The Advantages and Disadvantages of Offshore Banking
Saturday, April 30th, 2011
Offshore banking is a popular form of securing money in another country. There are loads of benefits of offshore banking, such as increased confidentiality for your cash and protection against political or economic instability. Offshore banking first existed in the Channel Islands, and the majority of offshore banks sit in island nations. However the word is also used when referring to banks in countries such as Switzerland, Andorra and Luxemboug which are not surrounded by water but are more secure the surrounding countries. It is no surprise, due to sitting in tax-friendly states or islands, offshore banking is frequently equated with tax violation. On the other hand, cash that is held in an offshore bank account is not in all cases exempt from income tax. The same rules apply to interest gathered on the capital in offshore checking accounts. Unless you have special dispensation , you most likely are required to pay income tax on the interest you make regardless of where that money is located - at home or abroad. If you live in a country where there are any political problems, or there are tensions in society, it could be a good idea to store your money in an offshore account. By keeping it in a local bank account you might be in danger of the money being removed, frozen or ending up without worth. Another plus point is that lots of offshore accounts offer superior rates than in the country of residence and there may be lower account fees involved. You may also be able to get a confidential bank account which your local 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 aspect that may be less attractive to a potential customer is the fact that the funds held in an offshore account could in fact be less safe. This can be seen in the financial downturn of recent years, where funds held in offshore accounts in Iceland was lost. However if the bank that is being considered provides a good compensation programme, this can rescue some of the missing cash in case of a grave financial collapse. Another drawback to offshore banking is that it is often geared mainly at people with higher salaries. Many such bank accounts do hold high administration fees so they might only be worth considering for you if you do receive a large income. However, many of them do give savings plans which may be utilized by consumers with regular incomes too.