Can someone explain Offshore bank accounts to me?
In: Economics
I’m not sure I understand the question? “off shore bank account” really just means a bank registered in another country.
Are you asking why are they used? Or what the benefit of them is?
To that let’s come from the perspective of an American. nations have laws, this should surprise no one. And part of the rules of doing business in a country is you have to follow those country’s rules.
Want to have a bank in America? Follow American banking laws. And that includes a whole long list of rules like “report certain transaction”, “tell the IRS how much interest your customers are making”, “respond to a warrant and give us the information we ask for”
But if the bank you use is based in, say, the Cayman Islands well the Cayman Islands is a whole ass other country. And that Cayman Islands bank can go “that’s nice America, you got some great rules there. Truly. But we’re way over here, not over *there* and your rules don’t apply to you because we don’t have banks in America. So we aren’t actually obligated to follow any of your laws because you’re over *there* and we’re over *here* so we’re just…not going to”.
Which means they can’t actually be compelled to obey any request by any American law enforcement or tax entity to do a *damn* thing.
That’s where rich people help other rich people by hiding their money from things like taxes and audits.
Having bank accounts in different countries.
Usually used for tax avoision purposes.
Folk can have money squirreled away usually in accounts with high interest.
The paper trail is awkward to follow and if they are in different names then there is plausible deniability.
The US has among the highest corporate tax rates in the world.
Let’s say you own one company based in America and another based in Germany. You pay 25% American taxes for your American company and have $5,000 profits and 12% German taxes for your German company and have $10,000 profit.
You want to take those after-tax profits from Germany and bring them to the US. The US government is going to make you pay taxes on the difference. The US corporate tax rate is 25%. You’ve already paid 12% to Germany, so the US will only want the 13% difference.
Now, you headquarter both companies in the Cayman Islands and guess what, they have a lower tax rate than both Germany and America *AND* they won’t tax nearly as much to repatriate after-tax profits.
Most countries in the world have signed up with Foreign Account Tax Compliance Act (FATCA). Does having foreign accounts for hiding money from the IRS even work anymore? Maybe having accounts in China or Russia but that seems dangerous
Different countries have different laws. Some countries have more favourable laws when it comes to things like taxes for example.
Instead of putting your money in an American bank where you need to abide by American laws, you can put it in an ‘offshore’ account in a country with more favourable laws.
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