Offshore banking
An offshore bank is a bank that is located outside the country of where an individual is residing. Most of the depositors are usually non-resident in the area of jurisdiction as they are held in foreign countries most preferably in tax haven countries. These accounts provide legal and financial advantages such as little tax and to the extreme no tax, great secrecy, easy accessibility of the deposits and great protection from the local, political and financial crisis[1]. This type of banking is associated with underground economy, tax evasion, organized crime and money laundering activities however offshore banking legally does not prevent individual assets from personal income tax and interest. The requirements of offshore banking are fairly complex and only a few persons are able to meet them[2]. The criteria required do not make a clear distinction between the interest earned between the local mainstream banks and the offshore banking this is because persons in some countries are required to declare any interest in the foreign accounts.
Offshore banks have the right of not disclosing and reporting the income on other tax authorities as they have no legal obligation to do so compared to the onshore banks. Onshore banking is usually structured to suit the local individuals though they are flexible and can hold foreign currency in that they are tailored towards the very specific wants and requirements through product and service portfolio in order to increase the net worth of individuals and business. The offshore banks have some features that are different from onshore banks[3]. Offshore banks are not found in any country as they are only established in countries that have high levels of bank secrecy and privacy laws as they are able to give individuals more freedom to capital regulation in exchange controls by the government. The mainstream banks are usually regulated by the lands central banks which are controlled by the governments in various nations[4].
The onshore banks have lower yield investments to offer compared to offshore banking as they are easily accessible. The high yields of offshore banks are made possible in that the level of risks involved are very high as the money is not insured by the government as it is the case in the onshore banking system. The offshore type of banking offers a bit of mystery compared to the mainstream banks in that they offer anonymous credit cards and a number of accounts[5]. This is not common to the onshore banks as they do not have such laws and regulation[6]. Some governments requires declaration of the foreign income in which if an individual fails to do so there arises a risk of fines or jail term if they fail to do so which is not the case with onshore banking. The initial and the maintenance deposit of the mainstream banks are much lesser in comparison to the offshore counterparts.
Both onshore and offshore banking systems have some common elements. In order to have an account in the banking system, one should be able to meet the requirements such as identification documents and the address proof[7]. This is a common procedure in both as they also require a deposit amount in order for the account to be active. Both banking systems have rule and regulation that guard them despite their difference in operation[8]. They also have financial risks in them in that they are able to generate interest for the deposits.
Reference
Maude, David. Global Private Banking and Wealth Management: The New Realities. Chichester, England: John Wiley & Sons, 2006. <http://www.123library.org/book_details/?id=6511>.
Smith, Roy C., Ingo Walter, and Gayle DeLong. Global Banking. Oxford: Oxford University Press, 2012.
[1] Maude, David. Global Private Banking and Wealth Management: The New Realities. Chichester, England: John Wiley & Sons, 2006. <http://www.123library.org/book_details/?id=6511>.
[2] Smith, Roy C., Ingo Walter, and Gayle DeLong. Global Banking. Oxford: Oxford University Press, 2012.
[3] Smith, Roy C., Ingo Walter, and Gayle DeLong. Global Banking. Oxford: Oxford University Press, 2012.
[4] Maude, David. Global Private Banking and Wealth Management: The New Realities. Chichester, England: John Wiley & Sons, 2006. <http://www.123library.org/book_details/?id=6511>.
[5] Maude, David. Global Private Banking and Wealth Management: The New Realities. Chichester, England: John Wiley & Sons, 2006. <http://www.123library.org/book_details/?id=6511>.
[6] Smith, Roy C., Ingo Walter, and Gayle DeLong. Global Banking. Oxford: Oxford University Press, 2012.
[7] Smith, Roy C., Ingo Walter, and Gayle DeLong. Global Banking. Oxford: Oxford University Press, 2012.
[8] Maude, David. Global Private Banking and Wealth Management: The New Realities. Chichester, England: John Wiley & Sons, 2006. <http://www.123library.org/book_details/?id=6511>.
