An offshore bank is a bank located outside the country of residence of the depositor, typically in a low tax jurisdiction (or tax haven) that provides financial and legal advantages. These advantages typically include:
Greater
privacy (see also bank secrecy, a principle born with the 1934 Swiss Banking
Act) low or no taxation (i.e. tax havens) easy access to deposits (at least in
terms of regulation) protection against local, political, or financial
instability
While
the term originates from the Channel Islands being "offshore" from
the United Kingdom, and most offshore
banks are located in island nations to this day, the term is used figuratively
to refer to such banks regardless of location, including Swiss banks and those
of other landlocked nations such as Luxembourg and Andorra.
Advantages
of offshore banking
Offshore
banks can sometimes provide access to politically and economically stable
jurisdictions. Some offshore banks may operate with a lower cost base and can
provide higher interest rates than the legal rate in the home country due to
lower overheads and a lack of government intervention.
Offshore
finance is one of the few industries, along with tourism, in which geographically
remote island nations can competitively engage.
Interest
is generally paid by offshore banks without tax being deducted.
Some
offshore banks offer banking services that may not be available from domestic
banks such as anonymous bank accounts, higher or lower rate loans based on risk
and investment opportunities not available elsewhere.
Offshore
banking is often linked to other structures, such as offshore companies, trusts
or foundations, which may have specific tax advantages for some individuals.
Many
advocates of offshore banking also assert that the creation of tax and banking
competition is an advantage of the industry.