7 Myths About Offshore Banking

There’s a lot of misconceptions out there about offshore banking and investing. Newer readers especially may believe a few of the myths exploded below! Even if you’re an old hand at offshore banking, I thought you might enjoy this brief list of some of the most common offshore banking myths…

1. Offshore banking is illegal. The Facts: Granted there are a few countries in the world that outright prohibit their citizens from holding accounts abroad. But very few – even those with strict controls like South Africa, Venezuela and Russia don’t ban their citizens outright from holding offshore bank accounts. Most countries do however have laws insisting that you report your offshore bank accounts to the tax authorities. You can easily verify these requirements with a local professional. For sure there are some illicit funds deposited in offshore banking havens, but they constitute a small percentage of total criminal proceeds held in banks within high-tax jurisdictions. Bank secrecy laws these days definitely do not protect criminals. The idea of associating offshore banking with crime is all about trying to persuade people to leave their funds where their governments can get their hands on them!

2. Offshore banking is only for tax evasion. The facts: Recent campaigns by major governments and left-wing think tanks try to tar everybody with the same brush. Most people who bank offshore these days are not evading taxes. They are looking for legal tax planning and asset protection strategies – for example: currency diversification, and protection against political risk factors.

3. To have a bank account offshore you need lots of money. The facts: Yes, there are many obscure but very good private banks that won’t be interested in a relationship under a million or two. But there are also plenty of banks, large and small, that are still interested in the regular middle class customer. At some of the best offshore banks in the best offshore banking countries, you can easily open a bank account with a deposit of $500 or less.

4. Offshore banks are situated in remote corners of the world or obscure islands, thereby making it difficult to manage the account. The facts: While many offshore jurisdictions are indeed small islands, they are all connected by fiber optic cables! Today, the physical location of the bank is not really important. You can deposit funds electronically and manage them over a secure internet connection. For withdrawals you can wire money out using the internet banking, or you can have an internationally recognised debit or credit card like Visa, Mastercard or American Express.

5. You have to travel to the bank personally to open an account. The facts: The best offshore banks do not require this. They have procedures in place to open accounts either entirely by mail, using copies of documents certified locally, or you can open accounts through other representatives or offices that may be closer to you. Often, if you pay the travel expenses or you are investing a larger amount, you can even have a bank officer travel to visit you.

6. Offshore banking is tax-free. The facts: In most cases you don’t have to pay taxes in the bank’s jurisdiction. The notable exception is Switzerland, which does charge Swiss withholding taxes on the income of foreign account holders. What you do have to remember is that many high tax countries tax the worldwide income of their residents, and one – the United States of America – taxes the worldwide income of their citizens even if they are not resident.

7. Offshore banks open anonymous numbered accounts. The facts: It is still possible in some banks to open numbered bank accounts. Most Swiss banks, for example, offer this facility for a small annual charge. A numbered account is where your name does not appear on the title of the account. However, they are not technically anonymous, since the bank will still need to know who you are. Normally your real identity will only be accessible to a few high-ranking bank officers, and your passport copy will be held in a paper file in the bank’s vault, rather than on a computer where a data or identity thief could potentially download it. So whatever account name or number you are assigned, you will not remain fully anonymous to the bank. It is also no longer permitted to send or receive wire transfers without fully identifying the legal account holder.