Offshore bank

An offshore bank is a bank located in a tax haven that provides financial and legal advantages. These typically include some or all of

strong privacy (see also anonymous banking)
lax regulation
low or no taxation
easy access to deposits (at least in terms of regulation)

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 can also be used figuratively to refer to banks even in landlocked nations such as Switzerland.

One common misperception is that offshore banking can legally prevent assets from being subject to United States personal income tax on interest. This is incorrect as US personal income tax makes no distinction between interest earned in United States banks and those earned overseas, and persons subject to US income tax are required to declare on penalty of perjury, any offshore bank accounts they may have. Although offshore banks sometimes do not report income to American tax authorities, relying on this fact to avoid payment of taxes is illegal.

Table of contents

1 Advantages of Offshore Banking
2 Disadvantages of Offshore Banking
3 Offshore Finance Centers
4 See also

Advantages of Offshore Banking

Offshore banks provide companies and individuals a method of circumventing restrictions on currency movements. Money stored in an offshore bank is safe from economic or political turbulence in the home country.

Thanks to their lower cost base, offshore banks can provide higher interest rates and lower taxes than the home country.

Offshore finance is one of the few industries that geographically remote island nations can competitively engage in.

Disadvantages of Offshore Banking

Offshore banks (and offshore corporations) can be used for tax evasion and to shift assets beyond the reach of litigation. Strict privacy laws and lax regulations on money movements also make offshore banks ideal for money laundering.

Conversely, the same lax regulations mean little or no protection for the customer's deposits in the event of bankruptcy or outright fraud.

In addition, the advantages of offshore banking come at a high cost as the returns on offshore banking accounts may be substantially below those of normal bank accounts.

The fees and minimum deposits required to open and operate accounts in offshore banks make them inaccessible to the general public.

Offshore Finance Centers

Some better-known offshore financial centers include: