Offshore Bank Account

An offshore bank account is an account located in a country in which the depositor is a non-resident. In addition, the offshore bank is often times a financial institution chartered in the foreign country which is permitted to do business only with persons and institutions that are non-residents or not citizens of the country in which it is chartered.

So why open an offshore bank account in a country or jurisdiction other than the one in which you reside?

Offshore bank accounts are typically located in a tax haven, or a jurisdiction with a low tax burden on the offshore bank account depositor. In addition, offshore accounts can offer less restrictive regulatory environment, and often times a higher degree of banking privacy. While offshore banking clients have many reasons for desiring financial privacy, this can be extremely important in times of political or financial instability in their home countries.

What are the disadvantages of opening an offshore bank account?

Tax collecting authorities have often attempted to characterize offshore bank accounts as being associated with tax evasion, money laundering, criminal enterprises or more recently terrorism. US persons, for example, are required to declare any offshore bank account, including numbered bank accounts, they have each year when they declare taxes. The United States' tax collection authorities, Internal Revenue Service, estimate that last year they missed $40B in tax receipts due to the existence of offshore bank accounts and offshore financial centers.

Most offshore banks do not to report income to their respective clients' tax authorities. In countries with strong bank secrecy laws they are under a duty not to do so.

The problem is, since September 11, 2001 many tax authorities have used the opportunity created in the crisis to levy addition scrutiny on offshore bank accounts, offshore banks and offshore financial centers. Those jurisdictions and institutions that were the most susceptible to political and economic pressures from the United States have in essence ceased observing their own bank secrecy laws and have in effect ceased to be effective offshore financial centers.