Offshore bank account – understand how to open the right offshore bank account as a digital nomad!
Introduction:
Opening an offshore account is arguably the most fundamental step toward international diversification.
It’s an excellent way to protect yourself against national risks, currency risks, and more.
This is important for all individuals, but even more so for these type of people:
- digital nomad with no real home base: Your bank account in your home country or other countries can be taken away any minute
- foreigners who live in developing countries (Thailand, Vietnam etc.): Although life is great, the government still has money restrictions, and let alone the currency fluctuations.
It is essential to keep your asset safe from governments.
Especially in today’s environment, where states never run out of excuses to impose capital controls—be it for terrorism, money laundering, or other bogeymen.
Keeping part of your assets outside your home country makes it more difficult, if not impossible, for said states to freeze or confiscate your assets.
But how do you actually choose the right bank for you?
There are several important factors you should consider when choosing your offshore bank.
These include:
- Deposit protection
- The jurisdiction’s openness and friendliness towards foreigners
- Capital and interest taxation
- The range of services, including multi-currency accounts
- The stability of the target country
- Currency stability
- Interest rates
Offshore bank account: Deposit protection
Let’s start with deposit protection. The government guarantees domestic bank customers that their deposits at banks are protected up to a certain insured amount.
In Germany and the EU, this cap is €100,000. If a bank goes bankrupt, your assets are theoretically protected up to this amount.
In practice, you should know how trustworthy countries actually are.
If your bank is located in a small European country that cannot defend itself, you will have little benefit from deposit protection.
This is what happened to Cyprus, who were expropriated overnight simply to save the banks – but also to many small investors.
While at Laiki Bank, all deposits over €100,000 were siphoned off, at the Bank of Cyprus, half of all deposits were frozen and the other half converted into shares. President Anastasiadis later spoke of blackmail:
“We had two options. Either there is no help from the EU, and our economy and financial system collapse. Or we stabilize the system. We made the lesser choice.”
This means that many foreigners and locals lost all their savings, although there was a theoretical deposit protection.
Every jurisdiction has its own deposit insurance laws, which you should familiarize yourself with before opening an account.
Financial centers like Singapore, for example, have far lower deposit insurance than other countries because they are economically aware of the incentive risk posed by the “moral hazard” problem.
Singapore, for example, does not insure foreign currency deposits, which are primarily held there by foreigners. They limit their deposit insurance to small, domestic investors in local currency who actually need the money, rather than offering foreigners even more incentives to diversify their assets.
Singapore offers more than enough of that even without deposit insurance.
While most of the world has some form of deposit insurance, a few countries and even attractive banking centers do not. Andorra, for example, has deposit insurance, but it’s difficult to understand.
It’s unclear how investors can actually get their deposits back in the event of bankruptcy.
In any case, you should carefully evaluate the stability and history when choosing an offshore bank.
Or do you want to wake up the next day with the loss of your entire savings, like in Cyprus?
This image shows euro notes clasped together in a chain. It’s meant to be a symbolic representation of deposit protection.
Further reading:
How to protect your asset the right way!
Offshore bank account: Foreign-friendly laws
Many banks around the world welcome foreign customers, but have sometimes placed a number of obstacles in their way.
This is less out of self-interest, but rather to comply with government regulations.
The “global war on terror,” for example, has led to the OECD’s crucial “Know Your Customer” policy, which makes opening a foreign account without being present in person particularly difficult.
In order to be truly known to the bank—to also protect itself against the bank’s own risks—more and more banks are demanding the account holder’s personal presence. This is not to say that there are no longer any options for opening an account remotely. They do still exist.
Further reading:
At the moment, only U.S. citizens are really facing major problems.
Due to the FATCA and FBAR regulations, but also due to their global taxation, there are hardly any banks that offer account opening to US citizens anymore.
The bureaucratic burden of servicing these – unless they are appropriately specialized – would simply be too high.
Also opening a bank account in a developing country may seem easy at first but can become a nightmare later.
Example:
As a foreigner in Vietnam, opening a bank account is already challenging.
Then when you have opened a bank account, getting money into Vietnam is relatively easy.
But moving money out of Vietnam as a foreigner can be a nightmare.
Offshore bank account: Capital Taxation
Another important factor is the taxation of capital.
While the tax system of many countries operates on a territorial basis – meaning foreign income is not taxed – dividends and interest income from banks meet the criteria for local taxation. Not all jurisdictions tax interest with capital gains taxes, but some do. In those cases, it’s especially important to keep in mind that a local tax number may even be required, which complicates and delays the opening process.
Especially if you would have to pay taxes on your income in your home country anyway (if you live in Germany, Austria, or Switzerland, there’s no legal way around it), you should avoid double taxation of your income at all costs.
The laws vary greatly from country to country – before opening an account, you should inform yourself about the local tax regulations, for example, by asking the bank.
Hong Kong, for example, imposes no capital gain taxes. In case you want to find out more, book a consultation call with us so we can evaluate your situation correctly.
