In general, any bank account opened outside a native country can be considered an offshore bank account. There is usually not much difference in service or benefits between the corner bank and a bank located in the Cayman Islands. The appeal is much more evident during tax time when assets and income must be reported to the IRS or other government revenue agencies abroad. Because the banking sector is perhaps 10% deposit and accounting of 90%, many smaller countries are able to offer offshore bank account services without a substantial investment of their own. Island states such as the Cayman Islands or the Channel Islands can compete successfully with Switzerland or Belgium for offshore banking customers. Local laws may limit or eliminate taxes placed on traditional bank accounts. This is the reason why some companies and richer individuals prefer to open a bank account in small sovereign states that allow account holders to remain virtually anonymous. For many years, an offshore bank account was indeed a convenient way to hide profits from illegal activities or underreported business earnings.
Internal Revenue Service ( IRS US) would have little knowledge of money deposited elsewhere. Offshore banks were not obliged to report the existence of these accounts, and account holders legally could not pay little or no taxes in the host country. In recent years, however, the rules governing offshore banking have become much more stringent. Any bank account containing over $ 1,000 US dollars ( USD) must be reported as income to the tax authorities, no matter where that account is located. Many people consider opening an offshore bank account for very legitimate financial reasons. Residents of a politically or economically unstable country can arrange for an account in a more stable country. If the government should collapse financially, residents can still protect their money from a rush to the National Bank. Those who travel frequently to Europe or Asia can benefit from having an account in England or Japan. The exchange rate between foreign currencies is often more favorable with ” local ” accounts”. With the advent of electronic banking services, an offshore bank account holder can often easily conduct routine transactions without traveling abroad. There is still a stigma attached to an offshore bank account due to some gray area financial reports, but there is nothing illegal or unethical about opening one for legitimate reasons.