Offshore Banking: Everything Investors Need To Know

The concept of banking has been around for about as long as civilization itself. 

In ancient Mesopotamia, temples and palaces often acted as financial institutions, lending seeds to local farmers to plant their crops. Once those crops were harvested, farmers would be required to pay back their seeds. 

Of course, banking has evolved since then. 

Today’s banks continue to provide loans to the communities they serve while giving people a safe place to keep their money. And while most people bank within their country of residence, which is known as “onshore banking,” today we want to look at the overseas alternative, offshore banking, and how investors use it to their advantage.


What Is Offshore Banking?

Offshore banking, like onshore banking, provides a safe place for financial customers to transact, but it offers additional benefits that traditional banking doesn’t. Many of these benefits make offshore bank accounts attractive, particularly to wealthier individuals. 

By definition, offshore banking is when a bank accepts and safeguards money from people who live in foreign countries.

When it’s explained in simple terms, offshore banking doesn’t sound so forbidding, does it? So why does the idea of opening an offshore bank account make some people feel like they’ll be joining the ranks of tax-evading criminals in Hollywood films? (We’re looking at you, Wolf of Wall Street!)

While it has gotten a bad rap, such as in the case of the Jersey accounts frozen by Lloyd’s Offshore Banking due to money laundering, the truth is that there have been many more regulations established among offshore institutions and, as a result, it has become more difficult for individuals to indulge in illicit behavior. See our article, Is It Legal to Have an Offshore Bank Account?, to learn more.

In reality, offshore bank accounts are not owned only by criminals portrayed on the silver screen, but also, and more commonly, by everyday people, from travelers to investors alike

Feeling better about the idea of opening an offshore account? Prior to reading the next section, take a quick moment and try to think of your priorities when it comes to offshore banking services. These might be lower tax rates, asset protection, higher interest rates, or just convenience to a place you frequently travel.


Benefits Of Offshore Banking

There are a lot of reasons why people might choose to bank offshore instead of confining themselves to domestic banking options:

  • Asset protection - Expect the best, but prepare for the worst. In case of lawsuits or judgments, you can have money hidden in an offshore account that no one can get their hands (or eyes) on unless they have proof of your account.
  • Low tax rates - If you incorporate your business in a tax haven, you could lower your taxes or, in some cases, eliminate them completely.
  • High interest rates - With interest rates as high as 17.5 percent at Garanti in Turkey, you would be getting much more bank for your buck!
  • Convenience for travel or business abroad - Do you travel to the same country/continent frequently, for business or otherwise? It may be convenient to keep some of your money there.
  • Not keeping all of your eggs in one basket - For investors in unstable economies, keeping some money in a more stable banking institution overseas is a good way to get protection in the event of a crisis. 


Which Country Is The Best For Offshore Banking?

The best country for offshore banking depends on you and your needs. If you do a lot of business in Asia, Singapore might suit you best. If you’re worried about banks reporting your information, you might prefer to bank in one of the few countries which have not adopted the Common Reporting Standard (CRS), such as Georgia. 

If you want to open an account easily and with a low starting balance, Georgia also checks that box. If you’re looking mainly for asset protection, it’s what Swiss banks specialize in. 

And for the best tax rates around, you’ll find those in the Caribbean. More on that later!

There are quite a few offshore banking countries to choose from. Whether your priority when it comes to offshore banking services is lower tax rates, asset protection, higher interest rates, or just convenience to a place you frequently travel.


How Does Offshore Banking Work?

Offshore banking works pretty much like onshore banking, except that it is usually a bit more stringent. For example, in traditional banking you can just walk in with two forms of identification and an initial deposit, and most likely you will be approved. As you will see in the steps below, opening an offshore bank account is more of an in-depth process. 

Since we’ve already established some of the general concepts of offshore banking, as well as what your ideal institution (or institutions) would offer, let’s discuss what offshore banks are looking for when it comes to choosing their potential customers. To ensure that you are fully prepared for opening your offshore account, we’ve highlighted the main steps of the process below. 

  • Provide information for the following: 
    • Identify yourself (and each additional account holder) 
    • Confirm where the funds are coming from
    • Describe any business activity pertaining to the account
    • Identify all countries of any incoming and outgoing funds
  • Introduction to the bank: 
    • Typically prepared by bank representative or in some cases, a current bank client acting on your behalf
    • After review, bank approves (or rejects)
  • Document preparation for bank’s legal department:
    • Complete bank application forms
    • Provision of your personal documents (each account holder)
    • Any additional supporting documents requested by bank

Once you’ve completed all of the above steps and submitted any additional requested documents, the average turn-around time is five days. While each case is unique, these are the basic steps of opening an offshore bank account. 

Not too scary, right? Of course not! However, if this is your first time venturing out into offshore banking, I strongly recommend you consult with a professional organization that specializes in establishing relationships with offshore banking institutions. 

As we have established, more and more people are choosing to divide their finances among multiple institutions, particularly into offshore accounts, for a myriad of reasons. 


Why Is The Caribbean An Attractive Location For Offshore Banking?

What do you envision when you think of the Caribbean? Okay, I’ll give you about five more minutes to (reluctantly) put down your tropical cocktails and brush the beautiful grains of white sands off your feet.

Are you with me now? Great! Now apart from the impossibly gorgeous tourism, let’s talk about another reason why the Caribbean is so amazing. 

If you only know of, or have read about, offshore banking from the media, the Caribbean is most likely the first or second place that comes to mind. Why is the Caribbean so popular for offshore banking? Since the 90’s, it has been full of tax havens! Tax havens are these wonderful places where you incorporate your business, and, depending on the country, pay little or nothing in taxes. Additionally, many nations in the Caribbean have strict privacy laws and have refused to sign tax treaties with foreign governments. This means what happens financially in the Caribbean, stays in the Caribbean. Particularly for investors, low taxes and financial privacy are the major draws to the Caribbean. It also doesn’t hurt that it boasts some pretty breathtaking backdrops (care to take an impromptu trip to research these points in person?!) 

If you’ve made it this far into the discussion, I’m sure you can see just how straightforward offshore banking can be - just as long as you reflect upon your priorities, choose the right institution for your needs, consult a professional for legal advice, and most of all, be sure to report all of your accounts accurately because you definitely want to remain on Uncle Sam’s (or Johnny Canuck’s) good side!


Last Updated: 
October 12, 2020

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

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