Why Offshore Banking?
May 21, 2012 6:40 AM Subscribe
Are there any benefits for an American working abroad, paid in local foreign currency, to having an offshore bank account (ex: Jersey), besides the obvious, of avoiding to pay taxes? I file taxes in the US every year and report all of my foreign accounts truthfully, and plan to do so for the rest of my life. My European-based spouse says I should have an offshore bank account "just in case". He can't really explain beyond that, except it's what a lot of Europeans do, and it's "safer". What's the point, especially if you're an American?
I'm an American who has been working outside of the US for at least five years now, and always paid in the local currency (Chinese RMB, Russian Ruble, whatever). At some point, I've always ended up converting to USD, to pay for a mortgage in the US and such.
I've reached the point where I can comfortably save the equivalent of 90k USD per year, besides what I already have saved as emergency money. My spouse says I should open an off shore account in Jersey. But what's the point to put it an off-shore Jersey account versus my regular ol' Bank of America in the US? I have no plans to dodge and avoid paying taxes in the US, and am/will report all of my foreign accounts truthfully. So is there a benefit to opening an off shore account?
On top of that, I understand many foreign banks avoid having US citizens opening accounts now, or have even closed them out like HSBC, because of the complications for reporting since some changes in the law last year.
*I'd ask my bank in the US, but from past experience my local BOA is extremely weak in foreign banking matters (they told me I didn't even have to file taxes in the US while working abroad, which is wrong). And if I called a larger-city BOA office, even if I was able to reach a human being, I'm afraid they'd just give me a generic, scripted run-around response.
I'm an American who has been working outside of the US for at least five years now, and always paid in the local currency (Chinese RMB, Russian Ruble, whatever). At some point, I've always ended up converting to USD, to pay for a mortgage in the US and such.
I've reached the point where I can comfortably save the equivalent of 90k USD per year, besides what I already have saved as emergency money. My spouse says I should open an off shore account in Jersey. But what's the point to put it an off-shore Jersey account versus my regular ol' Bank of America in the US? I have no plans to dodge and avoid paying taxes in the US, and am/will report all of my foreign accounts truthfully. So is there a benefit to opening an off shore account?
On top of that, I understand many foreign banks avoid having US citizens opening accounts now, or have even closed them out like HSBC, because of the complications for reporting since some changes in the law last year.
*I'd ask my bank in the US, but from past experience my local BOA is extremely weak in foreign banking matters (they told me I didn't even have to file taxes in the US while working abroad, which is wrong). And if I called a larger-city BOA office, even if I was able to reach a human being, I'm afraid they'd just give me a generic, scripted run-around response.
My European-based spouse says I should have an offshore bank account "just in case". He can't really explain beyond that, except it's what a lot of Europeans do, and it's "safer". What's the point, especially if you're an American?
In some countries, there is a danger of a possible crisis that will result in massive currency devaluation, capital controls preventing withdrawal of funds, or even confiscation of funds in bank accounts if the national danger is severe enough. People who live in or are from countries where those sorts of dangers loom as possibilities (however remote) are always going to be on the lookout for how to keep some of their assets in an offshore haven.
For Americans, this isn't really a big deal. If any of those things happen to the US, your bank account will be the least of your problems.
Because you're always working and saving in different currencies, you may want to hedge yourself in certain circumstances, because those foreign currencies might fluctuate wildly.
posted by deanc at 6:58 AM on May 21, 2012 [4 favorites]
In some countries, there is a danger of a possible crisis that will result in massive currency devaluation, capital controls preventing withdrawal of funds, or even confiscation of funds in bank accounts if the national danger is severe enough. People who live in or are from countries where those sorts of dangers loom as possibilities (however remote) are always going to be on the lookout for how to keep some of their assets in an offshore haven.
For Americans, this isn't really a big deal. If any of those things happen to the US, your bank account will be the least of your problems.
Because you're always working and saving in different currencies, you may want to hedge yourself in certain circumstances, because those foreign currencies might fluctuate wildly.
posted by deanc at 6:58 AM on May 21, 2012 [4 favorites]
American living in South Korea - no idea if I'd see any benefits from it. I have an American bank account and a Korean one - the former pays my student loan and the latter is where I get paid.
With that said, you have the coin that would draw the ire / suspicion of the IRS, BoA, and any other government organizations that might want to know more. The less you *have* to keep in a US account, the better. Between the fees and hassles of customer service...
posted by chrisinseoul at 7:07 AM on May 21, 2012
With that said, you have the coin that would draw the ire / suspicion of the IRS, BoA, and any other government organizations that might want to know more. The less you *have* to keep in a US account, the better. Between the fees and hassles of customer service...
posted by chrisinseoul at 7:07 AM on May 21, 2012
What deanc said and also "why keep all your eggs in one basket?" particularly in today's global economy.
posted by infini at 7:54 AM on May 21, 2012
posted by infini at 7:54 AM on May 21, 2012
One thing to consider is that banks is "traditional" offshore havens are sometimes (not always!) not very efficient places to have investment accounts. Sometimes they charge very high fees, higher than the returns, and people are willing to pay as the price of secrecy. If you aren't taking advantage of secrecy, why put your money in a losing fund?
