This overview of offshore banking offers guidance to expats and companies in the Netherlands for understanding and choosing 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 the Netherlands
Introduction to offshore banking
Essentially, an offshore bank is a bank located outside the account holder’s country of residence, typically in a low tax jurisdiction. These banks tend to offer financial and legal advantages over domestic banking arrangements.
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. being able 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 the Netherlands may be worried about the security of funds held in a domestic account. Therefore, an offshore banking facility offers peace of mind.
The former Dutch colony of Netherlands Antilles has acted as an offshore banking centre. Historically, non-residents were only taxed on certain types of source income and there were no withholding taxes on interest, dividends, royalties or compensation. However, from July 2005, the Netherlands Antilles began to supply information on savings paid to European Union (EU) citizens, under the EU Savings Tax Directive. Then in September 2010, the Netherlands and the Netherlands Antilles signed a comprehensive agreement that resulted in three entities – Bonaire, Saba and St. Eustatius (collectively known as BES islands) – becoming special Dutch municipalities. This agreement provided the BES islands to receive their own tax code – incorporating a flat-tax regime, zero percent profits tax and dividend tax of 5 percent.
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 account – 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 EU member states are required to have deposit guarantee schemes that protect deposit holders up to the value of EUR 100,000 in the event of something going wrong. In the Netherlands the scheme is overseen by the Dutch Central Bank. However, accounts held offshore often do not benefit from this protection.
General perception of offshore banking
The secrecy integral to international banking has ensured that it has developed a somewhat unsavoury reputation among the general public. There is a perception – deserved in some cases – that offshore customers hide their income and wealth from tax authorities, for reasons of tax evasion or money laundering.
In line with other countries, the Netherlands has begun to combat tax evasion via offshore banking. In 2011 the OECD reported that a voluntary disclosure programme resulted in additional revenues of EUR 475 million from more than 9,000 Dutch taxpayers. In addition, targeting the channeling of profits from the transfer of intangibles to zero or low-tax jurisdictions had yielded EUR 20 million with a further EUR 150 million anticipated over a 10-year period.
Famous offshore banks
The following Dutch banks all provide international banking services, and can offer more information: