Offshore business banking is a situation in which a corporation chooses to open business accounts with a financial institution located in a nation other than the one where the business is headquartered. Choosing to open an offshore bank account provides some advantages that are both practical and attractive for some businesses. There are also a few potential drawbacks that should be considered before making the decision to use an offshore bank for any type of operational account or investment activity.
One of the major pros associated with offshore business banking includes the interest rates offered by a number of international banking concerns. While these rates are not always as competitive as thought, offshore banks can still often provide higher returns on interest bearing accounts than domestic banks in other nations. Assuming that the corporation can command a better rate of interest by moving the company accounts outside the country, the move is well worth consideration.
In terms of offshore investing, an offshore bank is often the source of access to a number of profitable bond issues and similar investments. As with the interest on basic bank accounts, the return on these bonds may not be as high as in times past, but they still compare favorably with bond issues available in many nations around the world. Both short-term and long-term bonds are offered through most offshore banks, sometimes at a discount if the investor has an established offshore business banking account.
Another benefit associated with offshore business banking is the measures taken to protect the private information of the depositor. This does not mean that offshore banks will attempt to hide balances from revenue agencies; it does mean that individuals outside the company will find it more difficult to locate proprietary financial information regarding the company’s finances. If the business is based in a nation where there are relatively few security measures to prevent access to this type of data, then the offshore business banking solution becomes not only profitable but also practical.
While there are benefits associated with offshore business banking, there are also a couple of potential liabilities to consider. One has to do with banking laws. Depending on the regulations that apply to banking in the nation where the offshore bank is located, the international customer may or may not enjoy the same level of protection available with domestic accounts. Investigating those banking laws, and comparing them closely with the laws that protect domestic accounts is imperative. Should the research indicate that the protection afforded by the offshore bank is inadequate, the corporation would do well to continue working with a domestic financial institution.
A second possible liability of offshore business banking has to do with the process used to calculate and apply interest to the balance of the offshore accounts. Some international banks require a significant balance before applying any interest at all. Should the balance fall below the minimum level at any point, the depositor may lose that highly competitive rate and be assigned a lower and less attractive rate. The lower rate sometimes remains in place even after the balance is increased above the minimum once again. Procedures of this type can make the value of going with offshore business banking non-existent, especially if domestic accounts that do not operate in this manner are available.
