People often associate offshore banking with shady activity and tax evasion. Many U.S residents believe it is illegal to have an offshore bank account, however, if you follow the rules it is completely permissible.
Offshore banking is a complex procedure and if you don’t follow the regulations it can lead to you being investigated by the Internal revenue Service (IRS). If you have an offshore account you will still have to report your savings to the IRS by filing a TD F 90-22.1, Report of a Foreign Bank and Financial Accounts.
The Foreign Account Tax Compliance Act (FATCA) requires all banks, everywhere, to disclose information on their American customers. Balances, receipts and withdrawals related to these accounts need to be released to the IRS. If banks do not comply they face a 30% withholding tax on income sourced through the U.S.
In response many banks are refusing to deal with U.S customers altogether. Preferring not to deal with the IRS. Many small, privately run offshore banks avoid publicity and customers value their discretion.
However, in today’s world of financial uncertainty many people and businesses are opting for an offshore account. Though associated with tax evasion, tax breaks aren’t necessarily the main driving force behind offshore banking these days. More people are worried about the collapse of the dollar. Offshore banks provide banking options in many currencies, thus decreasing the risk associated with a currency collapse.
If you are thinking of opening an offshore account remember, if you are a US citizen you will be required to sign papers allowing the bank to report your account to the U.S authorities. To avoid any problems, you should always disclose your offshore savings to the IRS fully.