Have you ever wondered what is the use of having an offshore account?
Although we´ve already discussed the possibility of using these type of accounts, as well as it being a measure to protect your savings we haven´t stopped raving about the other advantages that this type of account can have.
Thus, it is not surprising that from time to time you write to us asking what use it is having your bank account in a tax haven.
Therefore, todays article will present 13 reasons for opening and maintaining accounts of this type.
What defines an offshore bank account?
As its name suggests, offshore accounts are on the one hand an account and on the other they are found 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. These types of accounts do not differ much from those we already know and are found on the very streets of our countries.
You have complete access to your money through online banking and you can withdraw money or pay in branches with your card.
Yes, commissions and fees are higher since offshore banking is usually financed in this way, instead of through the loans granted with the money deposited there (as is usually the case in the banking system we know). It is precisely this characteristic that makes offshore banks a safer alternative.
On the other hand, there are accounts that are found offshore, that is, “beyond the coast” and generally on islands.
Nowadays, offshore no longer only refers to island states, since places like Belize and Panama, or Liechtenstein and Andorra are now also considered to be offshore. Rather, it refers to places outside of control, countries or areas with little industry and resources that are specialized in offering these type of services.
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 discuss here won´t 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 etc.).
Even if there were no limitations and controls on the circulation of cash (which in many countries already exist), if expropriations were not reached (which we have already experienced, including in Europe) and if we did not suffer the effects of inflation on our savings (from which few countries escape), increasing economic security by distributing your eggs into several baskets never harms anyone.
13 reasons for opening an offshore account
Not all offshore banks are the same, so the listed reasons here do not apply in all cases.
The reasons for opening an offshore account can be classified into two catagories: as insurance against certain risks or for the beginning of new opportunities. Then, the moral component can be added to these categories.
1. It allows you to avoid capital controls
Imagine you are living in Greece and you dont have 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 from Amazon. Paypal, Western Union and other companies have stopped operating in the country due to the controls and limitations that have been imposed by them.
If it is not with Bitcoin, other crypto-currencies or in cash, you will not be able to take money out of the country. If they find you carrying an amount of cash that is considered too high, they will directly confiscate the money.
Capital controls are not a joke, it is not only a problem for individuals but also for companies.
Companies can´t import, and of course, neither can they 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 can be fatal, as the country in which they are applied is totally isolated from the international market.
The effects are felt by everyone, but even more so for those who haven´t secured at least some of their money. This way, Greeks who had part of their savings in foreign or offshore bank accounts could withdraw much more money from ATMs than those who didn´t and had no problem leaving the country.
Therefore, one of the reasons to have an offshore account is to be able to avoid capital controls.
Often, these controls only apply to the external flow of money and not to all cash movements.
The Greek government wouldn´t dream of ending one of the latest inflows of money its had into its pockets; tourism. But if they ceased the money flow from abroad to Greece they would be doing the same thing, tourists wouldn´t be able to bring money into Greece using the country’s ATMs or pay by card and, therefore, they would stop being able to spend their money there.
As a result, tourists and Greeks have full access to their accounts, provided these accounts are abroad. The €60 per day allows the rest of the Greeks to avoid starving to death and starting a revolution, although who knows if the State really does run out of money.
Anyway, you don´t need to worry about this if you have an account abroad. If you choose the offshore jurisdiction carefully, you will be safe from future capital controls.
In this way, even if 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 should require it, you can even escape from the country.
If you have all of your funds in one country and this then introduces strict capital controls, you will be trapped in that country and ruined. This is something that has already happened throughout history. Foreign accounts have saved lives.
2. It protects you against limitations or prohibitions of the circulation of cash
We have already written about the limitations on the circulation of cash in the past, and these policies have an ever increasing support from several economists and renowned politicians.
Generally they justify it as a way to avoid money laundering, although in reality there is much more behind it.
The ultimate 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 inflation.
The ordinary citizen barely realizes this, and his money (or what he can do with it) gradually decreases, without any drastic event (as is the case with direct expropriations).
