Offshore bank
An offshore bank is a bank located in a tax haven that provides financial and legal advantages. These advantages typically include some or all of
While the term originates from the Channel Islands "offshore" from Britain, and most offshore banks are located in island nations to this day, the term is used figuratively to refer to such banks regardless of location.
One common misperception is that offshore banking can legally
prevent assets from being subject to personal income tax on interest. This is incorrect as the personal income tax of most countries makes no distinction between interest earned in local banks and those earned abroad. Persons subject to US income tax, for example, are required to declare on penalty of perjury, any offshore bank accounts they may have. Although offshore banks sometimes do not report income to other tax authorities this does not make the non-declaration of the income or the evasion of the tax on that income legal.
Advantages of Offshore Banking
Offshore banks provide companies and individuals a method of circumventing restrictions on currency movements. Money stored in an offshore bank is safe from economic or political turbulence in the home country.
Thanks to their lower cost base some offshore banks can provide higher interest rates than the home country.
Offshore finance is one of the few industries that geographically remote island nations can competitively engage in.
Disadvantages of Offshore Banking
Offshore banks (and offshore corporations) can be used for tax evasion and to shift assets beyond the reach of litigation. Strict privacy laws and lax regulations on money movements also make offshore banks ideal for money laundering.
Conversely, the same lax regulations mean little or no protection for the customer's deposits in the event of bankruptcy or outright fraud.
In addition, the advantages of offshore banking may come at a high cost as the returns on some offshore banking accounts may be substantially below those of normal bank accounts.
The fees and minimum deposits required to open and operate accounts at some offshore banks make can them inaccessible to the general public.
Offshore Finance Centers
Some better-known offshore financial centers include:
See also
Referenced By
Bank | Bank account | Banker | Private Banking | Private bank
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