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What are Offshore banks?
Basically, an offshore bank is a bank located outside the country of residence of the depositor, typically in a low tax jurisdiction that provides financial and legal advantages.
These advantages typically include some or all of
- strong privacy, sometimes even anonymous banking
- less restrictive legal regulation
- low or no taxation
- easy access to deposits (at least in terms of regulation)
- protection against local political or financial instability
While the term originates from the Channel Islands "offshore" from Britain, and most offshore banks are located in island nations to this day, the term is used figuratively to refer to such banks regardless of location (Switzerland and Andorra in particular are landlocked).
One common misconception is that offshore banking can legally prevent assets from being subject to personal income tax on interest. Except for certain persons who meet fairly complex requirements, this is incorrect as the personal income tax of most countries makes no distinction between interest earned in local banks and those earned abroad.
Persons subject to US income tax, for example, are required to declare on penalty of perjury, any offshore bank accounts they may have. Although offshore banks sometimes do not report income to other tax authorities this does not make the non-declaration of the income or the evasion of the tax on that income legal in most jurisdictions.
Last update: 2005-08-26 23:09
Author: Site Admin
Revision: 1.0
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