What is Offshore Banking?
When citizens of a country decide to deposit money in a bank located outside their country of residence or citizenship they are engaging in ‘offshore banking.’ Often offshore banking is done to benefit from financial advantages available in the offshore countries. These banks tend to be located in low tax jurisdictions and provide both legal and financial services. Offshore banks also tend to follow the example of the 1934 Swiss Banking Act in providing enhanced banking privacy. National banking laws determine the products and services that may be offered by banks with offshore products and services operating within their jurisdictions and these vary widely from country to country.
Small countries, especially island nations, have turned to offshore banking along with tourism as a environmentally friendly way of enhancing their local economy and competing with the developed nations. These countries are referred to as “offshore financial centers.”
Offshore Banking Financial Instruments
While banks in offshore financial centers offer individual accounts and a wide range of financial products, there are two that attract large investors in particular. Offshore foundations and trusts offer asset management opportunities for wealthy individuals, families, and corporations. Offshore trusts are similar to those offered by onshore trusts, though some offshore financial centers have changed the legal parameters of trusts. For example, in some offshore financial centers trust assets do not have to be distributed by a certain date and in some centers there is a greater tolerance for non-charitable trusts.
Some offshore financial centers such as Belize specialize in offering financial foundations. Offshore Foundations are similar to trusts and can be used for a wide variety of purposes including managing charitable funds and protecting family assets.
Advantages of Offshore Banking
Offshore banking is famous for facilitating the transfer of assets to tax havens and asset protection. However, a more significant benefits is the transfers of assets from politically and economically unstable regions to stable financial environments. Tax evasion is not one of the advantages of offshore banking. While offshore banks may offer lower costs and higher interest rates they can’t protect the investor from the obligation to report assets and pay domestic taxes on earnings. Many offshore financial centers have reduced regulations on banks which expands the opportunities offshore banks may offer to investors.
Tax Issues for U.S. Citizens Engaged in Offshore Banking
Ever since 9/11 there has been increased scrutiny of offshore financial centers to reduce the risk of money laundering in support of international terrorism. The privacy once offered by Swiss and other offshore accounts is no longer as secure as it used to be. This change is demonstrated by a number of successful U.S. prosecutions of offshore banking institutions and depositors.
It is legal for American citizens to engage in offshore banking, however, both the accounts and earnings from the accounts in offshore banks must be reported on federal tax returns, and if the amount held in offshore accounts exceeds $10,000.00 USD then the holdings must also be reported on Treasury Department FBAR report forms.
If a U.S. citizen has several offshore accounts it is the sum of the accounts that must be considered to determine whether it is necessary to return a Treasury FBAR report form. Suppose an individual has $2000.00 in an account in Belize and $4,000 in a Singapore account, $2,000 in a Mexican Bank and $3,000 in a Swiss bank account, with a total of $11,000.00 USD then a Treasury FBAR account is required. Even if the offshore account earns no interest or other returns it must still be reported. No matter that foreign taxes have been paid on the money in an offshore account, it must still be reported.
Failure to report offshore account can have catastrophic civil and criminal liabilities. Federal prison sentences and huge fines can result from failure to disclose assets held in foreign accounts. Legal council is often advisable when dealing with offshore financial instruments.
Role of Wealth Management Specialists
Because of the post 9/11 environment and the severe penalties of improper reporting of offshore assets it is advisable for individuals and families interested in the advantages of offshore banking to engage the services of wealth management specialists such as Richard Cayne Meyer Asset Management, Ltd. Such management firms have global expertise in offshore financial instruments and their legal contexts. International asset managers such as Richard Cayne Meyer International are able to identify financial products in offshore financial centers around the planet that best suit the needs of investors and others in need of financial management assistance. It is difficult for individuals and families to navigate the legal hurdles of offshore banking.
Richard Cayne Meyer International practices wealth management strategies that combine three essential services: financial planning, investment portfolio management, and general asset management. The result of the wealth management Richard Cayne Meyer offers is a comprehensive plan to guide investors as they navigate their financial futures. While it is nearly impossible to have investments that are 100% risk free, knowledge and analysis such as that offered by the Richard Cayne Meyer group of companies can effectively manage the risks of the market place.
Richard Cayne Meyer born in Montreal, Quebec Canada resides in Bangkok Thailand and runs the Meyer Group of Companies www.meyerjapan.com. Prior to which he was residing in Tokyo Japan for over 15 years and is currently CEO of Asia Wealth Group Holdings Ltd a London, UK Stock Exchange listed Financial Holdings Company. Richard Cayne has been involved in the wealth management space in Tokyo Japan and has assisted many High Net worth Japanese families create innovative international tax and wealth management planning solutions. https://www.isdx.com/Asia Wealth Group.