Offshore banking is a popular way of setting aside money outside of the country where you live. There are loads of benefits of offshore banking, such as better privacy for your cash and immunity against political or economic instability. Offshore banking was originated in the Channel Islands, and the majority of offshore banks are located in island nations. Yet the word is also used to refer to financial institutions in countries such as Switzerland, Andorra and Luxemboug which are not surrounded by water but are more removed from the surrounding countries.
It is no surprise, due to sitting in tax-friendly countries or islands, offshore banking is often associated with tax violation. On the other hand, capital that is stored in an offshore bank account is not necessarily safe from income tax. The same goes for interest earned on the capital in offshore bank accounts. Unless you have a distinct arrangement , you most likely are required to pay income tax on the interest you earn regardless of where that money is located – in a local or offshore account.
If you live in a country where there are any political problems, or there are tensions in society, it may be advantageous to keep your assets in an offshore account. By keeping it in a local account you might be in danger of the contents being stolen, frozen or ending up without worth. An additional advantage is that many offshore accounts offer better rates than in the country of residence and there might be lower account fees involved. You may also be able to get an anonymous bank account which your high street bank may not be able to offer. So far it appears as though offshore banking offers a lot of benefits, so what are the drawbacks?
One factor that may be less attractive to a prospective customer is the fact that the assets held in an offshore account may in fact be less secure. This is illustrated in the financial downturn of 2008 -9, where capital held in offshore checking accounts in Iceland was lost. But if the bank that is being considered provides a good compensation scheme, this may rescue some of the missing cash in the event of a grave financial fallout. Another drawback to offshore banking is that it is often geared primarily at people with higher incomes. Many such bank accounts do carry significant upkeep costs so they may only be worth considering for you if you do have a high income. On the other hand, many of them do give savings options which may be accessed by individuals with normal incomes as well.