Offshore banking is a well-liked form of securing money in another country. There are many benefits of offshore banking, such as better privacy for your money and immunity against political or financial instability. Offshore banking was originated in the Channel Islands, and most offshore banks are located in island nations. However the term is also used when referring to banks in countries like Switzerland, Andorra and Luxemboug which are not islands but are more secure the countries around them.
Not surprisingly, due to being located in tax-friendly countries or islands, offshore banking is often equated with tax evasion. And yet, capital that is held in an offshore bank account is not automatically exempt from income tax. The same goes for interest gathered on the money in offshore bank accounts. Unless you have special dispensation , you in all probability are required to pay income tax on the interest you make no matter where those funds are stored – here or overseas.
If you live in a country where there are any political problems, or there are public tensions, it may be sensible to store your money in an offshore account. By keeping it in a local account you could be in danger of the funds being removed, frozen or becoming worthless. Another advantage is that many offshore accounts offer more attractive rates than in the country where you live and there may be fewer running costs involved. You might additionally be able to get a confidential bank account which your traditional bank may not be able to offer. To this point it sounds as though offshore banking carries many plus points, so what are the drawbacks?
One factor that might be less attractive to a potential customer is the fact that the money held in an offshore account could in fact be less safe. This can be seen in the global financial crisis of 2008 -9, where money sitting in offshore checking accounts in Iceland was lost. Yet if the bank in question offers a decent compensation scheme, this may rescue some of the missing cash in the event of a grave financial fallout. Another downside to offshore banking is that it is often aimed primarily at people with larger incomes. Many such bank accounts do carry significant running costs so they may only be a good idea for you if you do have a healthy salary. However, many of them do offer savings plans which may be accessed by consumers with regular incomes too.