Hey!
For the second edition, I decided to talk about Offshore Banking.
I recently read the Nomad Capitalist book. This is my non-boring, cut-the-fluff summary of the chapter on Banking offshore.
By the way, we’ve grown to 200 subscribers in just one week 🎉
This newsletter has the potential to become a great private community of young and wealthy individuals. Hopefully a younger version of this table 😄
Now let’s dive deep and talk banking!
Understanding Banking Climate in Each country
The author has made a habit to visit banks while visiting a new country just to understand the climate with three questions in mind.
—>How fast can you open a bank account?
—>What is the required paperwork?
—>What is the process like for foreigners?
Examples
Budapest Romania🇷🇴
Romania has one of the best budget situations in the European Union. They have managed to avoid all the problems of Greece, with a tax rate just a fraction of what France collects from its citizens. In less than 25 minutes, with only a passport and a $20 deposit, the author opened a bank account in Romania, even faster than
Singapore🇸🇬
Only has 3 big banks but never has had any failure unlike US banks
The U.S🇺🇸
While it is not necessarily true for US citizens or residents living in the United States, the US is the world’s largest tax haven. For US citizens living abroad and non-citizens outside of the country, there are ways to bank in the United States without having to pay tax
Good US banks are those that understand international business, especially how to wire money overseas
The Benefits of Banking Offshore💰
Let’s see if there are more benefits rather just diversication.
Higher Interest Rate 🔣
11% interest in a currency that will likely rise against the US dollar over the next five years interesting to you.
Doubling your money, just in a bank, in five or six years can sound attractive to most. Currency diversification through foreign bank accounts is an excellent way to obtain higher interest rates on your money.
New Zealand🇳🇿 bank accounts currently pay up to ten times the interest that American banks do. If you are more adventurous, there are emerging market currencies that offer interest rates as high as 18%.
Exposure to Emerging Currencies💱
An offshore bank account is an excellent way to get exposure to emerging currencies and profit from global financial trends.
Banks in financial centers like Hong Kong, Singapore, and Andorra offer as many as 12-15 currencies, all in one account. You can easily sell your dollars and buy pounds, euros, or renminbi at any time.
Avoid the Confiscation of your Money 🔐
Having your bank account under a different legal system from your own can also prevent the government from confiscating your money.
Bureaucrats can freeze your account without having any proof or even charging you with a crime. Imagine what would happen if you could not access your own money for weeks, months, or years. Moving your money elsewhere can protect your wealth and give you peace of mind
Business Purposes 👔
A great bank account can be a tool for entrepreneurs whether offshore or in your home country.
Better Deposit Insurance💵
The FDIC in the US has well under 1% of deposits in its reserves. If every US bank were to fail at once, depositors would only see $1 FOR ROUGHLY EVERY $300 on Deposit returned to them
Some of the world’s safest banks are in Germany 🇩🇪 , Singapore🇸🇬, and even Australia🇦🇺.
Build Tunnels👷
Those who open accounts before requirements are tightened get grandfathered in. This strategy is also known as building a tunnel.
There are banks like those in China circa 2016 that allowed you to bank with them for a minimum deposit as low as $1,000 or even $1 in some banks. In many cases, once you have an account open, the bank will not close it. So, even though these Chinese banks have now stopped accepting new accounts from foreigners, yours will remain intact.
What Offshore Banking is NOT?
Misconception #1 - The Media Offshore’s Bank
False beliefs about offshore banking are influenced by movies like James Bond and the profuse number of spy shows on TV that show criminals dropping off wheelbarrows full of cash at the doorstep of some shady banker with overly white teeth and leaving with little more than a numbered receipt.
—>An offshore banker once told me that he only knew of one bank down in the Caribbean somewhere that was still accepting cash deposits for a 16% fee. It is pretty much a dead giveaway that you are a money launderer, so most banks stay far away from it.
However, if you go to the Middle East and Hong Kong for example they still want cash.
Takeaway: Get your information about offshore banking from expat-focused accountants, lawyers, and other professionals.
Misconception #2- Offshore Banks are for Hiding Money
Don’t confuse PRIVACY vs SECRECY
The biggest myths about offshore banking: numbered bank accounts.
—> This is the idea that you can open some numbered bank account in Switzerland where nobody will know your name or identity and you can move your funds without being traced
IT NO LONGER EXISTS.
2 things happened that put an end to numbered bank accounts,
First was 9/11
Second, is the US government going bananas on Swiss banks for allowing US citizens to evade taxes. As a result, opening the fabled numbered Swiss bank account will prove rather difficult these days if you are a US citizen, unless you live overseas and have a ton of cash
Misconception #3- Offshore Banking is for people who want to avoid Taxes
The term tax haven is a term that is often misused as a way of appealing to people who are trying to run from their legal tax obligations rather than set things up properly.
The marketing that talks about privacy and tax havens and tells you that you will not have to pay any tax because it is ‘offshore’ and tries to sell you a one-size-fits-all solution at a supposedly low cost is a recipe for disaster.
Misconception #4 - You’ll immediately get audited if you have an offshore bank
There is no need to go around imagining that the entire IRS is out to get you. If you do your taxes and play by the rules, you have nothing to fear.
The Legality and Requirements for Offshore Banking
US citizens are required to report every bank account they have if they keep $10,000 or more in all of those accounts combined at any time during a given year
There is a form called the FBAR expressly for this purpose and it is due on June 15 every year. There are no extensions. The IRS takes this stuff seriously.
Where to Bank Offshore?
Offshore banks in the tiny Caribbean islands have been harassed to the point that it is no longer worth banking there in many cases.
Tax havens like the Seychelles where the banks are hanging by a thread.
European strongholds like Switzerland, Liechtenstein, and Luxembourg are part of the old offshore world and, for many individuals and businesses, no longer offer the perfect panacea for offshore banking.
In countries like Cyprus and Ukraine, the banks are either run by the mob or have fallen flat on their face in recent years. As a general rule, do not bother banking in any of these countries.
The WORST offshore bank is HSBC- Bad customer service.
Honk Kong, is very reliable but do not want your business.
Cambodia is a country that you may have never thought of, but if you invest in Asia, it could serve a useful purpose. Add to that the recent promotion I saw at a Cambodian bank for 11% on US dollars and Cambodia starts to look even better
Balkan countries like Montenegro are improving by leaps and bounds.
Ideal Place🇬🇪?
Georgia 🇬🇪 is hands down the easiest place in the world to open an offshore bank account today. It is possible to open a bank account in Georgia with as little as $7. The process takes as little as ten minutes sometimes.
Online banking for the Georgian banks is refreshingly simple.
You can move money between the Georgian Lari, US dollars, Euros, and the British pound with a single click. Exchange rate spreads at the bank are extremely small.
The only real challenge is flying to Georgia to appear in person. Once you make the trip and open your account, Georgian banks offer both ATM and debit Visa Electron cards that can be used anywhere in the world that Visa is accepted.
Banking offshore may or may not be beneficial for you. In any case the main Takeaway is to get your information about offshore banking from expat-focused accountants, lawyers, and other professionals.
The world is big so always remember to explore your options!
Next week, we will feature our first story from one of the subscriber who sold his company and structured his life in a very unique way.