Should you have an offshore bank account?

An offshore bank account is the name given to a bank account that is held in any foreign country, but most usually those that have strict bank privacy laws and bank accounts that you can hold anonymously, thereby “hiding” some of your wealth from the world and reaping some great tax and interest benefits.

It is estimated that some 60% of the world’s wealth is held in offshore bank accounts and offshore investments, which leads one to believe there must be some great benefits, otherwise why are all of those other people doing it?

You may wonder if it is legal to hold offshore bank accounts from here in Australia, and any foreign investment certainly is legal, so long as it’s all declared on your tax return. If you have already paid tax in the country where the investment is held, than you may be entitled to a tax credit, depending on which country it is. This is something which bears investigation before you invest.

Obvious advantages of holding an offshore account are the anonymity and low taxes, but most offshore banks also offer very high returns in the form of interest rates as a lure for international investors.

As with domestic banks, they get to invest and utilise your funds while they’re deposited with them, and this helps to prop up their local economy, that’s why they want you to bank with them.

Perhaps most importantly in this ever changing world you can have your money dispersed in several different bank accounts in several different countries and not ever be caught with all of your eggs in one basket if the economy or government of any one of those countries should crash.

You don’t have to jump on a plane and take your 100 point ID to your country of choice to open an offshore bank account, most offshore banking is conducted through a legal banking agent and the focus is usually on low doc and anonymity. A banking agent will organise and guide you through all of the legal processes required to create your offshore bank account.

Although internet banking is now common practice, some consider the “hands off” practices of offshore banking to be a disadvantage. In most cases offshore banks are physically in remote locations and you often have to trust in an agent to communicate with your bank and do your banking for you. Access to your information is not always immediately available, sometimes simply because of time zone or even holiday differences. As with all industries, there are good banking agents and bad banking agents and you may not know whether yours is good or bad until it’s too late.

Before investing offshore it is recommended that you consult with an experienced Australian tax agent, they should be able to inform you of the best legitimate tax benefits, and perhaps refer you to who and where your money could best take an overseas working holiday for you.