Even if someone were to notice and screamed blue murder, the government wouldnt do anything else than blame capitalism or any other external cause.
Of course, in reality the responsibility is not that of anyones from the 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 directly protect you from the cash circulation ban. If it is prohibited to pay in cash, this prohibition will affect everyone in the country equally, meaning no one can withdraw money from an ATM.
However, the cash circulation ban is usually followed by capital controls, in order to avoid people taking money from the country. Therefore, you will have indirectly solved this problem since your money is already outside and you just have to leave the country to access it and start a new life somewhere else.
3. It protects you from indirect expropriation through inflation
We have already talked about the protection that offshore accounts have against inflation.
We must know that, as long as central banks continue to manipulate the economy, inflation will not disappear.
As deflation is usually seen (often without reason) as the biggest problem of all, maintaining a small rate of inflation is sometimes even considered as something positive. Of course, this doesn´t take into account that inflation, to any extent, is poison for savings.
Inflation remains at bearable levels, which is something quite incredible if we take into account the policy of the European Central Bank, but how long will it stay like that?
In other countries inflation isn´t looking that good at all, for example Venezuela has experienced 550% inflation and for 2017 the IMF predicts it to increase to 2200%. The value of Venezuelan assets 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 some currency effects. Specifically if you change your money to another currency, you will have escaped from their influence.
I don´t mean that tax havens can not be affected by inflation, however, if you have chosen the State and your offshore bank well, you can use a safe currency and even have the money from your account in different currencies (something that 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 respond to certain situations, like in the case of Venezuela.
Moreover, it is not very likely that all the world’s currencies would lose value at the same time, there is usually always one that gains value. This opens up the possibility of making money buying and selling different types of currencies, depending on the moment …
4. It protects you from direct expropriation by actions of the government
We have already spoken about the different forms of indirect expropriation, but, of course, expropriation can also take place by government decree.
Sometimes it is a house or a land through which a highway will 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 cannot happen.
A good example of this was the expropriation in Cyprus in 2013. From one day to another, the customers of the Laiki Bank lost all their money that exceeded the €100,000 limit, and the customers of the Bank of Cyprus had 50% of their money frozen and the other half were distributed 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 have ever been in this situation)
Whatever the case may be, we can be sure that this will not be the last expropriation to ever happen in history.
As it seems that Greece will manage to avoid these actions, we dont know how long it will take for the rest of Europe to be in a similar situation, especially if we take into account the high indebtedness of most EU nations.
5. It allows you to legally evade taxes
Offshore accounts also allow us to legally avoide taxes. You often hear about people who have accounts abroad in order to evade taxes, whether in Switzerland, Andorra or any other country.
This may lead us to believe that depositing money in offshore accounts is illegal, when in reality in most cases this is not true.
Currently, evading taxes is not a good solution, especially considering the automatic exchange of tax data between countries. If you’re not always up to date with your taxes, it´s likely that sooner or later someone will discover what you were hiding.
But that doesn´t mean that we cannot try to avoid taxes by following what the law dictates. Increasingly high taxes lead citizens around the world as they look for alternatives that allow them to save some of their money.
Ultimately, with the help of a good tax advisor or lawyer who specializes in taxes, virtually anyone can reduce the amount of taxes they pay, and offshore accounts are usually one of the basic components of that strategy.
7. You can use it as a forecast fund in case of catastrophes
The possibility of suffering from natural disasters is also a good reason for having an offshore account
Hurricanes, tornadoes, tsunamis or earthquakes can also cause the collapse of local banks.
Unfortunately, in cases like Hurricane Katrina in New Orleans after which looters entered peoples houses, having money tucked away under mattresses or hiding it somewhere was not going to help you much.
8. It’s all about safer banks
When choosing a bank account, you not only have to take into account external risks, but also internal ones.
Another good reason for having some of your money in an offshore bank account is that the banks are safer and more stable.
Common banks are usually financed through loans, that is, as soon as you put your money in their hands, it is then lent to others.
