Learn the definition of offshore banking including the benefits of these institutions and the accounts they offer to customers.
The Definition of Offshore Banking
Offshore banking is one of the many types of banking systems in the world. In this system, the investor will open an offshore bank account at a location outside of his home country. It serves therefore as a type of international bank. The main aim of saving money in an offshore bank is to pay lesser amount of tax as these banks are usually located in places that are in a low tax jurisdiction. These banks also offer other financial and legal advantages to the investors banking offshore. Read of the basic benefits and things you should about these banking accounts.
Basic benefits of Offshore Banking
The holders of offshore bank accounts enjoy greater privacy as the bank does not share the account details and information with anyone. There are many financial centers where a company can operate an offshore account. Some offshore banks pay higher interest rates than domestic banks. It follows the principle of bank secrecy that is a part of the Swiss Banking Act of 1934. In terms of regulation for offshore banks, it allows easy access to deposits. Offshore banks are tax havens as they have little or no taxation policy. The best thing about the offshore bank account is that it allows for asset protection against financial instability and local or political forces. Companies however use offshore banking for money laundering activities.
Other important details about offshore bank accounts
- It is a must to report international income on the United States income tax return for an offshore bank account. It does not matter whether the foreign income is taxed somewhere else or the person is living or working abroad. He still has to report about money earned from wages, dividends, foreign earnings, interest rates and other income.
- If the holder of an offshore bank account does not disclose the fact that he has worldwide income source to the State then he may face tax penalties. It is important to comply with one or both sets of obligations. If bank account holder fails to do so then it will be considered as fraud or tax evasion.
- If a person had hidden the truth previously by not disclosing his income then he still has an option. He can make voluntary disclosure by giving truthful, timely and complete information to the IRS.