Offshore bank accounts can make life easier for expats – especially those regularly moving between countries.
An international or offshore account is held with a bank outside the country where an expat lives, while an onshore account operates in the country where the expat lives.
An offshore bank account is perfectly legal, provided interest earned is reported when filing a tax return.
Many expats have at least three bank accounts – an offshore one, an account in the UK for receiving pension payments and another day-to-day account in their home country for local currency transactions – the onshore account.
On the plus side, an offshore bank account can often handle multiple currencies, pays higher interest rates than an onshore account and sometimes offers perks like discounted travel insurance.
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Keeping Money Safe
One of the extra attractions is keeping money offshore in a safe country in the event of unexpected disruption where expats live – such as terrorist incidents, adverse weather from climate change or natural disasters.
Offshore accounts come with some negatives as well. Often, the bank demands a high minimum deposit and balance and charges high fees to administer the account.
Many expats would benefit from an offshore bank account as a holding account.
Instead of switching all their money to a local account, expats can keep foreign exchange costs low by moving what they need.
The account is also somewhere to keep emergency cash and earnings, such as rent or lump sums from disposing of stocks, shares or property.
Opening An Offshore Bank Account
Opening an offshore account is a similar procedure for most banks.
The bank will want to comply with ‘know your customer’ rules common worldwide. The bank would typically request photo ID, proof of address, passport, citizenship and tax information along with the application.
Expats running an offshore bank account do not need to visit the branch in person. A banking app controls most admin for a smartphone while withdrawing cash is carried out with a bank card and an ATM.
Offshore bank account costs vary between providers. Most charge an annual fee plus an amount for each transaction. Others require expats to keep a minimum balance, say $10,000, in the account.
Financial website Moneyfacts monitors the terms offered by international banks and publishes an up-to-date list of available offshore accounts.
Tax And Offshore Banking
Tax is an issue for expats with money or assets across two or more countries.
It’s a good idea to take professional advice to establish where any tax is paid. Many countries are part of the American FATCA (Foreign Account Tax Compliance Act) or global Common Reporting Standard.
FATCA and the CRS are networks that swap financial data of expat offshore wealth to ensure each individual pays the correct amount of tax on their earnings and gains.
Many foreign banks refuse American customers to avoid the arduous financial reporting demanded by the US Treasury.
Protecting Offshore Cash
A local compensation scheme protects money in an offshore bank account should the provider go to the wall.
Not all countries have a compensation scheme, so expats should check what happens to their money if the bank stops trading.
For example, the Jersey Depositor Compensation Scheme (JDCS) covers up to £50,000 a person, per Jersey Banking Group, while the Gibraltar Deposit Guarantee Scheme (GDGS) covers up to €100,000 of qualifying deposits.
For Jersey, the terms mean a customer can claim compensation of up to £50,000 across several accounts with banks on the same Jersey banking licence.
Is Money Transfer Better Than Offshore Banking?
Money transfer companies do not offer banking services, merely a method of transferring money between banks.
Generally, money transfer is cheaper and quicker than sending cash through a bank. Expats will find exchange rates are more competitive than those offered by banks.
Offshore Banking For Expats FAQ
Navigating the world of offshore banking as an expat requires understanding various financial aspects. Explore our comprehensive FAQ section to find answers to common queries about offshore bank accounts. From tax implications and account opening requirements to the suitability of offshore banking for your financial goals, we’ve got you covered.
British expats have the most savings accounts in Jersey, Guernsey, the Isle of Man, Gibraltar, France and The Netherlands.
No, offshore bank accounts are for any expat that can meet the terms for opening one, such as minimum balances, proof of ID and residence status.
Paying tax depends on your residence status as an expat and where you pay taxes.
Choosing the best offshore bank depends on what customers want from their accounts. Offers and special deals change all the time. For example, no tax is due on earnings in the Gulf States, but those in the British Virgin Islands have a better reputation for privacy.
The minimum account balance varies between banks and sometimes between accounts with the same bank. Currently, the HSBC Expat Premier and Standard Bank Optimum accounts require a £5,000 minimum balance, while accounts with Santander, Lloyds, Barclays and the Royal Bank of Canada have no limit.
Below is a list of related articles you may find of interest.
- UK Government – Income Tax: Information about income tax regulations in the UK.
- Financial Conduct Authority (FCA): The UK’s financial regulatory body, which oversees financial institutions, including banks.
- Common Reporting Standard (CRS): Information about the global Common Reporting Standard for the automatic exchange of financial account information.
- Foreign Account Tax Compliance Act (FATCA): Information about FATCA, a U.S. law that requires reporting by foreign financial institutions about financial accounts held by U.S. taxpayers.