Have you ever wondered what is the use of having an offshore bank account?
Although we have already discussed the possibility of using this type of accounts, also as a measure to protect your savings, we have never stopped to explain the advantages that this type of accounts can have.
As it is, it is not surprising that from time to time you write asking what is the use of having your bank account in a tax haven.
Therefore, in today’s article, I will explain 13 reasons to open and maintain accounts of this type.
13 reasons to open an offshore bank account
Not all offshore banks are the same, so the reasons listed here do not apply in all cases.
The reasons for opening a foreign bank account can be classified into two categories: insurance against certain risks or opening new opportunities. Then, the moral component can be added to these categories.
1. It allows you to avoid capital controls
Imagine you are residing in Greece and do not have your money in a bank outside the country. You will have limited the amount of money you can withdraw from the ATM at € 60 per day and you can not make international transfers. Therefore, you will not be able to buy through Amazon. Paypal, Western Union, and others have stopped operating in the country due to the controls and limitations imposed by the country.
If it is not with Bitcoin and the other crypto-currencies or in cash, you will not have a way to make money out of the country. If they find you carrying a too high amount of cash, they will confiscate the money directly.
Capital controls are not nonsense, they are not only a problem for individuals, but also for companies.
Companies can not import and, of course, they can not export. Since PayPal and other financial services have stopped working, a large number of their customers can no longer pay for their products.
Capital controls are no exception in times of crisis. The States use them to stop the outflow of money abroad, but their side effects are fatal, the country in which they apply is totally isolated from the international market.
The effects are felt for everyone, but much more for those who have not put at least part of their money in safety. Thus, Greeks who had part of their savings in foreign or offshore bank accounts could withdraw much more money from ATMs and had no problem leaving the country.
Thus, one of the reasons for taking an offshore account is to avoid capital controls.
Often, these controls do not apply to all movements of money, but only to the flow of money outward.
The Greek government would not dream of ending one of the last inflows of money into their coffers, tourism. But if they closed the flow of money from abroad to Greece, they would be doing the same, tourists could not enter money in Greece using the country’s cashiers or paying by card and, therefore, would stop being able to spend their money there.
As a result, not only tourists but also Greeks have full access to their accounts, provided these accounts are abroad. To the other Greeks, the € 60 a day allows them to continue living without starving themselves and start a revolution, although who knows at what point all this could come if the State really runs out of means.
Anyway, having an account abroad you do not have to worry about all this. If you choose the offshore jurisdiction carefully, you will be safe from future capital controls.
In this way, although the government of the country in which you reside imposes controls on the circulation of capital, you will still be able to access your money and, most importantly, if the situation requires it, you can even escape from the country.
If you have all of your funds in one country and this one introduces strict capital controls, you will be stuck in the country and ruined. This is something that throughout history has already happened. Accounts abroad have saved lives.
2. It protects you against limitations or prohibitions to the circulation of cash
We have already written in the past about the limitations to the circulation of cash, these policies have increasing support from several renowned economists and politicians.
They usually justify it as a way to avoid money laundering, although in reality there is much more behind.
In the end, the objective of this type of policy is the same as always, they want to limit the possibilities of escape for citizens, leaving us with fewer options to defend ourselves against indirect expropriation through negative (or almost negative) interest rates and the inflation.
The ordinary citizen hardly realizes this, his money (or what he can do with it) is gradually decreasing, without any drastic event (as is the case in direct expropriations).
Even if someone were to notice and scream in heaven, the government would have nothing more to blame for capitalism or any other external cause.
Of course, in reality, the responsibility does not fall on anyone from outside. It is the central banks of each nation that fix interest rates and increase inflation (in the case of the EU, it is the European Central Bank that decides these rates).
Having an account in a tax haven will not protect you directly from the ban on cash circulation. If it is forbidden to pay in cash, this prohibition will affect everyone in the country equally, no one can withdraw money from the ATM.
However, given that the ban on the circulation of cash is usually accompanied by capital controls so that you can not get the money out of the country. Indirectly you have solved this problem since your money is already out and you just have to leave the country to access it and start a new life in another country.
3. Protects you from indirect expropriation through inflation
We have already talked about the protection that offshore accounts assume against inflation.
It must be clear to us that, as long as central banks continue to manipulate the economy, inflation will not disappear.
Just as deflation is often seen (often without reason) as the biggest problem, maintaining a small rate of inflation is sometimes even considered as a positive thing. Of course, it does not take into account that inflation, to whatever degree, is poison for savings.
