Despite the connotations of money laundering and tax evasion, there are actually legitimate reasons to have an offshore bank account. For instance, if your business frequently works in different countries, transferring money or operating in multiple currencies. In most cases they’re also straightforward to set up, and work in a similar way to standard accounts.
What types of international bank accounts are available?
Before you start shopping around, you might want to check with your current bank! Most UK high street banks offer international bank accounts which work just like regular domestic accounts.
Customers can usually use credit and debit cards with these accounts, set up online banking, and even access credit facilities. Just remember that lending criteria may vary, and your status as a foreign national may impact your ability to access credit.
Fixed-rate versus variable rate international banking
Before you do commit to anything, always check the terms and conditions. Fixed-rate accounts often require customers to leave funds in their account between one and five days. Variable rate accounts can allow quicker access to funds, which is always handy in a crisis!
International banking with additional services
Just like domestic accounts, overseas banks will sometimes offer additional features to new customers. Mobile banking, cheap international transfers, or additional services like insurance or loans might all be part of the package.
Multi-currency accounts are designed to remove the friction of transferring money across borders, so fees tend to be lower. The currency exchange rates are typically based on the ‘mid-market rate’, which is the de facto ‘real exchange rate’ which currency traders use. Your bank is more likely to add their own mark-up.
Know the benefits and drawbacks of international bank accounts
The pros and cons of offshore banking for your business does largely depend on your specific circumstances. The good news is that there are generally more advantages than not!
Good for international businesses
Fixed currency prices
No domestic instability
Wider financing options
Funds not held centrally
Depending on where your account is held, you may pay less tax than you would using your domestic account overseas. Just keep an eye on the interest rates though, as these may be higher.
Offshore accounts are available virtually anywhere but are particularly accessible in Switzerland, Belize, Singapore, and the Cayman Islands.
Offshore business accounts are better for those who live or work in more than one country, or regularly work with overseas businesses.
You can receive and send payments in virtually any currency.
Although currency fluctuations are a disadvantage in international work, currency prices with offshore business accounts remain the same.
Rather than dealing with multiple banks in different countries, offshore accounts can allow you to channel multiple currencies through just one bank.
Those living in countries suffering financial or political instability might find it safer to put their money in an offshore account.
If you’re relocating to a different country, setting up your account in advance saves you the hassle of sorting things out on arrival.
International bank accounts may enable you to take advantage of various financing options available in other countries.
Funds can be dispersed amongst banks in different countries, which can be useful if you have staff or other operations overseas.
But what about the negatives?
Despite the numerous benefits of international bank accounts, users should consider some of the drawbacks as well. Offshore accounts can be more expensive if they apply higher transfer and admin costs to transactions, or if they require large initial deposits.
You might also need to maintain funds above a certain level in order to avoid fees, which can have implications for your cash flow!
Other banking protection schemes may well be in place, but some countries don’t offer the same level of financial services protection as they do in the UK. Request information from the bank you’re considering to help you weigh up your options.
How do I set up a bank account in another country?
Setting up an offshore business account isn’t dissimilar to opening a regular bank account. To comply with anti-fraud and money-laundering rules you’ll need to provide personal information, as well as proof of address, identity, and income.
Banks also like to know about the types of transaction that could go through your account, so they may request bank statements or wage slips. Further evidence again might be needed for accounts used for investments, inheritance, or real estate.
Above all, banks usually need proof that you’ll meet their minimum eligibility requirements as a new customer, so be prepared to prove this.
Are there extra costs for having a bank account in another country?
Making electronic funds transfers internationally usually involves charges, so be sure to check what transfer rates and deals are available when choosing your bank. The cost might also affect your pricing.
Getting a good deal is important because there are few other options aside from an electronic transfer. Domestic cheques can’t usually be used internationally, and having to visit the bank frequently is impractical if you’re based elsewhere!
Again, if you’re using a credit or debit card abroad then remember to look into fees as they can accumulate over time. You might be able to mitigate these by setting up both domestic and offshore accounts and transferring larger sums between them, ready to use in-country with your card.
International banking and tax
One of the most significant expenses you’re likely to accumulate through offshore business banking is tax. If this isn’t disclosed to the relevant tax authority, expect to be heavily fined if you’re caught.
On the positive side, if you earn interest, you’re not expected to pay it back straight away. So, until your tax bill is due, you can still earn some interest on your account.
Ensure you’re not at risk of being double taxed by making sure that both the country you reside in, and the place the offshore account exists, have a double taxation agreement. If this doesn’t exist, you should claim tax relief before you submit your yearly tax return.
Bookkeeping in multiple currencies
A significant advantage of an offshore business account is that it enables people to select their own currency for their funds. For those living in a country where the currency is due to decrease in value or is generally unstable, this is a huge benefit.
However, we encourage you to choose currency carefully as interest rates do vary between them. If you intend to make frequent payments you will need to check fees as well, otherwise things can get quite complicated. Converting currencies when making a deposit or withdrawal can be expensive if you need to apply tax, or if exchange rates are unfavourable.