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One common misperception is that offshore banking can legally prevent assets from being subject to personal income tax on interest. This is incorrect as the personal income tax of most countries makes no distinction between interest earned in local banks and those earned abroad. Persons subject to US income tax, for example, are required to declare on penalty of perjury, any offshore bank accounts they may have. Although offshore banks sometimes do not report income to other tax authorities this does not make the non-declaration of the income or the evasion of the tax on that income legal.
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2 Disadvantages of Offshore Banking 3 Offshore Finance Centers 4 See also |
Offshore banks provide companies and individuals a method of circumventing restrictions on currency movements. Money stored in an offshore bank is safe from economic or political turbulence in the home country.
Thanks to their lower cost base some offshore banks can provide higher interest rates than the home country.
Offshore finance is one of the few industries that geographically remote island nations can competitively engage in.
Offshore banks (and offshore corporations) can be used for tax evasion and to shift assets beyond the reach of litigation. Strict privacy laws and lax regulations on money movements also make offshore banks ideal for money laundering.
Conversely, the same lax regulations mean little or no protection for the customer's deposits in the event of bankruptcy or outright fraud.
In addition, the advantages of offshore banking may come at a high cost as the returns on some offshore banking accounts may be substantially below those of normal bank accounts.
The fees and minimum deposits required to open and operate accounts at some offshore banks make can them inaccessible to the general public.
Some better-known offshore financial centers include:
Advantages of Offshore Banking
Disadvantages of Offshore Banking
Offshore Finance Centers
See also