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5 Things to Know About Offshore Banking

The concept of offshore banking in popular culture is strongly associated as a tool for the rich to hide wealth and avoid taxes. This image is thanks in large part to Hollywood, which often uses these offshore accounts as plot devices in movies. That notion is further bolstered by real-life incidents like the Panama Papers, but it isn’t the whole story either. 1. An Offshore Bank Is a Bank Outside Your Country Since offshore banking accounts have been plot devices in Bond films and many other high-profile movies, it gives many people the impression that these accounts are exotic. They aren’t. Whether a bank is offshore is simply a matter of perspective. Any bank outside your home country is offshore, and the local bank down the street from you is an offshore bank to someone. The Internet has changed things, and now, almost all have very easy access to many offshore banks around the world. 2. Offshore Banking Is Legal in Most Countries Offshore banking is quite legal in most countries. There are exceptions and countries that tightly regulate it, but most of the major powers in the West allow it with few restrictions. In the U.S., as long as you’re up front about your investment and other incomes, you can keep money wherever you please. 3. Offshore Baking Offers Legitimate Advantages Offshore banking certainly allows both companies and wealthy people to hide income and to enjoy reduced taxes on revealed income. Nevertheless, there are legitimate advantages as well. It provides people a level of privacy that wouldn’t otherwise be possible. It’s a tool to avoid double taxation, and it makes moving money around online much easier it than it would otherwise be. 4. Tax Havens Account for Much of the World’s Wealth Switzerland hosts the world’s most iconic offshore banking, and that industry began as a way for Jews fleeing the Nazis to hide their wealth. Today, most corporations around the world as well as many rich individuals choose to maintain their wealth in tax havens. In fact, economists estimate that more than 50 percent of wealth in the world is stored in offshore accounts. 5. Citizens Are Legally Obligated to Report Worldwide Income Offshore banking isn’t tax-free. Using an offshore bank as a tax haven or tax shelter isn’t as simple as putting money in an account. It also isn’t legal. In the U.S., offshore money is taxed even if you yourself are offshore on a more than temporary basis. In other words, if you’re an American who works and lives in Ireland and keeps his or her money at a bank in Switzerland, you still owe taxes on it.
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