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Offshore banking is simply another name for opening a bank account outside of your home country. It may be more challenging to open an offshore bank account than a domestic bank account because you may need to prove you have a minimum amount of money or a business relationship with the bank’s country.
» Looking for other international services? Check out where to exchange currency without paying huge fees
Is offshore banking illegal?
Offshore banking isn’t illegal, but having an offshore account can raise questions because these accounts have a history of allowing customers to discreetly store money to avoid paying taxes on it or hide funds obtained through illegal activity. The Panama Papers, documents that were leaked to the public in 2016, revealed ways that many rich and powerful people were using offshore banking to launder money, commit fraud and evade taxes.
What is offshore banking used for?
Some offshore banking customers use their accounts to help manage their overseas businesses and investments, and others might just spend a good portion of their time in a foreign country throughout the year. Offshore accounts can allow you to save, hold and invest money in multiple currencies as well.
» Learn more: What is a multicurrency account?
What countries offer offshore banking?
A large number of countries offer offshore banking. A few of the most well-known countries for offshore banking are tax havens — meaning a country or jurisdiction that has low or no taxes for corporations or individuals — such as Switzerland, Panama and the Cayman Islands. Other popular places for offshore banking include Hong Kong, Belize, Bermuda, Singapore and Germany.
How to open an offshore bank account
Read the account policies and fees carefully. When opening any bank account it’s important to understand its policies and fees, including monthly maintenance fees, transfer fees, minimum balances, direct deposit requirements, customer service availability and minimum asset requirements. You also may want to look into the joint account requirements if you plan to add a spouse to your account.
Gather the necessary documents. If you’re considering opening an offshore account, check to see what the bank requires in terms of documentation. Required information might include your occupation, a copy of your state- or country-issued ID such as a driver’s license or passport, a copy of a utility bill that verifies your physical home address, your date of birth, or other verification documents such as a reference or proof of a good standing relationship with your current bank. Some banks might require that copies of documents be notarized or have an apostille certificate, which is a similar method of proving the validity of a document.
Choose your currency. Opening an account in a different country will typically mean that you have to use a different currency to hold, deposit and withdraw your funds than you would in your domestic country. Also, if you receive income or payments in a foreign currency, it can be convenient to use a bank that operates with that currency. Currency exchanges can be expensive, so keeping your money in the same currency in which you earn and spend it can help save on fees and prevent any lost value that comes from exchanging between currencies.
Consider how you want to fund and withdraw from your account. Offshore accounts typically come with standard banking features such as debit cards and online banking. If you aren’t physically in the same country as your offshore account, however, you may need to do things you might not normally do with a domestic account, such as use wire transfers to move money or pay foreign transaction fees or currency exchange fees. Also, if you receive a transaction of $10,000 or more from your offshore account, your domestic bank has to report it to the IRS.
Offshore bank accounts can be useful but may have different restrictions, policies and fees than banks in your home country. Before you open an account, do thorough research into the bank and what’s expected of you as a customer.