What Is Offshore Banking? – Forbes Advisor INDIA

Many people hear the words “offshore banking” and think of tax evasion or other illegal activity. But there are perfectly legal reasons to open an offshore bank account. Banking offshore could benefit you, especially if you do business internationally.

Here’s what offshore banking is, how it works and why you should consider it.

What Is Offshore Banking?

Offshore banking is any banking that happens outside of your home country. An offshore bank account can make it easier to do business in foreign currencies. It also allows you to take advantage of any financial security or tax benefits another country offers.

Offshore banking is used most by businesses that operate internationally. However, if you reside in another country, it makes sense for you to set up an offshore bank account where you live.

While there are plenty of legal reasons to open an offshore bank account, the fact that offshore banking has an association with illicit activity shouldn’t be disregarded. A big part of what separates a legal offshore account from an illegal one is disclosure. The IRS requires all income to be disclosed, including income made internationally, so hiding income and assets offshore is a crime.

How Does Offshore Banking Work?

If you’re doing business outside of your country, having an offshore account allows you to participate in that country’s economy. You can use this account to make purchases, send and receive money or save and invest money just like you would with a bank account in your home country.

Another draw of offshore banking is security. Having money in a stable international account in a foreign currency may help you reduce risk, especially if your home country’s economy is volatile. This is even more appealing if your country is going through a period of unrest.

How To Open an Offshore Bank Account

Opening an offshore bank account is like opening an account domestically. First, you’ll need to find a bank that conducts offshore banking. Then, you’ll need to prove your identification, residency and banking history, often with notarized documents.
Here are some examples of documents you may need:

• Government-issued ID, such as a passport or driver’s license
• Proof of physical address, such as a copy of a utility bill
• Bank statements from the past year

Beyond documentation, foreign banks and governments work closely with law enforcement to combat illegal bank activity, so they may ask you about the nature of your transactions.

Know there are fees associated with opening an offshore bank account. These are often much higher than what you’d pay to open an account with a local bank, especially if you need legal assistance setting up an account. Along with fees, the bank may require a high minimum deposit.

How Is Offshore Banking Taxed?

80LA. (1) Gross total income of an assessee,-

(i) Being a scheduled bank or any bank incorporated by or under the laws of countries outside India, and having an offshore banking unit in a special economic zone, or

(ii) Being a unit of an international financial services center, (includes any income that is referred to in subsection (2), there shall be allowed, in accordance with and subject to the provisions of the section, a deduction from such income, of an amount equal to – 

(a) One hundred per cent of such income for five consecutive years assessment beginning with the year assessment relevant to the previous year in which the permission, under clause (a) of sub-section (1) of section-23 of the Banking Regulation Act, 1949 or permission/registration under the Securities and Exchange Board of India Act, 1992 or any other relevant law was obtained and thereafter, 

(b) Fifty percent of such income for five consecutive years assessment.

To understand further Offshore banking and International Financial Services Center deduction.

Popular Offshore Banking Locations

While many factors go into determining the best offshore banking locations, there’s one thing they all have in common: They’re tax havens. A tax haven is any place foreign businesses or individuals can safely keep money while paying little or no taxes.

Popular tax havens include many Caribbean islands like the Cayman Islands, the Bahamas and Bermuda. These locations have earned a reputation for security as well as secrecy. However, when it comes to offshore banking in the Cayman Islands or Bermuda, things aren’t like they used to be.

Over the past couple of decades, popular offshore locations have worked closely with foreign governments to uncover illegal activity. While setting up business in Bermuda or the Cayman Islands has many upsides, these British territories have their own monetary authorities investigating tax fraud and money laundering. Still, these places have strict laws requiring banks to keep account information private, which you may find valuable.

Outside of the Caribbean, there are many secure and beneficial places to deposit your money. Hong Kong and Switzerland are known for their security and tax benefits for foreign bankers. They have the added bonus of offering world-class banking services with ties to large foreign markets.

Why Should I Use Offshore Banking?

Offshore banking can provide you with flexibility and security. With the right offshore account, you can readily do business in another currency and have money stored in an international location.

In financial centers like the Cayman Islands, Bermuda and Hong Kong, foreign investors pay little income tax—if they’re required to pay any at all. You can take advantage of these tax benefits and diversify your investments.

Bottom Line

If you reside in another country or do business internationally, it may make sense for you to have a foreign bank account. Many countries provide financial incentives for doing business within their borders. If you do decide to open an offshore account, make sure it complies with tax laws.

Banking offshore isn’t practical for everyone. If you want to improve your banking, it’s smart to start domestically with the best savings account in India.