Offshore Tax Havens and Bank Accounts – Are They Legal?
Many people have heard of offshore bank accounts and tax havens and perhaps even used them. Seeing how widespread this idea is, you may be wondering whether these things are even legal. When you are checking the list of forex brokers for U.S. clients, you may be thinking of using an offshore bank account to trade forex, but you might not know if this is a good idea or not.
Lately, HMRC and the government have taken some new measures regarding these bank accounts and tax havens. Here is everything you need to know on the matter.
Offshore Banking – How Does It Work?
When you have an offshore account, it simply means that you opened a bank account in a different jurisdiction. Many banks accept clients from overseas, and this is a practice that both wealthy and less wealthy individuals engage in.
Lots of banks ask for low amounts to open accounts, and they also have other terms for their customers. At the same time, they are all required by WTO and OECD to report information on all customers, including foreign ones, but not all of them comply.
What Exactly Is a Tax Haven?
Tax havens refer to places with tax benefits. Basically, when one is looking towards opening a bank account in a tax haven, this is usually because the taxation rates there are lower than the country the account holder lives in. Although not everyone is opening accounts in these jurisdictions for illegal reasons, many individuals are doing it for money laundering and tax avoidance.
Why Do Some People Keep Their Money in Offshore Accounts?
There are many reasons why someone would want to keep their money in an offshore bank account.
For instance, they may have lived in a different country for a while, which required having a bank account in that location. Another reason may be the fact that you want to have good investment options and rates, something that only offshore accounts may give you access to.
In some instances, offshore accounts are opened by forex traders as well.
Things You Should Know If You Have an Offshore Account
To begin with, you should know it is perfectly legal to open an offshore bank account. You will not encounter any barriers and will not get in trouble with the authorities for owning one. At the same time, it is illegal to do it in order to evade taxes.
Even if your bank account is offshore and you keep money in it, you should know that this money is not exempt from taxes. Banks all across the planet are required by the Foreign Account Tax Compliance Act to report American citizens’ activity and balances. Otherwise, they can be fined.
That being said, all you need to do if you have an offshore account is make sure that you reveal its existence to the IRS. Hiding your money to evade taxes is illegal and can lead to serious consequences.