After the Panama Papers hit the news recently, more people have come to know about offshore banking. Even for those who have at times anticipated going offshore, thoughts of getting into trouble with IRS are never far. However, what you need to know is that offshore banking is not illegal.
How exactly does offshore banking operate?
One thing that you need at this point is to dissociate offshore banking with tags such as hide, stash or tax evasion. Seeking services of a foreign bank is completely legal. Besides, offshore banking is not simply for the rich elite. Even people with standard income can open and run a bank account abroad.
Note that just like the local banks; the offshore banks also have their regulations for all who want to open accounts.
While getting an account abroad is legal, it is important to appreciate that the banks do not conduct business with every other client. They carry due diligence to ensure that they operate within the legal framework of the respective jurisdiction while strictly implementing rules set by international organizations such as WTO (world trade organization) and OECD (Organization for Economic Cooperation and Development).
A closer look at offshore bank accounts
For a long time, Swiss bank accounts were associated with people who wanted to hide cash from the reach of their governments. This was true.
The Swiss banks have strict privacy laws that allowed users to even hold their accounts anonymously with only identifier codes. However, Switzerland has agreed to work with other jurisdictions and turn info about account holders to counter any effort to tax evasion. Now, you can hold an offshore bank account even in Switzerland legally as far as you declare it.
The benefits of having an offshore account
The main benefits of going for an offshore account include the following;
- Better tax treatment: In some offshore countries, people are allowed to hold money tax free. If you select the offshore jurisdiction well, you can enjoy tax-free capital gains.
- Greater stability: If you live in an unstable jurisdiction, there is fear that the cash could be in danger such as currency fluctuation, the risk of account getting frozen, and civil war. Offshore banking provides you with the assurance that the cash will be safe and always available whenever you need it.
- More opportunities for investment: When you put cash in an offshore bank account, a new window of opportunities starts opening. You will be given opportunities to invest in high paying ventures such as bonds and even stock market among others.
How offshore banking becomes illegal?
There is nothing illegal with going offshore as far as one does not have any intention of avoiding any tax obligation. FATCA (Foreign Account Tax Compliance) requires all banks globally to report balances of US citizens if the bank does not do that, it risks facing serious penalties including lawsuits. If you are a US citizen operating an offshore bank account, make sure that the financial report is submitted on time.
What you need to know
Opening a foreign bank account and keeping your cash there is not illegal in any way. As far as you are targeting to get offshore for good reasons, do not hold back. Make sure to look for a great jurisdiction and a bank with good policies to enjoy all the benefits of going offshore.