Offshore Bank Accounts: The Big Question
Recently I’ve been getting a lot of emails from Americans, the general gist of which is: “Seeing as the US tax authorities are aggressively going after Americans who have offshore bank accounts, does it not make acquiring such an account a waste of time, or worse a criminal offence?”
In order to answer that question I first need to clarify something. The US authorities are indeed going after those who have unreported offshore accounts – those who are seeking to hide funds in such accounts.
However, what is vitally important to understand is that offshore bank accounts are not illegal. It’s just that if you’re a US citizen or resident you need to report its existence – if the balance of funds in the account exceeds $10,000.
So if you report it, doesn’t that do away with any of the advantages? Fair question – but the answer is “no”.
Sure, being a US citizen/resident does put you into a class of your own (having to report the existence of offshore accounts), compared to citizens of other nations – but that’s all par for the course these days, as Americans are fast losing their freedoms.
However, there are still a couple of very good reasons why you should still open an offshore bank account – regardless of the requirement to report it.
1. An offshore bank account provides a “safe haven” for your funds – out of reach of the government. Provided you stay “legal” and report, you are perfectly entitled to move all your cash offshore if you want. And the advantage is it will be more secure.
2. With the slow-but-sure slide in value of the USD (a necessary situation given the USA’s indebtedness), you need to diversify out of the $US. And the best way to do this is to open an offshore bank account where you can easily hold funds in multiple foreign currencies. This gives you an opportunity to hedge against the falling dollar by moving your funds into a currency (or currencies) that is doing better.
3. Even though US citizens/residents have to report the existence of such accounts (if over $10K balance), this does not completely obliterate your financial privacy. Once you have funds in such an offshore account, you are able to move it around, pay for stuff, fund a brokerage account and do all sorts of things – without those transactions being known or reportable in your home country.
All in all, my advice to Americans is to take up this legal option – to move funds offshore and into an offshore bank account – while there is still time!
Given the state of the US economy, it’s not inconceivable that in the future moving such funds may become impossible.
And if your second question is “how do I find, choose and fund an offshore account”, then I refer you to my two reports:
The 10 Things You Really Need To Know Before Opening An Offshore Bank Account – an overview of offshore banking and the basics you need to know.
The Ideal Offshore Bank Account – my personal picks for offshore banks, based on my own considerable experience.
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Always open it in an entity. Then US Citizenship is irrelevant! This should have been your first sentance above!
Jim, having an offshore account is defined as having signatory power over such an account. So even if you open a corporate offshore bank account, the fact you (as an individual) are the signatory makes that account reportable.
Jim, in theory, you have to report an offshore account if you are the beneficial owner, even if you use nominees to protect your privacy.
David, I think there is a question that should be discussed, maybe is another post. Many of us consider governments as our ennemies. Reporting an offshore bank account (among other things) means complying with the ennemy’s rules. How long should we fight the ennemies (in words) but continue to obey their rules?
JP, you raise an important issue of course – the legitimacy of the government making the rules! However, when giving advice, one cannot suggest that “others” take a route that could land them in jail. Having said that, I should add that the “PT” strategy overcomes this dilemma, by allow you to snub your nose at such political entities – while remaining 100% legal.
The truth is, many Americans depart for more favourable shores, taking their cash with them – never to return. And in such circumstances, there is really nothing anyone can do.
David, I fully understand your position and agree with you. Becoming a PT is the solution for many, but not for US citizen, who still have to file a tax return. So the dilemna remains for them. Being a PT is, in my opinion, a way of life, not a “legal status”. You still need a permanent address to renew your passport, open a bank account, etc. So, you have to become resident somewhere.
Not only US citizen, but also european citizens are leaving their home countries (I’ve heard of 350,000 Germans every year!). The last war on privacy and so-called “tax cheaters” started by the G20 will IMO have the opposite effect as expected: a new wave of wealthy “economic refugees” will leave these countries, meaning less tax to collect.
But my fear is that the G20 governments introduce new rules, making their citizens resident for tax purpose, no matter where they live.
David:
I looked into a couple of these banks, Lloyds TSB in particular. You related that its possible to open an off-shore club corporate account for $100 (actually it is $250). I inquired and was informed that ONLY the International Personal Account was available and $1500 is required to open it. Apparently conditions are changing in Britain; my aforementioned experience at UK Customs attests to that!
JP, you’re right of course – the PT option is not available to US citizens, as they are taxed not only on the basis of residency, but also of citizenship, meaning they have to file a return even when not living in the USA. The solution, of course, is to gain a second residency and passport and ditch the US passport. To draconian for most, liberating for the few!