The media would have us believe that only dishonest and unscrupulous businessmen who want to hide

their money from the government use offshore banking. But theres nothing illegal about putting money in

offshore accounts. In fact, there are many legitimate reasons to put money in an account thats offshore.

On the other hand though, there are some drawbacks. Consider each before proceeding.

Pros

Reduce Taxes

Indeed when businesses and individuals first started putting money in offshore accounts, it was driven by

a desire to reduce taxes. Smaller countries without many resources may have liberal corporate tax laws

that make it easier and cheaper to set up a corporation in that country. If the business isnt engaged in

activity on that countrys soil, theres even less reason to impose a tax.

That doesnt stop the United States from assessing a tax. In recent years, the IRS has passed laws to

close loopholes that allow businesses to avoid paying taxes on offshore accounts. The law requires

citizens to pay taxes on income earned worldwide instead of income earned in the U.S. Failing to pay

taxes could result in prosecution for tax evasion.

To Protect Assets

If assets are at risk of being seized or lost in foreclosure, they can be transferred to a legal entity in

another country. The asset cannot be held within U.S. borders to be protected.

Privacy

Some profile-investors prefer the anonymity associated with offshore banking. They can purchase

stocks without having the general public knowing which stocks theyre investing in. Investors who plan to

buy large quantities of stock in the future prefer to keep their purchases low-key. Otherwise, if lots of

people start buying the stock, prices go up and the investment is no longer as attractive.

Businesses that dont want to disclose their shareholders, might incorporate in an offshore location that

makes it illegal to divulge such information.

Allow International Investing

Some countries dont allow their residents to invest in

international markets. Offshore banking allows in

investor to buy shares in international markets that

would otherwise be off limits.

Cons

Potential to Be Expensive

Offshore banking could be expensive. The companies

that allow offshore banking realize that wealthy people

take advantage of these international accounts and so

they charge accordingly. Not only that, there may be

steep minimum investment amounts starting at

$100,000. It might even cost more than $1 million to start up an offshore account.

If you want to start an offshore corporation, that country may have steep legal fees and could even

require you to own property in that country before you can start a company.

Harder to Access Money

Once your money is in an offshore account, you may not be able to access it as quickly as youd like.

While some offshore accounts offer debit cards that let you make purchases and withdraw from your

account, other types of accounts only allow transfers. Some transfers could take days to complete and

arent helpful if you need to access your money in a hurry. Visiting your bank in person could be difficult

and even expensive. Of course, with phone, fax, and internet, you probably would never have to visit the

banks location.

Harder to Evade Taxes

Not that you should try to get out of paying taxes, but it could be come more difficult to avoid taxes on

offshore accounts if more countries adopt laws like the Europes Saving Tax Directive where residents

choose to either pay tax on the deposits upfront or to have the offshore account report income to tax

authorities.

Less Security

In the U.S. your money in many types of accounts is protected up to $250,000 if the bank fails. You may

not get that same level of FDIC protection if your offshore bank fails. Theres a chance you may never

recover money lost in a failed offshore bank.

If you decide to put your money in an offshore account, make sure you consult with a professional for

help choosing a reputable location. Popular locations include Bermuda, the Bahamas, Cayman Islands,