Inflation is still at bearable levels, something incredible if we take into account the policy of the European Central Bank, but how long will it remain that way?
In other countries, inflation does not look that good, so Venezuela has experienced 550% inflation and for 2017 the IMF predicts 2200%. The value of the Venezuelan assets there is decreasing as if it were an ice cube in the sun.
Accounts in tax havens can also protect us against inflation.
Since inflation always affects a specific currency, if you change your money to another currency, you will have escaped its effects.
I do not mean that tax havens can not be affected by inflation, however, if you have chosen well the State and your offshore bank, you can use a safe currency and even have the money in your account in different currencies (something that the Most offshore accounts allow you to do).
In offshore accounts, you can usually choose which currency you want your money in. This gives you the opportunity to react in cases like Venezuela.
Moreover, it is not very likely that all the currencies of the world lose value at the same time, generally, there is always one that gains value. This opens up the possibility of earning money buying and selling different types of currency depending on the moment …
4. Protects you from direct expropriation by government actions
We have talked about different forms of indirect expropriation, but, of course, expropriation can also be done by government decree.
Sometimes it is a house or land for which a highway is going to pass and others the money in your bank account because this time the government has gone through the indebtedness of the country.
Indirect expropriations are more likely to occur through inflation or negative interest in the bank, but that does not mean that it can not be given.
We found a good example of this form of expropriation in Cyprus, in 2013. From one day to another, Laiki Bank customers lost all the money that exceeded the € 100,000 limit, the customers of the Bank of Cyprus were they froze 50% of their money and the other half were given in the form of shares.
(It is true that Cyprus later compensated the majority of those affected, but, of course, it would have been better for them not to ever be in this situation)
Be that as it may, we can be sure that this will not be the last expropriation in history.
As it seems that Greece will manage to avoid these measures, we do not know how long it will take the rest of Europe to be in similar situations, especially if we take into account the high indebtedness of most EU nations.
5. It allows you to legally avoid taxes
Offshore accounts also allow us to legally avoid taxes. People often hear about people who have accounts abroad to evade taxes, whether in Switzerland, Andorra or any other country.
This may lead us to think that depositing your money in offshore accounts is illegal, when in reality in most cases this is not the case.
Currently, evading taxes is not a good solution, especially taking into account the automatic exchange of tax data between countries. If you’re not always up to date, the safest thing is that sooner or later someone will discover what you were hiding.
But that does not mean that we can not try to avoid taxes by accepting what the law dictates. Increasingly higher taxes lead citizens around the world to look for alternatives that allow them to save some of their money.
In the end, with the help of a good tax advisor or tax lawyer, practically everyone can reduce the amount of taxes they pay, and the offshore account is usually one of the basic pieces within that strategy.
7. You can use it as a forecast fund in case of catastrophes
Also, the possibility of suffering natural catastrophes is a good reason to maintain an offshore account.
Hurricanes, tornadoes, tsunamis or earthquakes can also cause the collapse of local banking.
Unfortunately, in cases like Hurricane Katrina in New Orleans, after which the looters entered the houses, having the money under the mattress or hiding somewhere will not help you much.
8. These are safer banks
When choosing a bank account, you not only have to take into account external risks but also internal ones.
Another good reason to have part of your money in an offshore bank account is that they are more stable and secure banks.
The common bank is usually financed through loans, that is, as soon as you put your money in your hands, you put it to work lending it to others.
Offshore banking often does not work like this, they are financed through the fees and commissions you pay for your transactions or for maintaining the account, that is, they do not touch the money you deposit.
The level of own capital is usually around 100%, so if all your customers wanted to take the money out of their accounts at once, they could do it.
In the case of banks and common funds, the amount of own capital usually does not reach 10% (fractional reserve).
It is true that Western governments usually offer some kind of security in terms of the funds deposited in the banks, but what good are these promises when the problems of the big banks would lead the States themselves to ruin?
What prevents governments from decreeing changes in-laws in the event of a banking crisis?
9. Offer more innovative financial products
Although offshore banks are also subject to certain regulations, they are less so than the banks we know. This allows them to offer new and innovative financial products, of which in other places we can only dream.
Of course, I do not advise anyone to hire financial products that they do not understand, but for those who are willing to study these products thoroughly and want to get more out of their money, it is a great opportunity.
