One of the frequent questions that we receive by e-mail revolves around how to open an offshore bank account. Many readers seem to be confused about the requirements in terms of opening the offshore account and also the reporting requirements to the IRS or similar tax authority.
It has become increasingly more difficult to open an offshore bank account due to legal liabilities that have been imposed on any foreign bank that is perceived to be assisting with tax evasion. For example, this week a Swiss bank was indicted for helping US citizens pay taxes. The fall out from cases like this is that offshore banks are hesitant to open new accounts. Obviously, in a free market system all of the banks would be competing for deposits as that is the lifeblood of their business. However, the reality is that many offshore banks have to turn away honest citizens that are trying to open an offshore bank account. If the reporting requirements, bureaucracy and the mountains of paperwork did not exist offshore banks would open accounts in a matter of minutes.
There are certain factors that will determine whether you will be able to open an offshore bank account at your desired institution. The first and most important determination is the amount of money that you will be depositing. Obviously, if you’re looking to deposit $10 million there would be a greater selection of banks that would want to open the account for you. These offshore banks would be compensated for having to deal with the reporting requirements because a large account would bring in large fees. However, if you are looking for information about how to open an offshore bank account with only $20,000 your options will be far more limited.
The second major factor that will determine how you will open an offshore bank account is your citizenship and residency. Citizenship and residency are often used interchangeably but there is an important legal distinction. Citizenship is best understood as the passports that you hold from a particular nation. Residency is a legal term that indicates in which jurisdiction you spend most of your time and subsequently in which jurisdiction you pay income tax. Obviously there are many people who live in one country yet were born in another country. Every bank has a different policy and opening an offshore bank account as a US citizen will be far different than opening offshore bank account as a Costa Rican citizen. Some banks have a policy not to accept US citizens and US residents. Other banks will only accept US citizens who meet certain minimum deposit threshold.
Offshore banks and local banks must perform due diligence on all clients. This is typically known as the “know your client” rule. Furthermore, banks generally prefer a referral from another professional. For example, if you are using an offshore company formation services or lawyer you might ask these individuals to introduce you to an offshore bank.
In most cases you will have to physically visit the offshore account that you are looking to open. In rare cases, you can open an offshore account by mail.
The reason you need to visit the bank is that the banker will want to interview you and determine the source of funds. They will also want to get a better understanding of why you are looking to open an offshore bank accounts. Of course, they want to ensure that you are not evading taxes or trying to shuffle money to an offshore bank account before you declare bankruptcy or have creditors attacking your local account.
Documents Required to Open and Offshore Bank Account
Typically to open an offshore bank account you will need:
- A letter from your local banker that indicates you are a client in good standing – typically this letter will indicate how long you have had an account with the bank
- Certified copy of passports of all signatories
- Proof of residential address (typically a cable bill) – banks use this to determine your residency
- Letter stating expected activity, with supporting documentation if available – for example if you are opening an offshore business account the purpose might be trade. This would be different than if you were opening the account in order to trade stocks
- Evidence of source of funds to be deposited – eg – was the money your salary, inheritance, corporate profits etc. If the money was an inheritance you will need to provide information of the deceased’s will
If you are wondering how to open an offshore bank account it is first important to determine your own individual circumstances usch as deposit amount, citizenship, residency, purpose of offshore account and then narrow down your choices. Every bank will have different account opening rules and it is more efficient to only focus on the jurisdictions that are open to you.
