Offshore banking is simply another name for having a bank account outside your home country. It may be more challenging to open an offshore bank account than a domestic bank account because you may need to prove you have a minimum amount of money or a business relationship with the bank’s country.
What is offshore banking used for?
Some offshore banking customers use their accounts to help manage their overseas businesses and investments, and others might just spend a good portion of their time in a foreign country throughout the year. Offshore accounts can allow you to save, hold and invest money in multiple currencies as well.
How to open an offshore bank account
Read the account policies and fees carefully. When opening any bank account it’s important to understand its policies and fees, including monthly maintenance fees, transfer fees, minimum balances, direct deposit requirements, customer service availability and minimum asset requirements. You also may want to look into the joint account requirements if you plan to add a spouse to your account.
Gather the necessary documents. If you’re considering opening an offshore account, see what the bank requires in terms of documentation. Required information might include your occupation, a copy of your state- or country-issued ID such as a driver’s license or passport, a copy of a utility bill that verifies your physical home address, your date of birth, or other verification documents such as a reference or proof of a good standing relationship with your current bank. Some banks might require that copies of documents be notarized or have an apostille certificate, which is a similar method of proving the validity of a document.
Choose your currency. Opening an account in a different country could mean that you can use multiple currencies to hold, deposit and withdraw your funds. If you receive income or payments in a foreign currency, it can be convenient to use a bank that operates with that currency. Currency exchanges can be expensive, so keeping your money in the same currency in which you earn and spend it can help save on fees and prevent any lost value that comes from exchanging between currencies.
Consider how you want to fund and withdraw from your account. Offshore accounts typically have standard banking features such as debit cards and online banking. If you aren’t physically in the same country as your offshore account, you may need to do things you might not normally do with a domestic account, such as use wire transfers to move money or pay foreign transaction fees or currency exchange fees. Also, if you receive a transaction of $10,000 or more from your offshore account, your domestic bank in the United States has to report it to the IRS.
Is offshore banking illegal?
Offshore banking isn’t illegal, but having an offshore account can raise questions because these accounts have a history of allowing customers to discreetly store money to avoid paying taxes on it or hide funds obtained through illegal activity. The Panama Papers, documents that were leaked to the public in 2016, revealed ways that many rich and powerful people were using offshore banking to launder money, commit fraud and evade taxes.
What countries offer offshore banking?
A large number of countries offer offshore banking. A few of the most well-known countries for offshore banking are tax havens — meaning a country or jurisdiction that has low or no taxes for corporations or individuals — such as Switzerland, Panama and the Cayman Islands. Other popular places for offshore banking include Hong Kong, Belize, Bermuda, Singapore and Germany.
Offshore bank accounts can be useful but may have different restrictions, policies and fees than banks in your home country. Before you open an account, research the bank and what’s expected of you as a customer.
FAQs
Offshore bank accounts are accounts that exist outside of your home country. Chanelle Bessette is a personal finance writer at NerdWallet covering banking.
What is offshore banking in simple terms? ›
An offshore, or overseas, bank account is one that you have in a country you don't reside in. They allow you to make and receive payments, hold money and set up savings and investment accounts in multiple currencies.
Is it hard to get an offshore bank account? ›
Anyone can open an offshore bank account with just a few hours of work. Each offshore bank and foreign jurisdiction has its own requirements, so you'll have to do some research to find the specific requirements relevant to your situation.
Is offshore banking worth it? ›
Advantages of offshore banking
Tax benefits: Depending on the country where you live and the country where the bank is located, your offshore account could be tax-free or at least taxed at a low rate. Asset protection: An offshore account can be used to protect your assets in case you're sued or your business fails.
Why is offshore banking illegal? ›
A big part of what separates a legal offshore account from an illegal one is disclosure. The IRS requires all income to be disclosed, including income made internationally, so hiding income and assets offshore is a crime.
Why do people put money in offshore accounts? ›
Some offshore banking customers use their accounts to help manage their overseas businesses and investments, and others might just spend a good portion of their time in a foreign country throughout the year. Offshore accounts can allow you to save, hold and invest money in multiple currencies as well.
Do offshore accounts get taxed? ›
By law, U.S. taxpayers are not permitted to use offshore accounts, such as foreign bank and securities accounts as well as trusts, to avoid paying tax. In most cases, affected taxpayers need to fill out and attach Schedule B to their tax returns.
What are the disadvantages of offshore banking? ›
Drawbacks Of Offshore Banking
Offshore banking involves dealing with multiple jurisdictions, each with its own set of regulations and compliance requirements. Navigating these complexities can be time-consuming and costly, requiring the assistance of specialized professionals.
How safe are offshore bank accounts? ›
Is offshore banking safe? Offshore banking provides a safe and secure way of managing your money if you open an account in a country with a stable economy, such a German bank or a Swiss one. However, offshore accounts are rarely protected by the same guarantees as domestic banks.
Do offshore bank accounts pay interest? ›
By investing in stable currencies and well-managed offshore banks, not only is your money safe, but you also stand to earn higher interest by taking a minimal amount of additional risk. In return, you may even get far more banking privacy.
Note that if you are a U.S. citizen with a bank account offshore, declare them to the Internal Revenue Service (IRS) using the Foreign Bank and Financial Accounts (FBAR) form if your offshore bank account holds more than $10,000 total. Foreign-earned income has tax exclusion, but the rest falls under regular tax rules.
Can offshore bank accounts be traced? ›
And even if you are able to serve the subpoena, the bank may still be bound by secrecy laws that prevent them from telling you who owns the account. So, while it is possible to trace offshore accounts, it is not easy. This page was last updated on November 13, 2023.
What is wrong with offshore accounts? ›
Why Is Hiding Offshore Financial Accounts Illegal? Hiding money or assets housed overseas is illegal for two reasons. One is that it can result in tax avoidance. The second is that these funds could be used for money laundering or other illicit activities.
How much money is in offshore banking? ›
Using confidential administrative data reported under FATCA, the researchers estimated about 1.5 million U.S. taxpayers held roughly $4 trillion in foreign accounts in 2018, about 5% of the roughly $80 trillion in total reported U.S. financial wealth.
Why is it called offshore accounts? ›
While the term originates from the Channel Islands being "offshore" from the United Kingdom, and while most offshore banks are located in island nations to this day, the term is used figuratively to refer to any bank used for these advantages, regardless of location.
Who started offshore banking? ›
Offshore banking was born when the neutrality of Switzerland was established during the Vienna Congress in 1815. Some accounts, however, claim that offshore banking originated in the Channel Islands of France.
