Benefits of offshore banking

Offshore banking in Germany

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Consider the benefits of offshore banking, which can offer expats and companies in Germany a range of beneficial international financial services.

Offshore banking is a niche service, often utilised by those requiring international financial services. This is an overview of the sector with a focus on Germany.

Introduction to offshore banking

In its simplest form an offshore bank is a bank located outside the account holder’s country of residence, typically in a low tax jurisdiction. Typical services include private banking, trust and securities services, international lending and letters of credit.

Reasons for offshore banking

People choose to bank offshore for several reasons. Those living or working abroad may find that holding an international bank account makes it easier for them to manage their finances when they are outside the country.

Accounts are often available in multiple currencies, which can be more convenient for someone making or receiving payments in different currencies. In addition, more complex foreign exchange features may be available e.g. a facility to fix currency prices for up to a year in advance. This removes the uncertainty that can be a feature of dealing internationally.

Clients with operations in several countries may find it more convenient and more economical to direct all of their business through one bank, rather than dealing with separate institutions in a range of countries.

Individuals based in countries that are less politically or financially stable than Germany may be worried about the security of funds held in a domestic account. An offshore banking facility offers peace of mind.

Benefits of offshore banking

Advantages and disadvantages of offshore banking

International banking facilities tend to offer great flexibility, so that those who need access to their money or to international financing can do so more quickly and easily than would be possible with domestic arrangements.

Offshore banks may also offer services that are unavailable from domestic banks, such as anonymous bank accounts.

Deposits held abroad tend to be larger as a rule – one of the reasons banks often offer higher rates to deposit holders. Also, interest is generally paid gross, without tax being deducted. This can of benefit to individuals who do not pay tax until filing a tax return.

Offshore banking services usually require greater financial assets than other types of accounts – it is not unusual for balances of EUR 5,700 or more to be maintained in order to run an account. In addition, facilities are usually more expensive than their domestic equivalents.
    
All European Union (EU) member states are required to have deposit guarantee schemes in place that protect deposit holders up to the value of EUR 100,000 in the event of something going wrong. However, accounts held offshore often do not benefit from this protection. In Germany the mandatory deposit guarantee scheme is known as Entschädigungseinrichtung deutscher Banken, which operates alongside several voluntary schemes. While domestic account holders are protected, offshore banking falls outside their scope and therefore customers may be unable to seek redress should issues arise.

General perception of offshore banking

International banking has developed a somewhat unsavoury reputation among the general public due to its association with tax evasion and money laundering – well-deserved in some cases.

The IMF has estimated that between EUR 450 billion and EUR 1.13 billion of illegal funds are laundered globally every year via offshore bank accounts. On top of this, the amount attributed to tax evasion worldwide equals approximately EUR 750 billion.

Increasingly governments around the world are tackling tax evasion and money laundering that is facilitated by offshore banking. The EU Savings Tax Directive 2005 ensured that member states began to automatically exchange information about any customers who earned savings income in one state but lived in another. Additionally, Germany and Switzerland agreed a treaty in 2012 that levied an anonymous one-off payment of between 21 to 41 percent on any undeclared money. In 2011 the OECD reported that in Germany a Voluntary Disclosure scheme had identified almost 30,000 individuals evading taxes, resulting in additional tax revenue of EUR 2 billion.

Famous offshore banks

The major German banks have international arms that can offer offshore services, including:

 



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