An offshore bank is a bank that keeps office in a place where the tax burden and / or the regulatory burden is the lowest.
Famous places where this type of bank is located are tax havens such as Switzerland, the Channel Islands and the Cayman Islands.
An offshore bank is a bank located outside the country of residence of the account holder, usually in a tax haven (or tax haven) where financial and legal benefits apply. These benefits typically include one to several of the following:
- a high degree of privacy (see also bank secrecy, a principle developed with the Swiss Banking Act of 1934)
- less restrictive laws and regulations
- little or no taxation (ie tax havens.
- easy access to deposits (at least in terms of regulations)
- protection against local political or financial instability
The term off-shore refers to the Channel Islands, “off the coast” (off shore) of Great Britain. Although most offshorebanks are located in island nations, the term is used figuratively to refer to such banks regardless of place (Switzerland, Luxembourg and Andorra in particular are completely surrounded by land).
Offshore banking is often associated with the underground economy and organized crime, through tax avoidance and money laundering; however, legally, offshore banking does not prevent assets from being subject to income tax and interest charges. Apart from legal entities that meet rather complex requirements, the personal income tax of many countries makes no distinction between interest earned by local banks and earned abroad. For example, persons who owe income tax to the US commit perjury if they do not indicate all offshore bank accounts and number accounts.
Although offshorebanks may decide not to report income to foreign tax authorities, and have no legal obligation to do so as they are protected by banking secrecy, it is still forbidden for the taxpayer to not give up the income or the tax on the legal to evade income. After the attacks of 11 September 2001, political pressure arose for more regulation on international finance, in particular regarding offshore banks, tax havens, and clearing houses such as Luxembourg-based Clearstream, a possible hub for massive illegal cash flows.