When the term ‘offshore’ is discussed, there is often times a negative connotation to it. Headline stories are always of shady characters siphoning money and avoiding taxes via entities in offshore districts. This is curious, because the term ‘offshore’ is a fairly common term referring to all persons working and living in a country other than their home nationality. Those people can consist of expatriates relocated to an office in a different country, entrepreneurs, or even any working individual or student that chose to pursue their career in a different country. These people are often involved in more frequent cross-currency transactions and investments than their friends back home, which is why using offshore services can help make their life more convenient.
Taking advantage of offshore services
There are 2 main ways to utilize offshore services, the first being offshore banking, and the second is in conducting business or investments via an offshore business or entity.
Many offshore financial districts exist around the world (47 according to Wiki). They range from the Caribbean (Belize, the British Virgin Islands, etc.) to Asia (Hong Kong, Singapore, Labuan, etc.). From my experience, they all serve the exact same purpose, so the country you ultimately choose to bank offshore in is more or less irrelevant.
The term ‘offshore financial district’ refers mainly to a country that has a tax rate of 0%, which to most people is fantastic. Countries may choose to do that for a number of reasons, but primarily it is because their country is small and their economy sucks, so this is their way of attracting businesses to set up there. In return, they charge a fee to register the company in their country that recurs annually (and is actually not so expensive either – ranging from a couple hundy USD to a couple thousand).
Why Bank Offshore?
If you don’t travel often, you shouldn’t.
The real advantage in banking offshore is in a) being able to hold multi currency accounts, b) fast transfers to overseas bank accounts, c) access to international investments, and d) most banks also throw in a pretty good international health insurance policy as a kicker. If you have no use for any of the above then its not worth your time to bank offshore.
To get started, most banks accept applications from almost anyone (many don’t accept US citizens anymore) provided they meet the criteria of being employed somewhere overseas (holding a work visa somewhere).
When I think offshore banks, 2 immediately come to mind, both of which enjoy fantastic reputations. Lloyds bank based in the Isle of Mann and Standard Bank based out of South Africa. Both are top tier banks, have relatively low fees, have good customer service and are easily reachable, and have good international insurance policies. Back in the day when I was slaving it out for an offshore financial services company, those are the 2 banks we would push because they were reliable. Corporate offshore banking however is another story.
How to use them
Let’s say you travel between the UK and Japan often. Keep a balance in GBP and JPY in your international bank, which will act as your ‘central’ bank account. When you travel to a country, you can wire that currency from your international bank account directly to your local bank account in that country for free with most international banks, or you can just use the debit card. This allows you to bypass the risk of currency exchange loss and move your money around to wherever you need it to be. It is like having one bank account that is local everywhere you go.
On the legality of offshore accounts
Tax havens have been a well known tool for tax evasion. People that owe taxes in one country think they can move it overseas and no longer be liable to those taxes. There are many complex methods of doing this, but it is bottom line illegal. It is perfectly legal, however, for one to move his assets anywhere he wishes. If you open an offshore account, fund it, and invest using that account in property, markets, securities, etc. and realize any gains, you are effectively realizing those investment gains in a tax free environment and there is absolutely nothing wrong with doing so since the money is made offshore.