Yes, you read that right. We agree with what the offshore-structures-bashing media says that, indeed, holding offshore accounts is illegal.
But under one note.
You and I must agree with the notion that all who engages in offshore banking and offshore company formation are doing so as criminals.
Unfortunately, none of us want to be labeled as ‘criminals’ because, in reality, most of our actions aren’t mapped as criminal acts.
Indeed, a few of those who hold offshore bank accounts are doing so for illegal purposes, i.e. Evading taxes, hiding dirty money, and everything else in between. However, most of us hold offshore bank accounts for various legitimate reasons that are geared toward asset protection and privacy.
Passing down wealth to the next generation, protecting trade secrets from competitors’ prying eyes, concealing wealth from corrupt government, investing in foreign markets, avoiding taxes (yes, it’s not the same as evading taxes!) and so on – all are valid and fully legal reasons why people want to go offshore, despite the challenges and limitations.
You must note, however, that holding offshore accounts today requires you to be extra careful in planning for your privacy and asset protections. One mistake can lead you to the path of the criminals, so to speak – even if you don’t intend it.
How NOT to mess with your offshore accounts
So, what things should you be paying attention to?
1. Address tax issues
Most countries, especially those that adopt worldwide income taxation policies (your income is taxed no matter where in the world the source is,) require income to be taxed as a residence of a country. While business revenues are taxed according to your offshore jurisdiction’s laws, your “take home” income derived from the revenues – i.e. Salary – is taxed according to your residence status – unless you can find any other ways to send profits to your personal bank account onshore with minimal tax implication, such as dividends.
Depending on your situation, going offshore could make matter worse for your financial future. You need to know the tax treaties between your home country and the actual country origin of your income. Know your tax responsibilities and your can-do’s and can’t-do’s.
2. Offshore accounts are tools – know how you use them, and why
A knife can help you in preparing for ingredients when cooking in the kitchen, but it can be an effective close combat and self-defense weapon. Offshore bank accounts are like knives.
Those are tools that can help you in protecting your assets legally. However, the same tools can help you to hide your money from the tax men. The choice is yours, but be aware that each choice you make can determine the future of your finance.
3. Understand the offshore jurisdictions’ pros and cons
You need to know that every offshore jurisdiction presents advantages and disadvantages. Choosing, for example, Belize as your jurisdiction just because everyone else does so is not a sound personal finance decision. It can be the right jurisdiction to some but may not necessary so for you.
Choosing a jurisdiction just because of its zero percent tax rate is a shortsighted decision. Not only the tax advantages, but you also need to learn more about its other aspects: Reputation, tax treaties with other jurisdictions, the available investment opportunities, and so on.
You don’t want any conflict of interests between your local Government’s and the offshore jurisdiction’s laws and regulations.
If the media tells you not to trust offshore banking and company formation, they do so for a good reason whether they realize it or not. Most ‘viral’ news about offshore structures involve negative news, such as money laundering and so on, and their job is to inform the readers about the potential roadblocks. However, those don’t make offshore structures illegal.
As long as you’re pledging to make sure to report your offshore financial activities properly and not going offshore to evade taxes, your offshore bank accounts are as legit as your local or national bank accounts, onshore.
Please note that this article is not intended to give professional advice; it’s for informational purpose only. If you’re still unsure about the legalities of opening an offshore bank account and want to learn more, be sure to consult with a trusted lawyer and reputable International business service provider like ICO Services.