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Do you need an offshore bank account?

When you think of offshore bank accounts, do you see shady characters carrying bags full of money? Current modern banking legislation does not allow banks to accept cash deposits or transfers of US$10,000 and more without providing proof of the origin of the funds.

All serious establishments will ask you to fill out forms known as KYC or know your customer. Learn more about KYC: See This is not just so we can better serve you, but to protect yourself in case you are accused of money laundering. These forms also let the bank know your sources of income. Knowing your cash flow, the bank will not ask you to prove the origin of the funds every time you make a transfer.

Even if you have completed a KYC form, the bank may or may not, at their discretion, allow you to start a relationship with them.

What is the difference between your local bank and an offshore bank? Basically, whatever service you get locally will be available abroad. So why open an account abroad?

Offshore banking is no longer a practical way to hide income from illegal activities or unreported business profits.

There are many justifiable monetary reasons for opening an offshore bank account. As a resident of a country with an unstable political and economic history, you want your money to be in a safe place. The government could impose foreign exchange restrictions or there could be a bank run. A coup can make your money inaccessible.

Non-residents generally pay little or no tax on interest or investment earnings. Depending on your citizenship, country of residence, and whether you use an offshore company as the account holder, you may still have to pay taxes.

Many large international banks have branches or are incorporated in tax havens. To be on the safe side, it’s probably best that you don’t use a bank that has branches or is incorporated in your country of residence.

US citizens must file an annual tax return no matter where they live and include foreign holdings. From 1 July 2005, tax havens that are British ‘dependent territories’ will apply the European Union Savings Tax Directive 2005. Initially this is 15% on savings returns paid to nationals of the EU member states. Corporations are exempt from this withholding.

Always consult a tax specialist who has experience with the jurisdictions involved before beginning your foreign tax journey. You don’t want any costly surprises after opening an offshore company and bank account.

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