Offshore banking is a well-liked way of holding or storing money in another country. There are plenty of advantages to offshore banking, such as more seclusion for your capital and immunity against political or economic instability. Offshore banking was originated in the Channel Islands, and the majority of offshore banks are found in island nations. Yet the term is also used to refer to banks in countries such as Switzerland, Andorra and Luxemboug which are not surrounded by water but carry more resistence than the countries around them.
Not surprisingly, due to being situated in tax-friendly countries or islands, offshore banking is often associated with tax violation. On the other hand, money that is held in an offshore bank account is not necessarily immune from income tax. The same goes for interest earned on the funds in offshore bank accounts. Unless you have special dispensation , you in all probability have to pay income tax on the interest you earn regardless of where those funds are stored – here or overseas.
If you live in a country where there is a tense political situation, or there are tensions in society, it may be advantageous to store your money in an offshore account. By keeping it in a local bank account you could risk the money being seized, frozen or ending up without worth. Another plus point is that lots of offshore accounts offer more attractive rates than in the country where you live and there might be fewer running costs involved. You may also be able to get a confidential bank account which your local bank might not be able to offer. To this point it seems as though offshore banking offers a lot of benefits, so what are the drawbacks?
One factor that might be less attractive to a prospective customer is the fact that the funds held in an offshore account could in fact be less secure. This can be seen in the financial downturn of 2008 -9, where assets held in offshore checking accounts in Iceland was lost. However if the bank that is being considered gives a worthy compensation scheme, this may recover some of the missing cash in the event of a serious financial loss. Another downside to offshore banking is that it is regularly geared principally at people with higher incomes. Many such bank accounts do carry high upkeep costs so they may only be a good idea for you if you do have a large income. However, lots of them do offer savings plans which can be accessed by individuals with normal incomes too.