Closing the Books on 3 Offshore Banking Misconceptions
The thing about myths and misconceptions is that they quickly take on a life of their own. Once ingrained in the public consciousness, it takes quite a bit of effort to dislodge them. That’s certainly true with all of the misconceptions about offshore banking and investing.
Exactly how those myths came to pass is up for debate. Over the years, movies and other forms of entertainment have used the concept of an offshore account as a way to convey shady dealings on the part of a character. It’s also true that some people have abused offshore accounts and used them in ways that the majority of people would never consider.
The fact is that offshore banking accounts do serve many legitimate purposes. As you learn more about them, it helps to also dispel some of the myths surrounding this option for creating and managing financial resources. By focusing on three of the primary misconceptions that hold sway today, you will see the value of offshore banking and begin to understand how the right accounts provide practical and perfectly legal benefits.
Misconception #1: Only the Wealthy Can Open and Maintain Offshore Accounts
When people think in terms of opening offshore checking accounts or term deposit accounts, they automatically assume that nothing less than six figures is acceptable. Within the scope of that mindset, middle-class earners would be forever frozen out of the chance to open any type of offshore account. Fortunately, there is no truth to this misconception. It is possible to open a number of different kinds of offshore accounts with relatively little money.
There are offshore banking institutions that will open accounts for new clients and require less than $1,000 USD for the initial deposit. It’s true that the overall process will involve setting up some sort of shell corporation and possibly a trust. These serve as additional layers of protection for the money placed in the account. Even allowing for the costs involved with forming the corporation and trust, you are still looking at somewhere in the range of less than $5,000 USD to accomplish the goal.
As with many domestic banking and investment accounts, you will pay some sort of annual fee to keep the accounts open and intact. Depending on the banking institution’s policies and procedures, that figure may amount to a fixed percentage of the account balance or a flat fee that applies no matter how much you accumulate in the account.
The bottom line is that you don’t have to be rich in order to have an offshore account. Do expect some expense, both at the point of opening your account and during every year you keep the account active. Rest assured that even if you aren’t pulling in six figures in income each year, you can still afford to open and grow accounts in offshore banks.
Misconception #2: People Only Use Offshore Banking as a Way to Avoid Paying Taxes
Many movie plots, as well as news stories about fraud involving offshore accounts, focus on two specific activities: tax evasion and money laundering. It’s true that people have and will likely continue to use offshore accounts for these purposes. What is often overlooked is that people also use domestic accounts for these same type of illegal activities.
Changes in recent years do make the illicit use of offshore banking increasingly problematic. For example, the Foreign Account Tax Compliance Act of 2010 (FATCA) created a more comprehensive platform for reporting the balances in offshore accounts and paying any taxes on those balances required by law. With more nations reciprocating by providing account information, it’s difficult to hide money in order to avoid paying taxes.
What sometimes gets overlooked are the practical and perfectly legal reasons to open and make regular deposits to offshore retirement accounts, checking accounts, and various types of trusts. Here are some examples to keep in mind.
1. Protecting Funds from Lawsuits: Professionals who are at a higher risk for being sued understand that all of their domestic assets are subject to seizure in the event that a judgment is awarded to a plaintiff. Currently, it’s far less likely that assets held in an international bank would be considered eligible to settle a judgment. Choosing to set aside some funds in an offshore account make it possible to have the resources needed to recover from a successful suit.
Who might want to consider opening an international account and making deposits on a consistent basis? Healthcare professionals, attorneys, and even construction professionals are three examples. While suits involving malpractice and other claims of negligence may be legitimate, a significant number of suits filed each year are dismissed. Even if much of the judgment is ultimately covered by liability or malpractice insurance, those offshore funds ensure the defendant still has resources to call upon for future use.
2. Funds to Use While Living Abroad: Offshore accounts are practical for people who are living abroad for a period of time. Whether the plan is to live in a foreign country for six months or to settle there for several years, accounts that set up for the use of internationals makes it easier to manage day-to-day expenses. That includes rental costs for a place to live, utility costs, or even things like making purchases at local shops.
As a reminder, those funds in an offshore account can also come in handy if you need medical care while living or traveling abroad. Even if the country’s national health system extends benefits to visitors, there will still be some out of pocket expenses. Having funds in that offshore account makes paying those debts simpler.
3. Generating Greater Amounts of Interest from Your Account Balances: One strong perk of offshore savings accounts like time deposits is that you are likely to enjoy a higher rate of interest than you would by placing those funds in a domestic account. When the plan is to create financial reserves, you can call on during your retirement years, opting for an account that rewards you with more interest income makes perfect sense.
Misconception #3: Offshore Bank Accounts are Not Legal
This misconception is likely connected to the way that some parties have abused offshore accounts in the past. The fact is that opening and maintaining offshore banking and investment accounts is perfectly legal. What’s not legal is attempting to hide those balances from tax agencies.
What many people don’t understand is that the funds housed in certain types of offshore accounts are not taxable. With other types, the tax obligation may be minimal. Even so, those balances must be reported to domestic tax agencies. In the event those funds were ever transferred back to a domestic bank account, they would become subject to whatever banking and tax laws are in force at that time.
It’s to your benefit to not attempt to hide any funds that you have in an international account. In some cases, it won’t be up to you. Banking and investment institutions in many nations now automatically report account information to domestic tax agencies. Even if that’s not the case with your accounts, it never hurts to be open about those assets. Transparency on your part ensures there is no suspicion of questionable activity.
Don’t Be Fooled by Fiction
These are only some of the misconceptions that people hold about offshore banking. Before you make any assumptions, it pays to learn more about how this approach to managing financial resources could help you in the long run.
Spend some time exploring options for everything from investment to retirement accounts. As you learn more about the requirements for personal accounts, you might come across an arrangement that’s ideal for you.
Get professional guidance from the experts at Caye International Bank on Ambergris Caye island in Belize. Caye will help you select the right offshore account for your banking needs and in full compliance with any applicable laws and regulations.