Offshore bank is a bank that operates in a country other than depositor resides. Generally by offshore bank is meant a bank that is incorporated in a tax haven and provides investment, asset management, offshore banking and other offshore financial services. Services provided by these type of banks are typically characterized by the following:
- higher anonymity, safety and bank secrecy (concept that appeared after Swiss Banking Act of 1934);
- low or absolutely no applicable taxes;
- convenient ways to access bank accounts and deposits;
- high degree of safety; absence of political and economic instability and related risks;
The term “offshore” comes after Channel Islands (Jersey, Guernsey and Isle of Man) that provided such services and were “offshore” to the United Kingdom. Besides most offshore banking centers are located on the islands. The term “offshore bank” is used to refer to the banking institutions that provide such services regardless the place they are located. For instance, Swiss, Andorra and Luxembourg banks are also referred as offshore banks.
In the minds of millions of people operations conducted by offshore banks were always linked to criminal affairs, terrorism financing, tax evasion, money laundering and underground economy. It is very difficult to fight with this stereotype, since periodically offshore jurisdiction authorities find cases of such actions done through offshore banking sector. That is why people often ask a question: is offshore services legal? Sure it is legal. If some people use offshore banks for illegal operations, so do the onshore banks. It does not mean that these services facilitate criminal affairs.
An example of a criminal affair that people often do is they receive income on their offshore bank accounts and do not report them in their home country, while their home country requires such income to be reported and income tax on it to be paid. This situation may happen with non-offshore jurisdictions. A person may pay income tax on some income in a foreign country, but he/she may not report the same income in his/her home country to avoid double taxation. This is then classified as tax evasion that may end in criminal charges.
Offshore banks are also frequently criticized due to the fact that they provide bank secrecy to their customers. By bank secrecy people mean the obligation to their customers not to declare their personal information to third parties. This norm is often set by the legislation and makes it even more powerful.
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