10. The service and customer support of private bankers is much better
Another good reason to open your account in an offshore bank is the higher quality of the advice they offer. Just as the staff on foot of these banks does not usually have much information, if you request a personal consultation, you will be able to talk with highly trained bankers and less limited by corporate norms or by their own economic interest.
In banks and savings banks often the problem is that the advisors receive commissions for the products and services that they sell, this makes them more interested in you to buy than in advising you in the best way, in fact, their commissions are often higher in the riskiest products.
This is a situation that during the last financial crisis led many small investors advised by this type of advisors to lose a lot of money.
On the contrary, advisors in offshore banking usually have a good fixed salary and do not take anything or practically nothing for what they sell to their clients. In the end, its main objective is that customers are happy and continue to use the services of the bank that pays them so well.
These advisers are available all day and can be contacted via phone, fax, email or even Skype without having to request an appointment, something that in Spanish banks, for example, you will not find.
11. You can get much higher interest rates
We’ve talked before about negative interests. Today it is difficult to get interest above 1 or 2 %, at least in Spain. In other countries, things change.
Thus, just a few hours flight, online Turkish banks offer 10% interest, we can even find rates of 7 to 8% among the best banks there.
What are you looking for something riskier? In Uganda, Bangladesh or Mongolia you can get 12%.
And well, for the bravest, there is Ukraine, with its 20% interest in 3-month deposits.
Anyway, even if you do not want to risk, it will not cost you to find interest rates between 4 and 8%, a percentage that will allow you to increase your capital little by little in a safe way.
Not all banks offer the possibility of receiving interest for the money deposited. Those who always have deposits covered and do not lend their clients’ money, of course, will not give you any interest.
Thus, maximum security also means lower benefits (interest). That yes you must never accept negative interests (something that in offshore banking is not given).
The moment you have to pay your bank to lend your money to others, it will be time to look for other alternatives for your savings, such as stocks and stock indexed funds (if you do not know how the stock market works and you want to start to invest, here is a good introduction to the subject).
12. They make it easier for you to enter certain markets
The offshore account also has advantages for entrepreneurs and investors, since they allow easier access to certain markets.
Offshore banks can have very interesting contacts with local suppliers or buyers, or they may offer the possibility of using unusual currencies, very interesting for investors due to their evolution or for entrepreneurs because their customers or suppliers use it.
Choosing carefully the bank and its jurisdiction you can open all kinds of opportunities and advantages.
13. You are supporting the economy of small states that treat their citizens better
And finally, for me, using offshore banking also has a moral background.
Do you really want to support banks that rely on that big scam called fractional reserve? Are you going to support the big banks that finance wars, take advantage of small investors and bribe politicians?
And the same with regard to the States. Are you really going to continue paying taxes in countries that see their citizens as subjects and cows to be milked?
Offshore you are king; at home, slave.
Tax havens have no other option but to treat foreigners well since they are countries that nobody would otherwise go to. The lack of natural resources, capital, and human resources leads them to depend on tourism, their financial, tax and, in general, the facilities they provide to those who do business.
In short, for an entrepreneur, saver or investor it would be foolish not to take advantage of this option.
What defines an offshore bank account?
As its name suggests, offshore accounts are on the one hand account and on the other hand are in a tax haven.
That is, on the one hand, it is a place (bank) in which money is deposited virtually or physically in a secure manner. This type of accounts does not differ much from those we know and are on the street in our countries.
You have total access to your money through online banking and you can withdraw money or pay in establishments through your card.
Yes, commissions and fees are higher, since offshore banking is usually financed through this channel, instead of through the loans that are granted with the money deposited there (as is usually the case in the banking system we know). It is precisely this characteristic that turns offshore banks into a safer alternative.
On the other hand, there are accounts that are offshore, that is, “beyond the coast”, generally on islands.
Nowadays, offshore no longer only refers to island states, since also places like Belize and Panama, or Liechtenstein and Andorra are considered offshore. Rather it refers to places beyond the control, countries or areas with little industry and resources that have specialized in offering this type of service.
Offshore is often used as a synonym for a tax haven.
Next, we are going to talk about the advantages that offshore banking offers over common banking.
Some of the points we are talking about here will not seem very important to us now, but bear in mind that this may change in the near future, especially in times of financial crisis or catastrophes (environmental, war or whatever).
Even if there were no limitations and controls on the circulation of cash (which in Spain and many countries already exist), if expropriations were not reached (which we have already experienced, also in Europe) and if we did not suffer the effects of inflation on our savings (from which few countries escape), increase economic security by distributing eggs for several baskets never to harm anyone.