore bank account?

A: The basic documentation for opening such an account includes a passport or national ID. In some banks some more documentation to curb money laundering and other types of fraud associated with offshore banking are required. The bank may ask for a reference document from your current bank that shows the average balance and satisfactory relationship. Aside from this the bank may also need a utility bill to verify residence. There are banking institutions that may also require an “apostille” stamp, which is accepted internationally.


Q: Does an offshore bank account holder have to report income earned from interest and other investments?

A: An offshore bank account holder is still affected by applicable laws of  his or her country.  Some countries like the United States require its citizens to report all earning even if they live in another country and income is earned in that country.