Offshore Banking - An explanation

Offshore Banking – Explained


Many entrepreneurs and individuals have heard about offshore banking, but are unsure about the benefits, the legal implications and even what it is exactly. By gaining a better understanding of what offshore banking really is entrepreneurs can decide whether it is relevant to their company, and to what extent it can benefit them.

Technically speaking, an offshore bank is simply a bank in a jurisdiction other than the one in which the client resides. A person living in France who has a bank account in the US technically has an ‘offshore bank account’. However, the term offshore banking is more commonly used in reference to offshore banking in jurisdictions that provide tax benefits to the client. For example, living in France and having an offshore bank account in Panama, a jurisdiction often perceived as being a tax-haven.

By opening a corporate account in an offshore bank, entrepreneurs can benefit from favourable interest rates as interest received is typically tax-exempt.  Furthermore, offshore bank accounts can be structured for multiple currencies so that entrepreneurs can avoid paying foreign exchange commissions on money transfers, and reduce their company’s exchange rate risk. Overall, having an offshore account presents many logical and attractive benefits for entrepreneurs and their business.

It should be noted that offshore banking can sometimes be perceived as tax evasion, and as a result many countries that provide competitive tax benefits also make double tax agreements with other nations, whereby account-holder information and tax information is exchanged in order to identify tax evaders. The Organization for Economic Co-operation and Development (OECD) has also created strict guidelines in order to monitor and reduce the abuse of tax systems, such as the Savings Tax Directive.

It is, therefore, important to recognize that offshore banking can only be secure, confidential and legitimate when the account location is properly researched in light of the company involved. Professional services and consultancy firms exist to assist companies with the decision making and procedures involved, to ensure that the company can make use of tax-efficient international transactions without defying the law.

When determining where to locate a corporate offshore account, various factors need to be taken into consideration. Firstly, offshore banking jurisdictions are often in remote locations with poorly-developed communications technologies, which can complicate banking queries or issues and even impede on bank/client relations. Furthermore, since the September 11 terrorist attacks, offshore banking is sometimes associated with terrorist group and criminal money laundering. That being said, various offshore banking locations, such as Singapore and Hong Kong, remain reliable and are highly respected in the business world.

Offshore banking in Singapore and Hong Kong not only offers significant tax benefits when appropriately structured, but typically provides excellent internet banking technologies that are secure, user-friendly and highly efficient. While Singapore and Hong Kong provide such benefits, their jurisdictions are not regarded as tax havens and are approved by the OECD despite having strict client confidentiality laws.

Important recent developments on the policies and laws related to offshore banking and tax evasion are:

1.  The Isle of Man’s efforts to impose further Tax Information Exchange Agreements (TIEAs) and Double Taxation Agreements (DTAs).

2. A Bill being considered in the US that would tighten existing laws for offshore companies, increase transparency requirements and impose severe tax evasion fines.

3. Switzerland’s recent efforts to co-operate with OECD requirements by signing its 11th TIEA and revealing previously secure client confidentiality details.

4. The G20’s decision to enforce OECD guidelines and work together to penalize tax evaders.


That being said, these laws apply to individuals and corporations who abuse overseas tax benefits. It is still possible to plan efficient tax procedures in offshore bank accounts within legal boundaries, however advice and assistance from knowledgeable individuals is recommended in order to avoid unintended tax evasion.

Locations to consider for offshore banking include Singapore, Hong Kong, Cyprus, Dubai, and UAE.  


Healy Consultants is a leading corporate services firm that assists entrepreneurs and investors with their company incorporation requirements.  The firm provides a range of services for Asia business set up, tax planning and offshore investing.  More information on company incorporation can be found by visiting www.healyconsultants.com