Offshore bank account: Selection of services, including multi-currency accounts
It’s very important to consider the range of services offered by the offshore bank.
Some offshore banks have a very conservative business model, while others try to outdo each other with highly innovative services.
Some offshore banks offer excellent customer service and private banking, while others can be very difficult to even reach a competent contact person. Testing the service before opening an account is recommended, even though this cannot guarantee 100% security.
Sometimes the customer is only king until they are persuaded to sign a contract.
Many considerations regarding offshore banking include, in particular, multiple currency accounts. If you move your money to other countries to avoid local risks, you also want to avoid currency risks in the potential target country. Investing your assets in major world currencies can help, as deposits are usually held in the domestic currency.
The ability to hold multiple currencies varies greatly.
In the US, but also in Germany, this is rather unusual for regular banks.
There, the Dollar or Euro is standard.
However, international financial centers, in particular, advertise that you can invest your money in multiple currencies. In addition to the US dollar and the euro, these usually include the Swiss franc, the Australian dollar, the British pound, and the Japanese yen. Currencies from smaller, but stable, and wealthy countries like New Zealand, Norway, and Canada are also often offered.
So you don’t have to open an account in Switzerland to invest your money in Swiss francs!
In Hong Kong, our foreign customers also can diversify in different currencies of their choice (HKD, USD, EUR etc.).
Warning:
Some countries (Vietnam, Thailand e.g.) with less good economic reputation will let you store your money in a foreign currency, but when it is time to withdraw the money they will only give you the money in the local currency.
So be aware to check this before opening a bank account there or make sure the currency is stable (which unfortunately never is in developing countries as we recently have seen in Vietnam since the Trump tariffs).
Further reading:
Read more about the differences between offshore bank accounts in Hong Kong.
Offshore Bank Account: Stability of the Target Country
The stability of the country in which you choose offshore banking is also very important. This also depends on your consideration of which bank you feel most comfortable with.
For example, you might prefer a highly liquid, but smaller local bank to a multinational banking group.
In this regard, you should keep in mind that your risk of being subjected to arbitrary government measures is significantly higher if a multinational bank with which you have an account in another country also has a location in your country of residence or home country.
Whether it’s a government agency or a divorce lawyer – if your offshore bank has a location in the country of your problems, it may not protect your money as much as you would have expected due to the threat of sanctions.
Stability is, of course, also a political and economic issue. Here, however, the incentive problem often favors small, microstates with offshore services. Precisely because these countries lack resources, capital, or labor, they are urgently dependent on financial services. This allows them to afford modest or even very high levels of prosperity, which they would quickly lose without them.
You simply can’t make much money exporting coconuts.
That’s why the governments of the affected states also know and support the offshore sector accordingly.
Restrictive measures or even expropriations are highly unlikely, as this would catapult most small island states back to the Stone Age in the long term after short-term gains.
Cyprus, for example, offered its “expropriated” foreign investors Cypriot citizenship upon a certain amount – an offer that many Russians, in particular, gladly accepted because of the associated access to the EU.
This allowed the Cypriot government, which will continue to rely on financial services in the future, to restore at least some of the trust.
Offshore Bank Account: Currency Stability
In connection with the aspect of multiple currency accounts, you should carefully examine the stability of the investment currency and its exchange rate history, but do not falsely draw conclusions about the future based on this.
Acquiring a basic understanding of economics through the practical teachings of the Austrian School of Economics will certainly not hurt.
Don’t forget that most of the world is in a devaluation race!
Factors you should consider include whether the currency is backed by domestic commodities or pegged to a foreign currency.
Do your homework, truly understand economics, and choose a stable currency!
Especially, foreigners living in South East Asia and Latin America should avoid parking lots of money there. Always transfer the money you need on a monthly basis and keep the rest out of the country (unless you invest).
This is why many of our customers living in Thailand or Vietnam choose an offshore bank account in Hong Kong to protect their assets.
If you want to understand this in more detail, book a consultation call and we explain it to you how this setup can work for you, your residency and your nationality.
Offshore Bank Account: Interest Rates
Almost zero or soon-to-be negative interest rates may prevail in the EU, but this is by no means the case worldwide.
Since some countries desperately need foreign capital and lend money at exorbitant rates, they offer investors incentives through high interest rates.
Other countries like Australia, on the other hand, which are largely self-sufficient thanks to their abundance of natural resources, have no need to participate in the global devaluation race.
But don’t forget:
The higher the interest rates, the higher the currency risk!
It’s not without reason that Ukrainian banks currently offer the highest interest rates in the world.
This image shows coins, banknotes, and dice; the dice form the word “Interest” (interest).
Are you choosing offshore banking?
The media and governments want you to believe that international banking is illegal or at least immoral.
Offshore banking is still legal and a legitimate, if not morally required, means of protecting yourself against a multitude of risks and profiting from new opportunities.
As tax accountants and legal professionals, we only advise legal solutions to help our customer to leverage their business and money.
You, too, can diversify globally and take advantage of global benefits.
