Advantages And Disadvantages Of Offshore Banking
The pros and cons of offshore banking and how you can benefit from an offshore bank account as an expat.
Two common misconceptions about offshore banking are that it is illegal and that it is only for super-wealthy.
Well, it’s not quite so. Firstly, banking offshore in a nation other than the one in which you currently live is absolutely legal and legitimate. Secondly, there are banks out there that can start an offshore account for as little as $300.
An offshore bank account is often used by those who have little faith in their local banking industry or economy, those who live in a less than wholly politically stable nation, those who can legitimately avoid taxation in their new nation by not remitting funds to it, and expats who want one centralised bank account source for their international monetary needs.
For all such individuals banking offshore is not only legal, it’s sensible too. As long as those individuals declare all assets offshore to any tax authority where they have an obligation to declare them, and they pay any taxes due, they are acting legally.
For an expat there are definitely more advantages than disadvantages to using offshore banking. This is why:
At the bottom line expatriates have four basic banking options:
The way that works best for most expatriates is to combine the use of a home country bank account for any payments there, a new local account for day-to-day costs, and an offshore bank account for the management of the majority of their money.
Retaining a bank account in a country of domicile makes significant and long-term sense for many expatriates. Unless you’re attempting to change your country of domicile and sever all ties with your home country forever, retaining a banking presence there will mean that if ever you want to repatriate, the path will be smoother for you.
You may well find that you will not necessarily have to go through such rigorous client due diligence checks upon your return if you want to rent a property, raise a mortgage or even apply for a credit card for example.
It does not make sense to earn your money abroad and then transfer it all back to your country of domicile, incurring currency exchange costs and risks every time.
Nor does it make sense to manage international finances through a local account or to necessarily make your financial affairs known to your home country authorities when you legally have no obligation to do so.
Opening a local bank account in your new nation of residence may also make a lot of sense and even be a requirement.
For example, your employer may demand you have such an account into which your salary can be paid each month. You may also need such an account to have utilities connected to your new property, to get a mobile phone, rent a house, raise a mortgage or purchase a car.
However, it is not usually in your best interests to bring all of your capital and wealth onshore to your new nation of residence and bank it locally.
For a start, you don’t have to, and if you do then your capital is immediately in the tax system of the country in question and it is very difficult, if not impossible, to change your mind or reverse this situation in the future.
For the vast majority of expatriates, there are severe taxation disadvantages to bringing all of your money onshore into your new nation of residence, so you might want to avoid such a situation.
That’s where an offshore bank account can prove helpful.
The main thing to remember is that offshore banking isn’t necessarily a perfect solution for every expat. It’s important to know what advantages and disadvantages offshore banking has and how it fits in your personal situation.
To help you decide whether an offshore bank account is right for you, here are the most prominent pros and cons of choosing an offshore bank account:
We hope this open and ever-developing list of the advantages and disadvantages of offshore banking will help you to make your own mind up about whether or not an offshore bank account is right for you.