Should You Trust Your Money To An Offshore Bank Account?
The Myths Explained!
Offshore Tax Havens
Offshore banking has long been a subject romanticised by the media - in film, television and newspapers.
But what is the reality of offshore banking?
"An offshore bank is a bank located outside the country of residence of the depositor, typically in a low tax jurisdiction (or tax haven) that provides financial and legal advantages."
These advantages typically include:
* greater privacy
* less restrictive legal regulation
* low or no taxation (i.e. tax havens)
* easy access to deposits (at least in terms of regulation)
* protection against local political or financial instability
While the term originates from the Channel Islands "offshore" from Britain, and most offshore banks are located in island nations to this day, the term is used figuratively to refer to such banks regardless of location (Switzerland, Luxembourg and Andorra in particular are landlocked).
Offshore banking has often been associated with the underground economy and organized crime, via tax evasion and money laundering; however, legally, offshore banking does not prevent assets from being subject to personal income tax on interest.
Except for certain persons who meet fairly complex requirements, the personal income tax of many countries makes no distinction between interest earned in local banks and those earned abroad. Persons subject to US income tax, for example, are required to declare on penalty of perjury, any offshore bank accounts—which may or may not be numbered bank accounts—they may have.
Although offshore banks may decide not to report income to other tax authorities, and have no legal obligation to do so as they are protected by bank secrecy, this does not make the non-declaration of the income by the tax-payer or the evasion of the tax on that income legal.
Following September 11, 2001, there have been many calls for more regulation on international finance, in particular concerning offshore banks, tax havens, and clearing houses such as Clearstream, based in Luxembourg, being possible crossroads for major illegal money flows. “ – Wikipedia, http://en.wikipedia.org/wiki/Offshore_bank
Due to certain investors and corporations desiring to get away from US Security and Exchange (SEC) regulations and US taxes, many investors conduct business operations from the British Caribbean, Bermuda, and similar places
One of the major offshore banking destinations is The Cayman Islands.
The Cayman Islands have been, since the 1960s, a favorite haven for money, as the Islands are not burdened with regulations and taxes.
The Cayman Islands are a British possession in the Caribbean with a permanent population of about 36,000 people and an area of 260 square miles - less than the City of New York.
The banking sector of The Caymans contain 450 banks from 65 countries, and is one of the biggest banking centers in the world.
These banks collectively contain assets of over $1.1 trillion.
This is mostly connected to major hedge funds and has made the Caymans the fifth biggest banking center in the world. There are also over 2,000 mutual funds operating out of the Caymans.
Financial regulation is administered by The Cayman Islands Monetary Authority and the Stock Authority, which regulates the CSX - the Caymans Stock Exchange.
The banking regulations that exist go back to 1996, and are in place mainly to limit the amount of money laundering going on. Money laundering is a practice used primarily for tax evasion, and to conceal illicit profits from drug sales, gun sales and other criminal activities.
The Caymans took steps for anti-money-laundering measures, which got it removed from the NCCT, the non-cooperating Countries and Territories list.
The Cayman Islands have complained that if they are forced to share information for tax tracking purposes with the European Community and the United States, they want to make sure there is a level playing field. The regulations that they may be subjected to on exchange of tax information must be applied to other well-known tax havens.
The Cayman Islands have never implemented income tax or corporate tax. This is viewed by the Cayman authorities as a form of "competition", against all the high taxing monetary authorities and governments across the world.
Actually, places like the Cayman Islands play a key role in "globalization", since they are a place where money and investment deals between corporations from many countries can be made without the interference of national sovereignty or tax law. They therefore act as sort of a free market paradise.
There are many common myths associated with offshore banking. The two biggest are:
“All offshore banking jurisdictions are about the same.
Not true. One must see if the country has tax treaties with other countries. Tax treaties are where the fishing expeditions come from. One must gain a knowledge of the offshore banking laws in the particular jurisdiction being considered.
Many has been offshore banking jurisdictions have changed their once favorable offshore banking laws since 9/11 and are basically doing business with people who do not take the time and trouble to check the offshore banking laws for the country in question. For instance Belize does not have any banking secrecy laws written in statues. Switzerland has modified their laws to suit the EU.
Many of the Caribbean island offshore banking jurisdictions have given in to EU and American pressure and being afraid of losing their cruise ship business have changed their bank secrecy laws for the worse.
No Offshore bank will ever reveal information about the bank accounts or banking clients.
The truth is offshore banks will reveal some information in some cases. This varies from case to case and country to country. Panama will cooperate in four categories of crimes: terrorism, money laundering, narcotics trafficking and child pornography.
Countries have what is called MLAT (Mutual Legal Defense Treaties) that call for the release of information under certain defined circumstances. Most offshore countries have Tax Treaties that call for the release of other information to other countries in the treaty. Panama has no tax treaties with other countries and is most unique in this respect being the only offshore banking and incorporation jurisdiction without any tax treaties. In Panama all tax offenses are considered civil offenses.
As a general rule the MLAT treaties require that the crime being investigated by the requesting country must also be a crime in the country the information is being requested from.
So offshore banks will under certain circumstances release information about the bank accounts they have. …One must select the right country not only the right offshore bank.? Panama Legal, 2008, http://www.panamalaw.org/offshore_banking_myths.html
Like any financial venture, it is advisable to do your research before you make any decisions on offshore banking.
Used wisely, this form of banking can be of great benefit to you financially, however it is of course important that you know the risks involved.