Offshore Banking
This is part of our Pillar Content of Flag Theory™ where we detail how you can take a well-proven strategy for protecting and growing yourself and your wealth apply it. The strategy is comprised of 7 flags, and Offshore banking is the 4th flag.
Depending on your individual citizenship and passport situation, you might have much greater or lesser options for offshore banking. Countries and individuals facing sanctions might have difficulty opening up an account in certain jurisdictions. However, there are plenty of benefits to offshore banking for most nationalities.
What is an offshore bank account
An offshore bank account is a bank account that is off the shores of where you currently live. In other words, it is a foreign bank account located in another jurisdiction. Oftentimes it makes sense to setup this account in a different territory than where you have your offshore company flag. This is because when you hold the account in a different jurisdiction, it gives you additional redundancy, time and protection against a frivolous lawsuit.
Are offshore bank accounts legal?
Yes! International bank accounts – both personal and corporate – are legal. There is nothing inherently illegal about owning an offshore account and they are not “shady” or unprofessional in any way. Trillions of dollars are stored in offshore jurisdictions and they remain an integral piece of international finance.
When Can Offshore Bank accounts cause a problem?
If you don’t file the right forms to report the accounts. Oftentimes the beneficial owners create problems because they don’t properly report their savings accounts, because they are trying to hide something.
Offshore banking is powerful, and thus it can be abused. You must make sure to file the correct forms with your relevant government agencies. This is why a professional approach is always helpful.
Special Notes for Americans who own an offshore bank account. American taxpayers with a foreign financial account must report all accounts every year using an “FBAR” form that your accountant can help you with. This form is required if the total amount across all foreign accounts exceeds US$10,000 equivalent in any year. Other forms, such as 5471, should be used if you own shares in an offshore company, and if the total amount is more than US$50,000 then form 8938 also may apply. These are the main ones, but you should check with an accountant for your unique situation. This is not tax advice, and should not be used to avoid taxes in any way.
Why open an offshore bank account
- Currency risk
- Sovereign risk
- Asset seizure
- Protect your savings
- Diversify investments
- Different investing opportunities
- Ease of money transfer
- Merchant Accounts
There are many reasons why an offshore bank account could be beneficial, not the least of which is to decrease your sovereign risk. The country where you live now could look dramatically different or fall apart, the government could institute exchange controls, meaning money cannot flow freely. Ask any Argentinian about the currency in their country and you’ll hear all about so-called capital controls.
Where can I open an offshore bank account
There are a number of different offshore jurisdictions which offer personal and corporate bank accounts. In order for a bank to call itself a “Bank” – and have Bank in its name – there are a number of different requirements that need to be met.
Therefore, if the company comes from a reputable jurisdiction – you can be assured of capitalization or bonding requirements. A bank with a “class A” license can trade with the public, while one with a “class B” license is restricted from doing business with anyone or any entity that is not on a prescribed list. If in doubt, you can check with the company government agency, who maintains the compliance for all of the banks in the country.
For instance, if you were looking to set up an account in St. Vincent and the Grenadines, and you wanted to do due diligence, you could first make sure that bank has the proper licenses, by looking at the government registry like this one.
How to open an offshore bank account
Introduction
It helps to a large extent to have an introduction or pre-existing relationship with the bank where you are seeking to procure an account. Bankers are by nature very risk averse – and don’t want to lose their fat salary by signing up a high-risk client who later turns into a nightmare.
Pass KYC
However, if you have an introduction and can tick all the proper boxes, there shouldn’t be a problem to open the account. You’ve bypassed their internal controls, and the burden of proof has been met. This burden of proof always included (at a minimum) AML:KYC requirements. [Anti-money laundering act, and Know Your Customer requirements] Basically you need to meet 3 tests to pass KYC.
- Proof of identity (easy when meeting up in person, otherwise a certified passport)
- Proof of residency (this is usually a utility bill – and should have your name and address)
- Proof of wealth (letter from an accountant or bank is best way to confirm your earnings).
These KYC standards are what banks use in order to satisfy their regulatory compliance. You’ll need to meet at least these standards to open an account at most banks.
Initial Deposit
After meeting the KYC requirements, you’ll likely be required to make an initial deposit into the bank. This can sometimes be immediately withdrawn, other times it will have to remain in the account as an ongoing account minimum.
Corporate Accounts
For a corporate account you’ll need to provide the following in addition to your proof of identity, residency and wealth:
- M&AA (your incorporation documents, memorandum, and articles of association)
- Certificate of incumbency – apostilled (who are the shareholders, certified copy)
- Certificate of good standing – apostilled (proof of the government fees paid, certified copy)
Beneficial Owners
Be careful as many providers try to sneak this in for an additional fee. You’ll be unable to open a bank account without these documents, which show the true beneficial owners of the company. There will always have to be some record of who is the rightful owner of the bank account.
Directors’ Resolution
You’ll also need a directors’ resolution to open up a bank account, or power of attorney for whoever is indeed opening the account.
Banking Signatories
Some time should be dedicated to thinking about who will be a signatory on the account, and for which amounts they will be able to move money in and out of the accounts. If the account is to be a joint signature account – different banks have different technical abilities. Some, for instance, are far better at allowing for complicated signature requirements.
Banks in Hong Kong and Singapore (which are ideal for corporate banking) tend to be better in this regard. Offshore banks that are more for private individuals typically have less options when it comes to control of the company via signature and less robust online banking.
Americans
There are many places around the world that will open a bank for you if you are actually living or investing there, have a work permit and other necessary documents. However, particularly in terms of offshore banks, and those with remote account opening – your choices are rather limited.
Americans Being Shut out of Offshore Banks?
This is largely due to FATCA – the foreign account tax compliance regulations, part of the HIRE act – which has already come into effect. FATCA requires that banks report back to the IRS on all of their accounts (if they accept any US clients) – or simply refuse US accounts altogether. The penalty for non-compliance is a 30% withholding tax rate when utilizing the US banking system. For Americans.
FATCA (foreign account tax compliance act) has been fully implemented and well over 70,000 banks have complied. You can look up any bank or FFI on the IRS website using a tool they provide. It is likely that any of these banks still accept US clients since they are going through the hassle of being FFI compliant with the IRS.
In 2016, there are still many banks that take on American clients. There are additional forms which are required on the banks’ behalf, but as a consumer, you won’t notice much of a difference (perhaps you will also need to file form 8938 – but your accountant can easily assist you with this.
Oftentimes is a great help to have an introduction as an American, as banks are increasingly suspicious of Americans opening an account. You need to know how to answer their questions in order to get them to accept your business. We would be happy to assist you with the provision of an international bank account, and we can also introduce you to a qualified, licensed CPA in our network who can help you remain in compliance with the IRS.
If you wish to learn more, we invite you to visit our offshore banking dedicated blog.