When you think of offshore banking, the first thing that comes to mind is tax savings. Why else would you establish a bank account in a low or no-tax jurisdiction? While it's true that many Americans establish bank accounts in other countries to reduce the taxes they pay in the United States, it's more likely that they do so to protect their assets from creditors, to create appropriate succession planning using offshore beneficiary trusts, and to take advantage of investment opportunities around the world. Wealthy individuals operating in highly litigious businesses are ideal candidates for offshore banking.
Certain jurisdictions are more amenable to these activities. While it isn't illegal to open a business bank account in another country, it is skirting our tax laws when income generated in the United States moves offshore without the appropriate taxes paid. Americans pay tax on all their worldwide income, regardless of where the assets are located. Congress estimates that $100 billion in revenues generated in the United States each year goes untaxed because of such offshore banking institutions. Given these numbers, it's not surprising that the treasury has begun to look more closely into the activity.
A couple of leading jurisdictions for offshore banking include:
Approximately 70,000 corporations and other legal entities from the U.S. and other countries call the Caymans home for some or all of their offshore operations. In many cases, it's just a post office box and a local representative who takes care of their local financial and legal needs.
The Cayman Islands are what's called a tax-neutral jurisdiction; they do not collect personal or business taxes, saving the corporations who locate there substantial amounts of tax. Congress feels this must stop, but offshore banking advocates argue that the extra profits generated from a lower taxation rate have been reinvested, hiring additional Americans in all sorts of industries who turn around and pay their fair share to the government. Given a globally competitive world, it doesn't seem right to burden U.S. corporations who compete against companies domiciled in far more tax-friendly jurisdictions.
This little country borders Mexico and the Caribbean Sea. Independent since 1981, the former British colony is swiftly taking its place as a world leader in offshore banking and financial services. Belize is among the top 10 jurisdictions in the world for company formation and ship registration. Ruled by English Common Law, the country is politically stable and provides an environment of zero taxation, absolute confidentiality, and trust and asset protection better than most established tax havens. In addition, the telecommunications infrastructure is modern and capable of handling the increasing business demands of a growing financial services industry.
Offshore banking is a misunderstood subject. Since September 11, 2001, it has become even more difficult to interpret the laws put in place by various well-known tax havens to combat money laundering and fundraising activities carried out by terrorist groups like Al Qaeda. For the corporation or individual interested in offshore banking services, it makes sense to obtain professional advice before moving ahead with any plans.