Offshore Banking
For many of us, offshore banks are something that we shall never personally encounter. Often mentioned in international spy stories like James Bond movies, offshore banks, or anonymous banks are simply banks situated outside the country of residence of the depositor. Typically placed in areas with low tax jurisprudence, offshore banks are usually set in locations where the local tax rate is extremely low, if it exists at all.
Offshore banks were initially established in the Channel Islands situated off the coast of England in the United Kingdom. As well as low levels of tax, offshore banks offer their patrons a number of other advantages over their onshore equivalents. Primary among these are a series of major legal and financial advantages. The top of the list is privacy. The majority of the world’s banks offer clients a level of privacy similar to that which traditionally exists between doctors and their patients. This historical bond has recently been brought under the microscope as governments and supranational institutions push for greater banking transparency in light of the war against terror. However, banking secrecy regulations have been in place for several hundreds of years, and these arrangements are unlikely to be compromised any time in the near future.
The next major advantage of offshore banks is their relative independence of the regulatory requirements under which onshore banks must operate. Offshore banks essentially make their own rules and use this facility to leverage against the heavy regulatory pressure placed on the majority of their onshore banking equivalents.
A further major advantage of the offshore banking system is the low or non-existent levels of tax charge in the host locations. However, due to global banking changes, patrons of offshore banks must now declare all global assets in their regular countries of residence. This means that even if US citizens pays no taxes on accounts they hold in an offshore account in the Cayman Islands, they must still declare this income to the US tax authorities who will expect to receive taxes on any income whether it was derived locally or overseas.
Many offshore banks are situated literally off the coast of large countries like the UK or US. Others are land locked, such as Switzerland and Luxembourg, but they are still use the term offshore. While they may sound glamorous, and the special playgrounds of the rich and famous, due to the push in global banking transparency and accountability, offshore banking is unlikely to continue to hold the elite position that it once held.
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