Offshore banks don´t often work this way, they are financed through fees and comissions that you pay for transactions and for maintaining your account, that is to say, they don´t touch the money you deposit.
The level of equity capital is usually around 100%, so if all the banks customers wanted to take the money out of their accounts at the same time, they could do it.
In the case of banks and mutual funds, the amount of the equity fund doesn´t usually reach 10% (fractional reserve).
It´s true that Western governments usually offer some kind of security in terms of the funds deposited in their banks, but what good are these promises when the problems of the big banks would lead the States to ruin?
What prevents governments from declaring changes in laws in case of a banking crisis?
9. They offer more innovative financial products
Although offshore banks are also subject to certain regulations, they are less so than banks that 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 use financial products that they do not understand, but for those who are willing to study these products thoroughly and want to take out more 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. As the staff on hand don´t usually have much information, if you request a personal consultation you will be able to talk with highly trained bankers and you will be less limited by the corporate rules or by their own economic interest.
In banks and cash desks the problem is that advisors often receive commissions for the products and services that they sell, this makes them more interested in you buying than in them advising you in the best way, in fact, their commissions are often higher on the most risky products.
During the last financial crisis, this is a situation that caused many small investors who previously received such advise to lose a lot of money.
On the contrary, advisors in offshore banks usually have a good fixed salary, and they make practically nothing on what they sell to their clients. Ultimately, their main objective is to ensure that clients are happy and continue using the banking services that pay them so well.
These advisors are available all day and they can be contacted by phone, fax or even skype without having to request a previous appointment, something that you won’t be able to find in mostsp other banks.
11. You can get much higher interest rates
We have already spoken previously about negative interest rates. Today it is difficult to get interest above 1 or 2% in Western Europe. In other countries, things are different.
Thus, within just a few hours flying distance, Turkish online banks offer 10% interest, and we can even find rates of 7 to 8% among the best banks there.
Are you looking for something more risky? In Uganda, Bangladesh or Mongolia you can get 12%.
And well, for the bravest of you, there is Ukraine, with its 20% interest in 3 month deposits.
Anyway, even if you don´t want to risk it, it won´t be difficult to find interest rates between 4 and 8%, a percentage that will allow you to safely increase your capital little by little.
Not all banks offer the possibility of receiving interest on deposited money. Those who always have deposits fully covered and do not lend their clients’ money will, of course, not give you any interest.
Thus, maximum security also means fewer benefits (interest). You must never accept negative interests (this is something that never happens in offshore banking).
The moment you have to pay your bank to lend your money to others, is the moment you should start looking for 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 investing, here is a good little introduction)
12. They make it easier for you to enter into certain markets
Offshore accounts also have advantages for entrepreneurs and investors, since they allow easier access to certain markets.
Offshore banks may have very interesting contacts with local suppliers or buyers, or they may offer the possibility of using unusual currencies, which is very interesting for investors due to their development or for entrepreneurs because their clients or suppliers use it.
Carefully choosing the bank and its jurisdiction can open up all kinds of opportunities and advantages for you.
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 really 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 view their citizens as minions and cows to be milked?
Offshore you are king; at home, slave.
Tax havens have no other option than to treat foreigners well, since they are countries that nobody would otherwise go to. The lack of natural, capital and human resources lead them to depend on tourism, of their financial services, taxes and in general, the facilities they provide to those who do business there.
In short, for an entrepreneur, saver or investor it would be foolish not to take advantage of this option.
As you can see, there are many reasons to get an offshore account, but of course it is not a solution to all your problems.
Keep in mind that having a bank account in a tax haven or making transactions from there is more expensive than doing it from your account in one of the big western banks or in direct banking.
Therefore, the best decision is not to decide and make use of both types of banking.
The offshore account allows you to insure against catastrophes and crises in your country of origin, in addition to openig up new opportunities.
Now you wonder, but how can I open my offshore account?
You can sign up for the Tax Free Today newsletter and download a pdf in which we explain how to open an offshore account quickly and without leaving home.