International banking offers several types of offices, each with an array of services available to its customers. Some of these types of international banking offices are correspondent banks, representative offices, foreign branches, subsidiary banks, Edge Act banks, and offshore banks. Perhaps one of the most interesting and often misunderstood types of international banking offices is the offshore bank.
An offshore bank is simply a way of saying that an individual or company has a bank account outside of the country of residence of that individual or corporation. There are several reasons why a person or a company would utilize an offshore bank. First, individuals often reside temporarily outside of their native country and need access to banking services. Also, if an individual moves frequently from one country to another, utilizing an offshore bank allows them to stay with the same bank each time they move (Banking). Additionally, offshore banks offer many types of currencies and can give accurate information on exchange rates. These banks also offer more permanent banking solutions such as wealth management and tax advice for those who need it.
The more permanent types of services such as wealth management and taxation services is often where the confusion comes into play regarding offshore banking. Many people have bought into the Hollywood hype that offshore banking is a way for the wealthy to hide their money from the government, from family, or from creditors. This simply is not true. Offshore banking does offer the services of investing and growing wealth, but not in an illegal or even immoral manner. Offshore banks offer investing opportunities that lie outside of the investor’s country of residence such as money market accounts, bond and equity opportunities, and even a way to better diversity an investment portfolio.
Regarding the tax benefits of an offshore account, there are certainly tax advantages to investing with an offshore account, but these tax benefits are perfectly legal. There may be tax reductions to incite investors. This typically involves the forming of a corporation in a country outside of the country of residence and using this corporation as a template for the foreign accounts.
Offshore banks can also offer asset protection to its investors and customers, and many individuals and companies take advantage of a legal restructuring of a trust, a corporation, or even a foundation.
Perhaps one of the aspects of offshore banking that fuels its unsavory (an undeserved) reputation is the confidentiality that is held by offshore banks. Most are known for strict no-tell policies, and if confidentiality should ever be breached by an offshore bank, most hold themselves to an exceptionally high code of ethics and grave consequences result from these ruptures in protecting the individual or company who is utilizing the services of an offshore bank.
One of the drawbacks of offshore banking is that they are a bit more expensive to operate than domestic banks or other types of international banking offices. This is due to the need for legal counsel, accounting fees, registration fees, and other aspects of being allowed to bank at an offshore bank such as having to establish a residence in another country to be eligible. Many offshore banks also require steep minimum initial investments. However, for those higher costs, the tax savings and confidentiality aspects of offshore banking are typically seen as outweighing the fees and costs.
Overall, offshore banks as a type of international banking office, while often misunderstood, offer solid, legal banking services to those utilizing them.