WHATS IS AN OFFSHORE BANK ACCOUNT (MEANING)?
An offshore bank account in 2023 is defined as a banking product used to make deposits of money but also banking transactions with an offshore bank located overseas country that is to which does not obey a specific jurisdiction.
An offshore bank account is opened with a financial institution that doesn’t obey any regulator such an onshore bank would do, being offshore is comparable to the freedom given to goods stored through free zone in ports and airports.
An offshore bank account can be used to avoid tax obligations as well as making it more difficult to seize assets by a person or entity in the home country maintaining the account holder safe from any confiscation of money.
Offshore banking has nothing to do with a bank located on an island in the ocean, and that should not be confused with the first offshore banks that were set up on the British Isles like Jersey.
An offshore bank can nowadays be active in the city center of a European city while pursuing legal activities and the choice of this option to be offshore is a purely technical one even if the bank will be still regulated.
An offshore bank account abroad involves securing assets in financial institutions in foreign countries, where the laws of the client's home country do not apply and where the bank secret is applied even with tax authorities.
Since banking regulations vary from country to country, it is possible that the country in which the offshore banking business is carried out does not offer the same protections as other countries.
IS IT LEGAL TO HOLD AN OFFSHORE BANK ACCOUNT?
Despite what one may hear, an offshore bank account is completely legal if it is declared to the tax authorities of account holder country of residence through a letter stating the existence of such an account and the reasons for opening it.
It is legal to open this type of account as it’s not about tax evasion or other illegal activities but rather to legally diversifying political risk by placing liquid savings in healthy and well-capitalized institutions where they are safe and generating more dividends.
WHY AN OFFSHORE BANK ACCOUNT?
An offshore bank account can be opened for many reasons generally consisting of two categories:
Offshore bank account for companies: their objective is to carry out tax optimization and not tax evasion, often this being due to companies working with countries where they are victims of double taxation and this is how they avoid this (practically all international companies use this means).
Offshore bank account for individuals: the latter use shell companies to conceal sums of money either from their tax authorities or from their relatives and ex-relatives (divorces); their situation is different because they are in the gray area of legality unless they inform the tax authorities of their country of residence.
WHAT IS THE DIFFERENCE BETWEEN AN OFFSHORE AND ONSHORE ACCOUNT?
The difference between an offshore bank account and an account with an onshore bank is that the first is in an offshore location and therefore legally neutral, the second is in a so-called normal bank and respecting the jurisdiction of the country where it is active.
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