One of the pressing tasks for high-income individuals and companies is preserving their capital. Crises and issues in the banking sector of one’s home country, currency devaluation, and risks of asset loss due to legal or criminal prosecution—all of these factors make people consider moving some of their funds to places where they’ll be completely safe—offshores.
Let’s explore the specifics of opening an offshore account in banks. We’ll list the reasons this service is in demand and discuss the legality of transferring funds to offshore accounts.
What does the term "offshore account" mean and who needs one?
Strictly speaking, any bank account opened outside the country of tax residency can be considered offshore. However, in practice, it’s not so simple to just transfer money to a foreign bank; only a few countries welcome deposits from non-residents. These countries (or specific regions within them with more lenient laws) are referred to as offshore zones. To attract foreign capital, they often lower or eliminate tax rates for offshore companies and bank deposits, minimize oversight from regulatory authorities, and simplify the documentation process. Also, one of the main advantages of offshores is their high level of confidentiality. Some additional benefits of offshore bank accounts are mentioned here.
In short, an offshore account serves to accumulate and safeguard funds while allowing for any banking operations without the risk of capital loss, scrutiny by tax authorities, or disclosure of a client’s financial status. This explains the popularity of offshores among the most influential and wealthy individuals as well as international companies.
Currently, the most popular banks where foreigners place their funds are located in classic offshore areas such as:
- The British Virgin Islands (including FirstCaribbean International Bank, Scotiabank, VP Bank (BVI) Limited, and others);
- Cyprus (for example, Bank of Cyprus, Piraeus Bank, Hellenic Bank, and more);
- Panama (Multibank, Balboa Bank & Trust);
- Liechtenstein (Valartis Bank (Liechtenstein) AG);
- Island nations (Mauritius, Seychelles, etc.) and several other countries.
The chosen bank influences many factors: processing times, service costs, required documentation, the possibility of accessing funds in other countries, and minimum balance requirements, among others.
Contrary to stereotypes, neither registering offshore companies nor opening accounts in foreign banks is illegal by itself and doesn’t lead to legal repercussions, provided the goal isn’t to conduct criminal business or launder money. However, before opening an account, it’s wise to study the legal norms and restrictions your home country imposes to combat tax evasion using offshores.
How to open an offshore account for individuals
For individuals, opening an account in an offshore bank primarily serves as protection against an unstable economic situation or a banking system collapse in one’s home country, against asset seizure, unexpected losses of funds abroad, and the disclosure of personal financial data, among other things. The most common reasons individuals open offshore accounts include:
- Storing funds in a reliable bank.
- Access to deposits in more stable currencies than those of one’s home country.
- Constant access to money from anywhere in the world.
- Minimal oversight from regulatory bodies (or none at all).
- Strict confidentiality policies in offshore banks.
Typically, to open an account in an offshore bank, an individual needs a standard set of documents:
- Identification (passport);
- A completed application detailing the purpose of the account, planned transactions, and annual turnover;
- Documents confirming the source of funds;
- Contact information.
This list may expand depending on the bank and its location. Naturally, all documents in a foreign language must be notarized and translated into the language of the country where the account is being opened. The verification process and complete setup usually take up to seven weeks. Some institutions don’t even require personal presence; all documents can be submitted remotely. However, opening an offshore account anonymously without identity verification documents is impossible, as it contradicts the basic principles of the banking system.
Also, it’s not possible to open an offshore account for free; be prepared to cover the bank’s operational costs and pay for legal support. Opening a bank account in a foreign country isn’t the same as doing so at home.
Interesting fact!
Offshore zones and offshore accounts, despite their close connection, emerged centuries apart. Historians consider the areas around Ancient Athens as the first offshore zones, where traders circumvented the city to avoid mandatory taxes. “Secret” bank accounts and transactions came much later. In the 18th century, Catholic French monarchs, seeking to hide their debts to Protestant Swiss bankers from their subjects, demanded strict confidentiality from the latter. Thus, Switzerland was the first to legally enshrine the concept of banking secrecy, a crucial principle of modern offshores.
Opening an offshore account for a legal entity
Taxation is a major issue for many companies. While we won’t deny the need to pay all mandatory contributions, it’s essential to remember that every citizen has the right to reduce their tax burden through legal means. Registering a legal entity in a country with low or no taxes is one such method, and opening an offshore account for company operations can be considered an essential procedure for starting a business.
In addition to standard support, having an account allows:
- Participation in international transactions;
- Investment in foreign projects;
- Protection of funds from seizures, freezes, and more.
To set up an account, you’ll need the following documents:
- Incorporation documents;
- Company charter;
- Information about the company’s directors and owners;
- Proof of the source of funds.
It’s important to remember that under international law, banks are required to combat money laundering, so the legality of the income source is one of the most critical aspects when opening an account. Furthermore, banks take the “know your customer” principle seriously and require full disclosure of the actual owner’s information. Sometimes, the company must also provide financial statements, proof of management experience, a business plan, and so on. Generally, the more reputable and larger the banking institution, the more information it will require about the client. The most reliable Swiss banks often ask for recommendations from other clients who already hold accounts.
The cost of opening an offshore account for legal entities is typically higher than that for personal accounts, but some leading offshore banks offer attractive service packages to attract international clients.
Opening an offshore account is often a necessary service for individuals and companies alike. However, given the multitude of offers available, choosing the right bank can be tricky. Potential clients face two options: either study the legal systems of offshores on their own, check the documentation and licenses of various banks, or seek assistance from a qualified intermediary who can quickly help find the best conditions based on the client’s requirements.