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Selecting An Offshore Bank
Submitted: Thu, 31 Mar 2005 13:21:34 -0500

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In the popular imagination offshore banks are associated with sophisticated financial transactions occurring in exotic locations. The reality often isn't nearly as colorful (except for those offshore centers located in the sunny Caribbean) but offshore banking and investing can be an important financial tool for many individuals and companies.

An offshore bank is located in a country where banking, business and tax laws offer advantages that are not available to customers at home. These advantages include confidentiality, anonymity, favorable tax treatment, sheltering assets, estate planning and efficiency in international trade. All of these goals are legitimate and perfectly legal. While the benefits and reporting requirements vary somewhat depending on your country of residence, there are few restrictions on banking and investing abroad. An increasing number of individuals and companies use offshore investing and banking as a part of their overall financial strategy.

Investing and banking offshore does require careful and planning. Each country has its own requirements for reporting and paying taxes on income earned in other countries, and the tax advantages vary between host countries. Nations with offshore banking facilities have strict confidentiality requirements, but they differ between countries. Your benefits will depend on the type of assets you hold, or will be acquiring, and your individual goals. The geographical location of the offshore bank may sometimes be important. For instance, a company or individual doing business in the Americas, might find an offshore bank in the Caribbean more advantageous than a comparable bank in the Balkans. Timing can also be a critical factor - often setting up a financial arrangement offshore in advance of receiving assets and income can result in greater benefits. As with any financial plan it is critical to get expert advice based on your individual situation. Looking at the major reasons for offshore investing/banking in detail will show why careful planning is necessary.

CONFIDENTIALITY - Historically this has been a major reason for banking offshore. The right of law-abiding citizens and companies to protect their financial privacy from private and governmental prying has been seriously eroded in many countries. This takes many forms, from financial disclosure requirements for those in public service to private prying by business rivals and the media. But a number of countries refuse to go along with this trend and have strict confidentiality laws. Of course, in instances of improper activity, including financial crimes, all of them have provisions for local authorities to obtain pertinent information. Otherwise, the legitimate private activities of depositors are tenaciously guarded. With the right preparation you can structure your offshore investments so that no one other than you will know what assets you are holding offshore.

Confidentiality can be enhanced through anonymous investment accounts and the use of business entities established under the favorable laws of several jurisdictions. Again, this does not shield the investor from income reporting for tax purposes, but does protect investment privacy.

TAXES - Tax advantages are the second traditional reason for going offshore. These benefits are not absolute. U.S. citizens and residents, for instance, must report income earned overseas, and in most instances, pay tax on that income. But that's not the end of the story. Host countries largely or entirely exempt certain foreign investors and depositors from local taxes. Some host countries have favorable tax treaties with your country of residence, and many others. In some cases income can be partially sheltered through offshore holding companies or similar entities.

ESTATE PLANNING - Preserving assets for your descendants is a related goal. Offshore trusts can accumulate assets and pass them to beneficiaries without being subject to inheritance, estate, gift or capital gains taxes. Because these assets pass outside of a will they are not subject to probate and the resultant loss of privacy.

PRESERVING ASSETS - Protecting assets from litigation-related threats is another reason for moving assets offshore. This is a perfectly legitimate activity. Overseas assets are often exempt from seizure or freezing by court orders from your country of residence. This gives protection from creditors, bankruptcy courts and the predatory actions of litigation opponents - including spouses in divorce cases - and their lawyers. While some final judgements may be enforceable in the host country, interim orders freezing or transferring assets frequently are not. Again, careful advance planning is vital.

INTERNATIONAL TRADE - Finally, companies engaged in international trade frequently use banks in strategic locations for overseas investing and transactions. Investing in countries where the political situation is volatile but where business opportunities are very attractive carries obvious risks. A bank located in a nearby country offers a stable platform for dealing in the target market. In addition, the personnel of the bank frequently have experience with and contacts in the other country. Money can be moved into the offshore account in one currency and paid out in another, sometimes from the same account.

WHAT SHOULD YOU LOOK FOR IN AN OFFSHORE BANK?

The basics are not that different from the reasons you choose your bank at home - service, convenience, and financial stability. Offshore banks offer the full range of services you expect from a bank. You should look for banks that make it easy and convenient to transfer funds - from any location in the world. The bank should be located in a country offering maximum confidentiality and tax advantages and one where the political situation is stable, friendly to foreign depositors and investors. The country's bank regulatory system should confidence in its financial institutions, while allowing them the freedom they need to compete in the modern global economy.

Beyond these basics, an offshore bank can offer many services, such as investing in securities, which banks in the United States cannot. Many can arrange for your purchase of "off-the-shelf" companies in a variety of jurisdictions. You may find that a mix of entities, such as a trust located in an offshore bank, which owns a holding company incorporated in a another country, which in turn invests your assets in many different countries, is the best for you. This flexibility is the hallmark of offshore banking. Each bank offers somewhat different services and each country has its own tax and other advantages. Your interests may be geographically specific, or they may be entirely geographically independent. As always, careful planning and expert advice are indispensable. (red.peter poulsen)

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