A couple decades ago, an entrepreneur from a high-tax jurisdiction could register an offshore company, use it for business purposes, and nobody would know that he/ she had an offshore-registered company. As far as bank accounts are concerned, the same opportunity was also available: people could set up ‘secret’ bank accounts in foreign countries.
Things have changed, however. The confidentiality of company ownership information is still well protected in some places. All offshore jurisdictions have Business Registers but some of them manage to keep them closed for the public. This means that neither your competitors nor your relatives can find out that you have an offshore company unless you tell them about it Wealthy Influencers. On the other hand, the information will become available to fiscal authorities and law enforcement agencies on official request or on a court decision.
Speaking about banking privacy, it is almost gone. Whether you set up a bank account in Switzerland or in a small Caribbean country, the CRS are applied almost everywhere and the fiscal bodies of your home country will know about the money that you keep in foreign banks. At the same time, foreign bank accounts do bring some important benefits anyway.
Why do people set up offshore bank accounts?
The main advantages of offshore banking include the following ones:
- Protection against unfavorable changes in the home country’s legislation, economy, or political situation;
- Acquisition of new investment instruments and access to foreign securities markets;
- Opportunities to make direct payments to foreign suppliers in their national currencies and receive direct payments from foreign customers;
- Opportunities to overcome currency control (if applicable) and save on currency exchange.
However, some difficulties can be associated with using an offshore bank account too.
Possible problems associated with offshore banking
Previously, all banks – onshore and offshore – tried to attract as many clients as they could. At some point in time, onshore banks became strictly regulated and they had to be more reserved while offshore banks remained friendly to international customers. As things stand for now, all banks including offshore banks follow the KYC procedures and conduct due diligence checks.
Whether you bank in one of the British overseas territories such as the BVI, Gibraltar, Caymans, and Bermuda or you bank in an independent offshore jurisdiction such as Seychelles, Belize, Panama, etc., due diligence checks are in place. Probably, the KYC procedures are not so demanding in independent countries but you have to go through them anyway. No banks are as friendly to customers as they used to be.
Another issue that you may face if you bank offshore is the impossibility of using some national currencies. Many Caribbean banks now refuse to open US dollar accounts, for example, and make US dollar transactions. We have to be fair, however, and point out that many European banks do the same.
In addition to that, offshore banks use large transnational banks such as JP Morgan Chase, Lloyds, Citibank, and so on as correspondent banks for international transactions. These huge financial institutions value their reputation very much and they want to make sure that any transaction going through them is perfectly ‘clean’. Now offshore banks have a reputational issue, which makes large international banks double cautious when it comes to dealing with an offshore bank.
They check and double-check every money transfer from an offshore bank. And meticulous checking takes time. Sometimes it takes months. What makes things even worse is that the transfer may be not accepted. For instance, many British banks refuse to accept payments from Belizean banks.
To overcome this difficulty, some offshore banks cooperate with international Fintech companies using them in the place of correspondent banks. Payment Service Providers (or neobanks) do take high-risk clients onboard. The irony here, however, is that this fact makes them high-risk business ventures too!
Is there a big difference between an onshore and an offshore bank account?
As we have noted above, you have to go through due diligence procedures at whatever bank you apply for services – onshore or offshore. As far as banking privacy is concerned, its level has dropped in most offshore jurisdictions to the level of banking privacy in onshore jurisdictions. Seychelles, the BVI, Belize, and most other offshore jurisdictions now follow the CRS rules. It is quite understandable because no bank and no country wants to be blacklisted by the international financial authorities. True, you can hide the money from your spouse in an offshore bank but you cannot hide it from your country’s fiscal authorities anyway. Please note that in some countries citizens have to inform the authorities about opening foreign bank accounts and supply the account details.
Without doubt, a foreign bank account can bring numerous advantages and it can be used for various different purposes but does it have to be an account with an offshore bank? Well, the account maintenance costs may be lower in offshore jurisdictions compared to onshore jurisdictions but offshore banks potentially pose more threats.
How to open a foreign bank account in 2023: application documents and general requirements
Whether you would like to bank offshore or onshore, any foreign bank administration will want to make certain that you are going to be a reliable and law-abiding customer if it agrees to open an account for you. The bank will want to make sure of the following:
- That the types of activities the (corporate) applicant is engaged in are 100% legal;
- That the money that is going to come to the bank account comes from legal sources exclusively;
- That the applicant is not under EU, USA, UN or any other sanctions.
The international financial regulators oblige banks to know their customers. For this reason, you will often have to fill out several forms and questionnaires when applying for services to a foreign bank.
Opening a personal account with a foreign bank is simpler than opening a corporate one. However, you will have to go through the identification procedures anyway. When you want to open a personal account in a domestic bank, all you have to submit is your passport or some other ID. The bank officer will enter your passport number into their computer and thus learn everything about you: your place of residence, your taxpayer’s number, your marital status, your criminal past, and so on. The bank officer in a foreign bank is not going to have access to the databases. Therefore, you will have to submit a larger number of documents when setting up a foreign bank account.
Please note that since it is a foreign country, a foreign language is usually spoken there. This means that the application documents that you submit have to be translated in the local language. Moreover, the translations need to be ‘official’, made by a sworn translator and notarized.
Opening a foreign bank account in an offshore or an onshore jurisdiction is a non-trivial task today. This is why we highly recommend that you apply for professional assistance if you would like to set up a bank account in a foreign country.