THE SOVEREIGN INVESTOR >> October 8, 2010

Banking Overseas?

Don't Move a Dime Offshore
Until You Do This...

By Erika Nolan
 

Dear Edward,

The No. 1 question I receive from Sovereign Society members is, “How do I open an overseas bank account?”

No one ever asks “why” -- they know this is a viable way to protect their assets … secure a higher degree of privacy and confidentiality … and potentially reduce their tax burden.

Whatever your reasons for wanting to take advantage of overseas banking opportunities, knowing how to talk to your potential new banker can save you a world of time and trouble.

That’s why today, I’d like to share with you my checklist for choosing your first (or next) overseas bank. This list is designed to save you reporting hassles later.

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The first step in opening an offshore bank account is choosing the jurisdiction that’s best-suited for you. I’ve listed the Sovereign Society’s top 6 countries for offshore banking. But to make it easier when you start “shopping” havens, I’ve also listed the top 10 questions to ask bankers to help you narrow down your list.

While selecting an offshore bank may sound exotic or even difficult, it is actually not that different from picking a local one. It’s important to closely examine the bank’s reputation and financial condition. What kind of fees does it require? What services does the bank provide? What do those services cost?

But with offshore banking there is one critical extra step. You must ensure the bank welcomes foreigners. Especially foreigners with U.S. passports. And you want to be sure they have experience with Americans’ cumbersome tax reporting requirements. Plus make sure they speak fluent English.

The last thing you want is to open your account only to find out too late that no one understood your instructions.

Offshore banking can be expensive so it is important to be sure you fully understand a bank’s fee structure. Be sure to crunch the numbers to find out what your net profit (or loss) might be. And once you choose a potential offshore bank, get these questions answered before you transfer the first penny.

10 Questions to Ask Any Offshore Bank

1. What types of accounts are available to international investors?

2. Are there any restrictions on foreigners’ investments — specifically with American account holders?

3. What taxes, if any, will be withheld from my investment income?

4. What investments are considered part of the bank’s balance sheet and available to the bank’s creditors (including depositors) in the event of the bank’s insolvency?

5. What are the fees for securities transactions and custody?

6. What other fees may apply to the account?

7. Is my account insured by law or otherwise against loss in the event of the bank’s insolvency?

8. How do I transact business with the bank — are telephone, fax, or e-mail orders accepted?

9. Is Internet banking available (and secure)? If so, is this service available in English?

10. Will the bank send U.S. clients a year-end statement showing any taxable interest paid?

Face Time is Important

Be sure you invest the time up front to check the bank’s financial standing and perform due diligence. This is not always such an easy task. If you aren’t sure where to start, first check out the bank’s website to find their annual report or actually request a copy from the bank.

However, all the due diligence shouldn’t replace a personal visit. I recommend at least one face-to-face meeting at the bank when you open the account and a trip back at least every 2–3 years.

Keep in mind that there are a vast number of offshore regions that could suit your particular banking needs. But just to give you some ideas, here is a list of jurisdictions we recommend for offshore banking.

The Top Six Banking Jurisdictions

1. Switzerland —Historic banking center but expect high minimums to open accounts.

2. Austria – Financial privacy and access to investments in Eastern Europe

3. Liechtenstein – Much like Switzerland, large minimums are required to bank here.

4. Singapore—Strong privacy laws outside of Europe and a gateway to Asia.

5. Hong Kong—Access to investment opportunities in China.

6. Denmark—Innovative financial products and solid performance.

Stay Tax-Compliant

Whatever you choose, be prepared for extra paperwork to disclose to the IRS when tax time comes around!

Most offshore banks will require you to fill out a W-9. This form simply allows the bank to share your information with the IRS in the case of a criminal investigation -- it is not a reporting form.

If you hold at least US$10,000 or the equivalent in offshore accounts, total, you must report these accounts. To do so you need to file Form TD F 90-22.1 or “FBAR” by June 30th each year.

Many offshore jurisdictions have tax treaties with the U.S. so that if you are taxed on capital gains in another country, you receive IRS tax credit. This way you don’t pay taxes on the same money twice. Speak with an attorney who specializes in international taxes if you have any questions about how to handle your offshore account.

In Wealth & Prosperity,

Erika Nolan
Executive Director
The Sovereign Society