An offshore bank is a bank located outside the country of residence of the depositor, typically in a low tax jurisdiction (or tax haven) that provides financial and legal advantages. These advantages typically include:
- Greater privacy (see also bank secrecy, a principle born with the 1934 Swiss Banking Act)
- Low or no taxation (i.e. offshore tax havens)
- 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 being “offshore” from the United Kingdom, 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, including Swiss banks and those of other landlocked nations such as Luxembourg and Andorra. Offshore banking has often been associated with the underground economy ando rganized crime, via tax evasion and money laundering; however, legally, offshore banking does not prevent assets from being subject to personal income taxon interest. Except for certain persons who meet fairly complex requirements, the personal income tax of many 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 —which may or may not be numbered bank accounts —they may have. Although offshore banks may decide not to report income to other tax authorities, and have no legal obligation to do so as they are protected by bank secrecy, this does not make the non-declaration of the income by the tax-payer or the evasion of the tax on that income legal. Following September 11, 2001, there have been many calls for more regulation on international finance, in particular concerning offshore banks, tax havens, and clearing houses such as Clear stream, based in Luxembourg, being possible crossroads for major illegal money flows. Defenders of offshore banking have criticised these attempts at regulation. They claim the process is prompted, not by security and financial concerns, but by the desire of domestic banks and tax agencies to access the money held in offshore accounts. They cite the fact that offshore banking offers a competitive threat to the banking and taxation systems in developed countries, suggesting that Organisation for Economic Co-operation and Development (OECD) countries are trying to stamp out competition. Offshore banking is one of the most sought after banking solutions in today’s world. Offshore banking denotes the banking options opted by an individual outside the country of residence. The term offshore banking has been inspired from the fact that these banks are mostly located in the island nations – offshore. However, with numerous exceptions to the fact, like countries like Switzerland, Luxembourg etc, this term is now used in global context as well. Offshore banking is blessed with a number of features
The most significant ones are:
- Offers higher level of privacy as opposed to the local banks
- No taxation
- Protection against financial insecurities and instabilities in the local economy
- Less restrictive regulations
- Easy access deposits
- Except for the developed nations that offer for complete financial stability, individuals from the various undeveloped countries that are surrounded with instability may opt to resort to offshore banking for better steadiness in assets and resources
- Offshore banks offer better rate of interest
- Offers features that banks in the domestic realm may not possess like unspecified bank account etc
- Offers investment opportunities far greater and better invariety and quality than the ones available locally
- Exceptionally preferable for international workers
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