To many offshore banking sounds like an exotic word and others feel scared to open a foreign bank account simply because they lack enough information of all the advantages and disadvantages of using such financial strategy either for personal or corporate aims. Like pretty much everything in this world there’s nothing that is 100% good or bad. We’ve previously discussed some of the benefits of offshore banking, but in this article, we are going to explore the positives further and layout the negatives that come along. This way you will be prepared to take an informed decision whether opening an account abroad is something worth doing according to your own personal situation.
Having assets in various currencies looks really good on your financial portfolio. This in line, means that you are much more likely to be approved for larger loan amounts and better mortgage interest rates. In addition, it provides a certain amount of security in the event of rapid changes on the financial market, as well as an opportunity to make some extra money in a sudden currency rise or fall.
Some countries have strict rules on investing on their soil, meaning that if you do not have a bank account within their jurisdiction you are unable to invest in a property or a business operating there. For example, Australia does not allow foreign investments on agricultural land within the country. Missing on an investment in a local farm simply because you don’t have an Australian bank account can be something you may regret in the future
There’s no better place for assets that are endangered of seizing or freezing by the American authorities than an offshore bank. There your money will be safe from the hands of unfriendly competitors and vicious lawyers.
Many foreign banks offer much better interest rates on savings accounts than domestic ones. In fact, most Western banks rank really low on that criteria. Opening an account in a developing country may just bring you extra cash on top of the money you’ve already put aside.
It used to be the case that your anonymity can be guaranteed in a foreign account, which means a greater level of privacy and peace of mind for you and your family. However, following the tragic events of 9/11 and other terrorist acts, this is no longer the case. More and more international banks are quick to release personal information to the local authorities and government if they suspect any criminal activity. It should be noted that this is not made compulsory by law, so in some banks a level of greater privacy is still achievable.
In most cases, you can’t open an offshore account unless you have prepared a large sum as an initial deposit. This could be anything from $10,000 to even $1 million. And bear in mind that usually, this applies to personal financing. In the event of setting up an offshore corporation with a bank account, you would also be required to pay legal fees and can incur account maintenance and membership fees. So, in a sense, the statement that offshore banking is for rich people is not completely false.
Uneasy Access to Your Money
Many offshore banks only allow international customers to access their deposits by making transfers. Sometimes this can take days and a fee could be included. Of course, that does not apply to all foreign banks as some have developed great services and products such as debit cards, checks, internet banking and made them available to both domestic and foreign account holders. You wouldn’t want to be in a situation where you would need to access your offshore account urgently and be unable to do so because you didn’t do your research properly before you opened an account in a certain bank abroad.
Another very important reason to be extremely careful when you pick an offshore bank to keep your money in is the level of security it provides in case of a financial crisis. A number of foreign banks will not guarantee the reimbursement of any deposits over a certain amount outlined in your account contract. In practice, this means that if the bank goes bankrupt you may lose all the money exceeding the limit the bank agreed to cover. To give you a clearer notion of what your loss may be, banks in the U.S. normally have the protected deposit limit set to $250,000. In offshore banks, this is much less and in some, you may not be able to recover any of the money you’ve deposited.
There is an easy prevention of an unpleasant situation like that – making sure you have all the relevant information about the places you are considering for offshore banking and doing your due diligence before opening an account. One of the first steps would be reading our post about the Top 5 Safest Offshore Banking Jurisdictions. To be completely sure you are making the right choice, though, we recommend contacting a qualified financial advisor who will have all the information you need to protect yourself and your money.
For US Citizens holding financial assets in offshore accounts, they need to report them to the IRS. If the balance is over $10,000.00 they need to file the FBAR report. If the balance is over$ 50,000 they need to file and report under FATCA. Click here to email us and start your project.
Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. This article cannot serve as a substitute for such professional services or advice. Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation. This article is subject to change at any time and for any reason.
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Fulton Abraham Sanchez, CPA
Fulton Abraham Sánchez, CPA I am Certified Public Accountant, specialized in Tax Planning & Offshore Strategies for Real Estate, Hedge/Equity Funds, Fintech, Crypto, Expats, IRS Debt Resolution. You can email me email@example.com and follow us on Facebook : FAS CPA & Consultants.