What is offshore banking? And why is offshore banking under attack?
Good question. It is. But it also isn’t. You will understand this in a couple of minutes.
Offshore banking. Tax havens. Tax avoidance. Tax planning.
Being associated with any of these terms is political and economic suicide for every politician and multinational.
If you advocate these terms in the West nowadays you instantly become a pariah.
So just for the record. I am 100% PRO tax avoidance, tax havens and offshore banking. Why?
Please read these 5 reasons why I don’t pay taxes
But that is not why we are here, is it?
The question is:
What Is Offshore Banking?
It is very simple. It is banking in a jurisdiction outside of the jurisdiction where you have your residency.
If you live in Belgium and you own a bank account in the Netherlands, you have an offshore bank account. So an offshore account does not necessarily have to be in some far exotic island or have to do with anything illegal.
With all these people who travel nowadays, work and study in different countries, and businesses that operate internationally, having a bank account (or a company) in a different jurisdiction is off course completely normal.
I you happen to stumble upon opportunities oversees, you will likely have to make arrangements “offshore”. It is simply much more convenient to receive payments from clients and to pay your employees in the local currency without the insane transfer fees that banks are charging for international transfers.
A very large percentage of companies in this world operate across borders. These companies simply need offshore banks to operate (and deliver your food, clothes, energy and Games of Thrones DVD’s).
So the next time that you see a statement that X amount of money is hidden offshore know that it is completely irrelevant. Besides, these numbers or simply made up .
Other Reasons To Open An Offshore Bank Account
Besides the not unimportant fact that companies need offshore bank accounts to be able to exist, there are additional reasons to specifically open a bank account in an offshore jurisdiction.
- Greater privacy (real bank secrecy is all but dead, especially for the tax man, but you can still protect your financial data by using reputable banks).
- Tax benefits (although simply holding your funds in an overseas bank account does not give you tax benefits)
- Easier account opening procedures and less regulation. Western European banks can be a nightmare to open bank accounts. Other banks deal with international businesses all the time.
- Lower banking charges. There are banks with low banking fees.
- More catered to international business. The branch of your local bank can be unfamiliar with international business. Better to use a bank whose sole business is to deal with international entrepreneurs.
- Protection against local, political, or financial instability. People tend to
Offshore banking is actually pretty normal. So how come offshore banking got such a bad name?
For that we have to step back into history…
(A curtain opens while the screen blurs)
How Offshore Banking Came To Be?
Of course since modern times people have been storing value for rainy day out of the reach of looters. Whether it be thieves, malicious creditors, ex-wives or governments who project their failed policies on their subjects.
Pirates who bury a treasure on a deserted island. European crusaders who entrust their estate to reliable family member. Rich families that create a family office to ensure that the eldest son does not spend the family wealth on coke and prostitutes.
And a great reason for offshore banking where the European wars is protecting yourself from wars and revolution. Only the Jews that were smart enough to deposit their wealth in an offshore bank account avoided Adolf Hitler’s notorious departure taxes. Similar oppressive laws to those in Stalin’s Communist Soviet Union and apartheid-era South Africa.
A more modern example can be found in Argentina. There, the mismanagement of the government resulted in the second default in 13 years. Every Argentinian who has any form of wealth in a bank account, has it overseas. A lot of it in Miami.
Different countries approach their economies differently. Some tax high. Others allows their subjects to be free. And where there are differences there are opportunities. Smart entrepreneurs started to benefit of these gaps by moving their capital from one place to another. And as the world became more globalized and communication easier, these activities took a flight.
Countries started to realize that when they were friendly to capital it would flow to them. Often these were countries that had difficulties having an extensive economy. With little resources and with high costs and had to import a lot of goods.
Especially the small islands.
Welcome To Paradise
For a long time all you had to do was set up a company in a small tropical island. No taxes. Complete confidentiality. And these countries and the entrepreneurs that used these companies benefited greatly.
But the Western high taxed governments off course do not really like these structures, and do everything in their power to abolish offshore banking. Celebrating significant “successes” because of their efforts. Setting up offshore bank accounts is getting more and more difficult.
Yet, this doesn’t stop globalization. This did not stop the growing need for offshore financial services and it does not stop there being differences between countries.
Where am I going with this?
I guess I just want to show you that there is nothing wrong or dangerous about offshore banking or having an offshore company. It is as common as you ordering a product at Amazon or Ebay.
And as long as you report your company at home and pay the taxes that your due there is nothing strange about offshore banking.
So Why Do We Bother?
It seems to me like just political rhetoric. The population in the Western world is starting to realize that we have an unfair system where the insiders game the outsiders. Blaming foreigners has always been an easy target. In this case it is foreign companies.
There are still huge differences in taxation between countries of which companies can benefit. Most governments (a lot of them Western governments!) understand that tax benefits attract capital and actively offer great benefits to foreign companies.
This seems like a good thing, but because of all the rules and regulations created by international regulators, for small and medium sized businesses it has become impossible to engage in compliant tax planning.
On the other hand, big multinationals can afford expensive lawyers and setting up an office to claim “substance” and tax treaty benefits is easy for them. And with all the tax treaties in place and tax competition rampant, multinationals will not start paying more taxes soon.
You on the other hand…
What is offshore banking? It is a perfectly legal and normal part of international business. Current political rhetoric and international regulators have limited the availabilities of offshore financial services for small and medium sized businesses while the need is ever greater. The multinationals it supposedly targets are left unharmed.
It is time we start looking through this smoke screen.
Interesting? Read the following article on how to open an international bank account to understand the most important aspects of setting up an offshore bank account.
 Government “Stats” Strike Again – M. Nestman. March 25, 2014. Accessed on: http://www.nestmann.com/government-stats-strike-again#