There’s a commonly held misconception that the term ‘offshore,’ when applied to financial services, relates to immoral or illegal activity. Governments and onshore banks are happy for this myth to pervade and colour people’s opinions about the likes of offshore bank accounts.
The reasons being your government would rather have all your wealth onshore where it can see it, tax it and generally benefit from it, and the onshore banking community would like you to retain all funds with them so that they can profit from them.
The fact of the matter is however, banking offshore is not illegal, nor is it immoral. For some people it is the only safe way to manage their money, for others it legitimately saves them being over taxed. What’s more, as we will now demonstrate, offshore banking will never be made illegal.
What IS Illegal About Banking Offshore?
If we get the illegal side of the argument out of the way, we can concentrate of whether offshore banking is immoral, should be made illegal and whether you should even be contemplating going offshore…
So, if anyone holds money, wealth, assets or taxable property offshore without declaring it to the tax authority where they are resident, and/or where they are liable for income, capital2 gains or even corporate taxation for example, then they could be acting illegally.
If you have a reporting obligation to a tax authority, your obligation is absolute. I.e., you cannot selectively report only certain information about your financial status. You have to declare everything and pay all taxes owing.
Your reporting and taxation responsibility is a personal one, ignorance of the laws are not an excuse for tax avoidance or evasion.
Therefore, if you’re thinking of going offshore to avoid anyone knowing about what money you have where – you are heading towards acting illegally. Stop! Do NOT do it, you will be found out. Nowadays there is massive pressure on financial institutions in every single offshore centre in the world to share and disclose client information where tax avoidance activity is suspected.
Money laundering via offshore bank accounts is equally illegal – and is another activity that has brought great shame to an otherwise legitimate area of the global financial industry. Money laundering is big business for some of the world’s most dangerous criminals – such as those involved in terrorism or narcotics.
Money laundering is all about making illegally obtained funds appear legitimate.
All of these activities are illegal…and all have tainted the term ‘offshore’ in relation to financial services.
When is Offshore Banking Legal?
Banking offshore – i.e., in a nation other than the one in which you currently live – is absolutely legal and legitimate. 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.2
Is Offshore Banking Immoral?
One of the most common arguments you will read, (usually in left1 wing media), against the offshore financial services industry is that those who hold assets offshore are acting immorally.
This is a judgement made against those who avoid tax by staying offshore. The argument being, tax is used to help the poorest in our society and around the world via foreign aid, and if you avoid your tax obligations by going offshore, you’re basically immoral because you’re depriving the world’s poor.
However, if you read everything we have said above – i.e., that you cannot avoid your tax obligations by going offshore because then you would be acting outside of the law – if you’re offshore legitimately you are not being immoral!
Those who have a requirement to declare their assets and pay tax on income or gains must do so. There are plenty of people out there who can however, totally legitimately reduce their tax bill by going offshore.
So, are these people immoral?
No! Because none of us has an obligation to pay any more in taxation than we are legally required to do so!
Why Offshore Banking Will Never be Illegal
No one can make going offshore illegal. Why? Because at its very core, moving wealth or assets to another nation is at the very foundation of our modern world economy. If no one were ever allowed to buy, sell, trade or transact with other people in other nations, then the whole world as we know it would grind to a halt.
Even governments send money around the world and hold wealth in offshore centres for example. Therefore they cannot stop the global movement of money. Which is why offshore banking cannot become illegal!
There will however be a constant, concerted and relentless drive to stamp out the likes of money laundering and tax evasion – which is wholly fair.
But for those who can legitimately benefit in many different ways by going offshore, don’t worry, you’re not a criminal, an immoral person and you don’t need to worry that your offshore activities will suddenly become illegal overnight!
Always remember your reporting requirements, and that ignorance of the law is not an excuse for failing to pay any tax owed.