As a fellow American who intends to continue to declare all income and accounts, there isn't much point for me. I have an account in local currency for the convenience factor. I may open an account in another currency as an additional hedge, as mentioned above. But I guess what I'm saying is that if you want to open an offshore account, study the fee structure and historical returns carefully, to make sure you're not just paying for secrecy you won't use.
posted by ohio at 8:05 AM on May 21, 2012
As a fellow American who intends to continue to declare all income and accounts, there isn't much point for me. I have an account in local currency for the convenience factor. I may open an account in another currency as an additional hedge, as mentioned above. But I guess what I'm saying is that if you want to open an offshore account, study the fee structure and historical returns carefully, to make sure you're not just paying for secrecy you won't use.
posted by ohio at 8:05 AM on May 21, 2012
There isn't really any great advantage for you. Your spouse and others like him, don't come from countries that tax on worldwide income. You do. You still have to declare everything to the US and you still have to pay taxes on earned income (or use tax credits for taxes paid abroad)
I say this as an American who does have an offshore account in Jersey. I use it mainly to hold multi-currency accounts. Mainly an account in pounds sterling and an account in Euros. I found it is easier to move money from onshore euro accounts to the offshore multi-currency and skip going through UK (where I am resident) onshore banks.
But since you're just immediately moving everything to dollars, this shouldn't apply to you either. Also, keep in mind, that money in Jersey is not covered by any Deposit Protection Schemes. I think it is an unlikely disaster scenario but it is something to consider if you are talking about your savings.
posted by vacapinta at 8:09 AM on May 21, 2012 [1 favorite]
I say this as an American who does have an offshore account in Jersey. I use it mainly to hold multi-currency accounts. Mainly an account in pounds sterling and an account in Euros. I found it is easier to move money from onshore euro accounts to the offshore multi-currency and skip going through UK (where I am resident) onshore banks.
But since you're just immediately moving everything to dollars, this shouldn't apply to you either. Also, keep in mind, that money in Jersey is not covered by any Deposit Protection Schemes. I think it is an unlikely disaster scenario but it is something to consider if you are talking about your savings.
posted by vacapinta at 8:09 AM on May 21, 2012 [1 favorite]
Other than the fact that banking in the US seems more and more difficult compared to banking anywhere else in the world, I see no advantage to you. Moving money in and out of the US is much harder, in my experience, than moving it in and out of other countries (Pakistan, UAE, UK, and Australia are the ones I have personal experience of). So if the mobility of your money is of interest to you, this may be something to consider.
posted by bardophile at 8:14 AM on May 21, 2012
posted by bardophile at 8:14 AM on May 21, 2012
Are there any benefits for an American working abroad, paid in local foreign currency, to having an offshore bank account (ex: Jersey), besides the obvious, of avoiding to pay taxes?
If I understand you correctly, you don't even get the "obvious" benefit. U.S. citizens living and working overseas are still required to file and pay U.S. taxes.
Because of various international treaties, you (usually) won't get double taxed because you'll get credit for the taxes paid to the country where you live and work. But you will still need to file U.S. returns every year, and it's not impossible to end up owing U.S. taxes.
posted by Naberius at 12:09 PM on May 21, 2012 [1 favorite]
If I understand you correctly, you don't even get the "obvious" benefit. U.S. citizens living and working overseas are still required to file and pay U.S. taxes.
Because of various international treaties, you (usually) won't get double taxed because you'll get credit for the taxes paid to the country where you live and work. But you will still need to file U.S. returns every year, and it's not impossible to end up owing U.S. taxes.
posted by Naberius at 12:09 PM on May 21, 2012 [1 favorite]
As others have mentioned, currency hedging could be the main benefit for you. It's worth exploring, given the large amounts that you will saving/investing.
Best if you seek advice and let a professional manage it for you, and of course get 2nd opinions to ensure you don't get gouged or taken for a ride.
posted by wutangclan at 6:08 PM on May 21, 2012
Best if you seek advice and let a professional manage it for you, and of course get 2nd opinions to ensure you don't get gouged or taken for a ride.
posted by wutangclan at 6:08 PM on May 21, 2012
This thread is closed to new comments.
*Only convenient insofar as it is practical. Since he's not fluent in the language of that country, it can make even the smallest transaction a headache. I have ended up drafting letters to his bank representative on his behalf and translating things he gets from them in the mail. That is certainly something to consider if you are thinking about opening an account in a foreign country.
posted by jph at 6:55 AM on May 21, 2012