Offshore bank accounts frequently make us think of very wealthy people trying to avoid taxes. But the truth is the average person can open an offshore bank account quite easily. Doing this can be financially prudent, too, even if you’re not rolling in money.
Regardless of whether you have $10,000 to deposit or $100,000, offshore accounts can be significant tax advantages for account holders who make foreign investments. Usually this involves setting up a foreign corporation. There’s also much greater privacy; in many jurisdictions there are favorable laws to protect the identity of account holders.
These accounts can also provide excellent asset protection; assets held in foreign banks can be extremely difficult to seize. Commonly, wealthy persons facing lawsuits transfer assets offshore.
All offshore banking jurisdictions have their own laws and regulations; you’ll need to do some research to see which one best meets your needs. And keep in mind that the tax laws around foreign accounts are tightening all the time. Uncle Sam always wants his money.
Offshore Account Requirements
Offshore accounts are usually somewhat expensive to set up. The minimum required initial deposit can be quite high. However, there are options for those without a big bank account.
In addition to your initial deposit, most offshore banks require these items to set up an account:
1. Identification documents. The basic requirements are really no different than opening a bank account in the United States. You’ll need to provide the basics like name, social security number, driver’s license or passport, and address. Also, be ready with the real thing; notarized copies of your documents are usually required.
* These banks are quite serious about verifying your actual address since there may be tax implications. Of course, this depends on the country in which you live.
2. Current bank statements. Offshore banks may require that you submit your last 6-12 months of statements from your current bank. They’re also likely to ask you about the nature of the transactions you’re planning on making. Offshore banks are under increased pressure to avoid supporting illegal activities, whether knowingly or unknowingly.
3. Choose a currency for your account. Unlike at your local bank, you’ll have to choose a currency. This can be advantageous if other currencies are currently stronger than the US dollar. There can also be additional taxes imposed on interest earned in accounts held in a foreign currency. Be sure to talk to your tax advisor first.
Deposits and Withdrawals
Deposits to your offshore account can only be made by international electronic wire transfers from a local bank. Domestic checks are generally not accepted and traveling around the world to deposit cash is impractical. Check local fees for these transfers before you choose a local bank to provide that service.
Withdrawing money, on the other hand, is quite easy. Most banks will issue a debit/ATM card that can be used anywhere. Some offshore banks will provide checks, but these are unlikely to be accepted as a form of payment in most situations.
One other practical consideration for withdrawals is to have a local bank account and use the same international wire transfer method you use for making deposits. This provides the best of both worlds, since you can move large sums of money around via wire transfers and withdraw smaller amounts with your ATM card.
Could an Offshore Account Benefit You?
Though there’s a lot of glamour and mystique around offshore bank accounts, you can see that acquiring one is largely similar to opening a regular bank account down the street. There are some additional steps to ensure that you don’t have any criminal intent, but that’s one of the only major differences.
Of course, you’ll have to select a currency and decide on the best method for handling deposits and withdrawals. This will take a little research. But the small amount of work involved may be worthwhile if an offshore account satisfies your financial needs. Investigate your options today. You may be surprised at how beneficial these accounts can be.