Offshore banking is a vehicle through which global banking activity is covered under the umbrella of enhanced security, confidentiality, and privacy.
Offshore – the term to reflect the physically remote location of the bank that differs from the account holder’s locality. The financial concept of either depositing assets which are in the form of hard currency under the safekeeping of a bank account or taking a loan from a bank which is based in an offshore financial centre. The offshore bank is also limited by license which varies for each jurisdiction) to receive deposits and lend monies to sources out of the jurisdiction where it is physically located.
It is broadly agreed that the advantages of offshore banking include:
- Fewer restrictions and regulations;
- Low or no taxation;
- Higher levels of banking privacy; and
- Protection against financial instability or local politics.
How to Qualify an Offshore Bank
It is to note that when qualifying an offshore bank, it advisable to go for a bank with a history of success and located in a reputable financial centre with a strong legislation backing it. It is through the robust systems and strict regulations that you can be sure that your assets and interest are well-protected. However, besides taking note of the terms and conditions to the fine print in the agreements, the following are several factors that is critical is selecting the right offshore bank.
Quality of Jurisdiction. An offshore bank can only be as good as its jurisdiction. Holding local currency might be risky for jurisdictions that are not politically nor fiscally stable. An example is Cyprus’s governments intervention [TT1] which saw funds being confiscated from banks. For this reason, it is favourable to opt for jurisdictions that are pro-business, stable and not under any repression. While many traditional offshore jurisdictions tend to suffer from obstacles[TT2] , there are several “onshore[TT3] ” banking jurisdictions such as Singapore, that offer offshore bank accounts that provide more stability.
Quality of Institution. It is also essential to consider the financials of the banks as it correlates to the ease of deposits and withdrawals. For example, many banks in the States and other Western countries often keep less than 1% of deposits on hand, which may translate into a longer processing time to withdraw monies.
Ease of Opening a Bank Account. Despite having excellent financials and being in a top-tier jurisdiction, the process of opening a bank account might still be a hassle. Many esteemed banking jurisdictions, such as Switzerland or Germany, have a high capital requirement for foreigners and a long tedious process which require several face to face meetings prior to account opening.
Competitive Interest Rates and Operating Fees. Clients should also always ensure that transaction fees, loan conditions, cost to maintain the account as well any capital investments are kept reasonable.
Security of accounts. Corporates and individuals seek an offshore bank account due to the security and privacy of their assets and investments. These banks might require more information during the account opening but once the account has been established, the information will not be communicated to anyone, unless expressed by clients.
What not to Look for in an Offshore Bank Account
Clients should also be wary of banks that offer extremely unrealistic but attractive interest rates on savings accounts as such offers could turn out to be scams. This can be identified via by contacting the bank directly. Alternatively, clients can find an intermediary who could provide with a list of banks to select from since such intermediaries would have already qualified the offshore banks from the list. The following two solutions are what clients should also be watching out for:
Neo-banks or Fintech Solutions. Due to Neobanks lack of physical presence and its limited availability in resources, it is only able to offer basic essential banking functions such as billing a small number of low-value clients or dispersing salaries and not the more complex services that one might require.
Classic Offshore-jurisdiction Banks. The fees required from these banks are immensely high, with repugnant and slow customer services. They do not inherently hold an excellent reputation; hence they are always under pressure from different governments to comply with the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS) both of which are aimed at curbing tax evasion and money laundering. There is also a possibility of facing further scrutiny from certain offshore jurisdictions, such as Belize, Seychelles and BVI, should there be too many wire transfers made to and from the accounts. Therefore, while the Caribbean might be a great option for getting a second passport, it is not the best place for offshore banking.
The licensed banking establishment is required to maintain a good reputation in offshore banking and heeding to various stringent regulations. The establishment should also have a history of enforcing confidentiality and secrecy legislation as well as bank secrecy laws. It is important to note that it does not mean that every bank needs to be highly acclaimed or well-advertised, as a number of the best offshore banks are rarely known, and new clients only come through recommendations.
In some cases, some intermediaries would offer their clients a “guaranteed” opening of an offshore bank account. Such instances may be concerning as most of the opening of an offshore bank account could not be guaranteed as the due diligence and background check of clients are conducted directly by the banks. It is also to note that there are certain banks that deal exclusively with intermediaries and do not entertain direct contact.
The offshore bank should be always reactive in its offshore banking services and have outstanding customer care services with real people. Despite the fact that most of the offshore bank account setups are done out of the domicile through intermediaries, the communication between clients and the offshore bank should still be always available to address any concerns.
Why is Singapore a Great Offshore Banking Jurisdiction
Singapore has advanced in recent years into one of the best private banking jurisdictions, besides targeting their traditional yet proliferating market of wealthy Asian business personnel, the top-tier offshore banks in Singapore are simultaneously developing products and services tailored specifically for their clients. Despite the considerable time zone differences, Singapore’s business culture with English being a common language makes it more easier for foreign businesses.
Singapore has long enjoyed an international reputation as a first-tier financial centre with its offshore banking supported by a reliable infrastructure, as well as a transparent legal system. Moreover, the banking system in Singapore has never failed as the banks’ and government’s risk-averse disposition makes a financial collapse highly unlikely. Singapore banking has always been adopted by businesses looking to conduct business activities serving greater Asia.
As with most offshore banking jurisdiction, the appeal for Singapore’s offshore banking is driven by its low or no-tax legislation. There is also no capital gains tax or other taxes on funds such as cash deposits and investments in Singapore. Banking fees are also relatively low in comparison to the Caribbean and more or less in line with Europe with its excellent quality and services. Under the current Singapore offshore banking legislation, bank official or representatives with access to offshore bank records have a contractual duty of confidentiality as imposed by section 47 of the Banking Act.
While Singapore offshore banks do accept offshore companies from other jurisdictions often through an introduction from an intermediary, they are more stringent in their selection which requires businesses to provide a strong business plan and a sound reason for banking in Singapore.
Although having an offshore bank account has its benefits, a proper understanding of your business is required to not only help you narrow down from the vast list of selection but also to find the best fit for your business’s needs. While there are numerous banks in the world that have been granted banking license, there still a large number of inexperienced banking establishments that do not have the quantity or quality to conduct proper banking operations and putting clients’ money at risk so it is always crucial to exercise caution and seek professional advice.
Therefore, it is best to engage business consultancy experts like Desfran. Spearheaded by one of the world’s leading management teams, our team of seasoned experts stay on top of trends and movements in various markets to help your business grow by providing comprehensive business solutions. Contact us today to explore the best bank account solutions that will bring your business to the next level.
For a complimentary pre-application assessment, please send the following documents to [email protected].
- Incorporation documents (if any)
- Passport copy of directors and shareholders
- Proof of address of directors and shareholders (scanned copy of bank statement/ utility bill within the latest two months)
- Business card/ Company Website (if any)
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