How to Open and Access an Offshore Bank Account

Offshore banking is often associated with a high level of financial sophistication and, sometimes, chicanery. However, the reality is that the average person can open an offshore bank account with just a few hours of work. Each offshore bank and foreign jurisdiction has its own requirements, so you'll have to do some research to find the specifics relevant to your situation. The following is an overview of what you can expect if you decide to open an offshore bank account.

What Is Offshore Banking?

People who bank offshore do so in a part of the world outside their home country. As such, the term offshore banking is generally used to describe international banks, companies, and investments. Some places have become well-known areas of offshore banking including Switzerland, Bermuda, or the Cayman Islands. But other countries where offshore banking takes place aren't that common such as Mauritius, Dublin, and Belize.

Most people associate offshore banking with being rich or something only the elite can do. While many wealthy people use these institutions, everyday people can do so as well. In fact, you're banking offshore if you're an American who has a bank account in Canada.

Offshore banking is often discussed in a negative light. That's because many people use it as a way to hide their money and avoid paying taxes. Others use it for illicit purposes like money laundering and tax evasion. While these activities are criminal and can result in prosecution, jail time, and/or heavy fines, offshore banking doesn't have to be illegal. Having an offshore bank can be totally legitimate if:

• you run a business in a foreign country
• have investments
• have an account in a country where you may spend a good part of the year

You may also choose to use offshore banking in a country that has favorable tax treatment. Some parts of the world allow you to invest your money while earning income on that money tax-free.

The Basic Requirements

The basics of opening an offshore bank account are similar to opening a bank account in your home country. Offshore banks require your personal information, such as your name, date of birth, address, citizenship, and occupation.

To verify your personal information, you will need to submit a copy of your passport, driver's license, or other identifying documents issued by a governmental agency. Banks are also concerned with verifying your residence or physical address since this may affect taxation issues. This requirement may be satisfied by presenting a utility bill or something similar.

Regardless of what type of document you provide, banks will need to make sure they're authentic. A notarized copy of certain documents may suffice in some cases. But other offshore centers prefer an apostille stamp—a special type of certification mark that's used internationally. If this is the case, you will need to visit the government office that is authorized to issue this stamp for your state or nation.

Additional Verification Documents

There are often considerable additional requirements to open an account with an offshore bank. These requirements are in place to discourage money laundering, tax fraud, or other illegal activities often associated with offshore banking.

First, offshore banks may ask for financial reference documents from your current bank, indicating average balances and a satisfactory relationship. This is commonly satisfied by bank statements for the last six to 12 months.

Second, many offshore banks ask about the nature of transactions expected to take place through the account. This may seem overly intrusive, but offshore banking centers have been under increasing pressure to stop illegal activity. For this purpose, many offshore banks want additional documentation, noting the source of funds you are depositing in the bank.

For instance, a wage slip from your employer will likely suffice if you're using the account to make deposits from your employer. To verify your investment income, an offshore bank may ask for information about your investments and where they are held.

For business or real estate transactions, you may need to provide sales contracts or other relevant documents. If you deposit funds from an insurance contract, you may need to provide a letter from your insurance company. If your money comes from an inheritance, the bank may ask for a letter from the executor of the estate testifying to this effect.

Choosing a Currency

Unlike domestic accounts, offshore bank accounts offer the option of the currency in which you wish to hold your funds. This can be a highly valuable feature of an offshore account, especially if one's domestic currency is unstable or expected to depreciate.

While that may be an attractive feature, it's important to understand the consequences of holding your account in different currencies. For example, holding funds in certain currencies may allow you to earn interest on your deposits, but it can also result in foreign tax liability. You may also need to exchange currencies to make deposits and withdrawals, which could be a significant expense depending on the fee structure and exchange rates offered.

Depositing to an Offshore Bank Account

Offshore bank accounts are most often funded electronically through international wire transfers. Unfortunately, the systems that enable free electronic transfers common in domestic banking are typically not able to transfer money internationally.

Sending a wire transfer is a simple operation, but almost all banks charge international wire transfer fees to send or receive funds. Pricing for wire transfers varies between banks, so be sure to look for deals. Unfortunately, there are few good alternatives. Domestic checks are generally not accepted in foreign jurisdictions, and depositing funds in person on a regular basis is impractical.

Making Withdrawals

Offshore banks offer a variety of ways to withdraw funds to maximize the convenience of using their services. Many offshore banks issue a debit card that allows you to easily access your funds worldwide. Make sure you're aware of the fees for using the card since they can add up. Withdrawing larger amounts of cash at one time may help to minimize these fees.

Some offshore banks offer checks. However, this is usually not a preferred method– primarily, because confidentiality is often desired in offshore accounts. Problems may also arise since checks drawn on foreign accounts are not always accepted locally.

The best option may be to use two accounts—one offshore and one domestic. In this way, electronic wire transfers can be used to transfer larger amounts of offshore funds to a domestic account where they can be easily accessed. This method offers greater privacy and security, while also providing the convenience of local banking services.

The Bottom Line

Despite the mystique surrounding them, it is relatively simple to open accounts with offshore banks. All it takes is filling out the paperwork, supplying some basic identifying documents, and providing additional information to show that you are not planning to use the account for illegal activity.

Choosing the best currency and optimizing deposits and withdrawals are slightly more complicated, but the best choices become clearer as you study the options. When using offshore bank accounts and receiving international wire transfers, it is important to consult with a tax professional to ensure you are following all the tax regulations at home and abroad.