What is offshore and onshore banking?
Offshore banks are banks that are located outside a customer’s resident country. So, if you are resident in one country but have a bank account in another country, this account is technically an “offshore” account. However, legally the term offshore banking is used to refer to an account that has been set up in a bank that has been specifically licensed to offer offshore banking services.
For instance, in Singapore, now also well-known as an offshore banking jurisdiction, Offshore Banks are licensed as such by the Monetary Authority of Singapore under the Banking Act.
In general, offshore banks are famous for the range of benefits they offer account holders, over and above, what is available through standard banking channels. Onshore banks, on the other hand, are located inside the customer’s own country.
What are the eligibility requirements and process(es) required to open an offshore / onshore banking account?
Opening an onshore account or a bank account in your own country is a relatively well-known process: you visit the bank of your choice, fill up a CA/SA form, submit required identification and address proofs and pay the initial deposit amount.
With increased international compliance and anti-money laundering measures in place, offshore banks also require identification and address proofs and increasingly, proof indicating source of income.
However, more often than not, it is not necessary for the client to travel to the jurisdiction to open an offshore account. This is especially true for the bigger banks that have put due diligence procedures in place to allow bank accounts to be opened entirely by phone, fax, email, courier and through the Internet.
Initial and maintenance deposits with onshore banks are much lesser in comparison to their offshore counterparts. Offshore accounts, require a minimum of several thousand dollars to start with. And, many offshore banks prefer to set minimum requirements in terms of Assets Under Management (AUM) or Funds Under Management (FUM) which refers to the total assets the offshore bank manages on behalf of the customer.
What are the benefits of an offshore bank account vis-à-vis an onshore bank account?
While onshore banks in many countries have expanded their product / service portfolio to deliver a wide range of offerings to their countries, these are not necessarily tailored towards the specific needs and requirements of high networth individuals and business houses operating in several countries.
Offshore banks fill that void by providing a premium set of banking products and services. In a nutshell, the benefits of holding an offshore bank account would include:
▪Protection from political or economical turmoil in resident country
▪ A history of regulatory stability
▪ Nil or negligible taxation on income, capital gains and even on inheritances
▪ High levels of data confidentiality
▪ Asset protection from potential legal action, including situations such as divorce.
▪ Currency diversification
▪ Access to global markets for trading and investment purposes
▪ Availability of specialized or customized products / portfolios / services
However, it is important to remember that standard onshore banking products like savings / current accounts and fixed deposits enjoy deposit insurance protection from the respective country’s banking regulator. Such protection is generally not available for offshore banking products.