Dateline: Hong Kong
Whilst in India recently, I spent some time looking on YouTube to see what other people are saying about how to open an offshore bank account and, more importantly, why you should open an offshore account. Some of the advice that I’ve seen would be funny if there wasn’t somebody out there who was going to follow it. So I’ve made a list here of some of the reasons you shouldn’t open an offshore bank account and why you should ignore the old-school reasons to bank offshore.
Now, banking offshore has an image problem. It has a reputation that, for some reason, is stuck in the 1980s. People have this image of rich guys putting bags of cash together so that some Swiss banker can drive by their house, pick it up, and fly back to Switzerland so everything’s undetectable by the authorities. Of course, this kind of thing still goes on, and it’s not my job to moralize over the rights and wrongs of the practice, but that’s the old-school way to bank offshore.
Obviously, what we do at Nomad Capitalist is to practice transparency in a modern way and in accordance with the law. We’re not about hiding money or running away from the government. We’re about doing things legally, and, unfortunately, a lot of the other videos and resources that you can find on the internet (some of which have been shut down) are still telling you reasons to open offshore bank accounts that have illicit or shady overtones.
Like I said, it would be funny if there weren’t people getting hurt by this stuff all the time. I’ve been contacted by people who have believed some of the bad advice I’m about to go over and it has only caused them problems, in some instances, huge problems.
So let me go over some of the reasons you should not open an offshore bank account.
1. Privacy does not mean secrecy
One of the big reasons people are advised to bank offshore is to get privacy.
No doubt there are some benefits to offshore banking, where you can put a firewall between yourself and another government or creditor and make it harder for anyone to just come and grab your money. That’s no bad thing, but when people talk about privacy what they’re told is, “your government never has to know.”
Now if you’re a U.S. citizen or a citizen (or even a resident) of any number of other countries, you probably have a legal obligation to report that account to your government. So when people talk about privacy, (especially if you’re a U.S. citizen), you really don’t achieve that (not from the government, at least). What you are achieving is more of a distance between your funds and your creditors.
Don’t get confused between “privacy” as a term for confidentiality and “secrecy” as an act of concealment. So privacy can be okay, but do know that there are laws that you have to follow when it comes to opening offshore bank accounts, and you do not wish to run afoul of those.
2. Be wary of ‘tax havens’
One of the other things that I see these people talking about is tax havens.
A lot of these videos keep mentioning specific countries in this respect. In one case, I saw a video recommending Panama as a perfect tax haven, another touted Seychelles — each one fronted by a guy making a pitch for one specific country as the solution….no matter what. When it comes to banking overseas, there is no one-size-fits-all answer. Sure, Panama has some great strengths, but it’s not a custom solution to suit everyone.
But the term “tax haven,” in general, is a troubling one. As with privacy versus secrecy, it’s a term that is often misused as way of appealing to people who are trying to avoid their legal tax obligations.
Now, there are ways to legally live overseas, operate your business overseas, and bank your money overseas all without paying tax, but it’s not quite as simple as upping sticks and moving to Panama. I think you should be concerned by anybody who talks a lot about tax havens and how you should move to a tax haven country. You should, as we always say here at Nomad Capitalist, go where you’re treated best.
When we talk about going where you’re treated best, that could mean where you pay the lowest taxes, but it could also mean going where you have high-quality banks. And some of the banks that I’ve seen in a lot of these so-called tax havens are of low quality. They end up causing people a lot of other problems, and they certainly don’t qualify as going where you’re treated best.
So, privacy and tax havens are two big concerns that I have.
3. Shady business dealings
Another thing that concerns me is the fact that the people who are making these videos, who don’t use their name or show their face, talk about how you don’t have to pay taxes on your foreign source income. It’s true you can go down and open a Panama bank account for a Panama company, and if you set it up properly, you may not pay any tax in Panama.
But if you live in the United States, you’re probably gonna pay tax in the United States, and if you live in Europe, you’re gonna pay tax where you live in Europe. If you live in Canada, Australia, or any number of other countries in the world, you will need to pay tax there. Sure, there is a way to legally avoid taxation on what you do, but this idea that all you need to do is open a Panama bank account and suddenly you’re not going to pay tax is leading a lot of people to get into a world of hurt.
A big world of hurt.
People have gone to jail, people have been fined — people have run into big problems taking advice from these nameless, faceless guys and just going down and opening bank accounts and thinking that suddenly they can invest their money however they wish and not pay tax.
It’s shady marketing, and that’s a problem.
4. Beware the ‘low cost’ trap
One of the other things that [insert generic company name here] talk about is lower cost.
Lower cost to me is very ironic in the offshore world because the guys who are selling you stuff that comes with the “lowest cost” tag oftentimes end up costing you the most money. When they don’t tell you to report your new offshore account on your income tax return in the U.S. or in Europe or wherever else you live (Canada, Australia etc.), you can run into big problems where the tax authorities are concerned. The result of that “low-cost” option is that you end up paying a fortune in fines, penalties, and legal fees.
So the marketing that talks about privacy and tax havens and tells you that won’t have to pay any tax because it’s offshore and tries to sell you a one-size-fits-all solution at a supposedly low cost is a recipe for disaster. At best, the guy who charges the least is offering a very formulaic process. He doesn’t care what you need, and he doesn’t care what happens where you live or where you’re a citizen of.
So, if you’re looking around the internet, these are some of the things I’d like you to avoid.
Opening offshore bank accounts is, I think, an important way to diversify. You don’t need a lot of money to get started, and there is a legal way to do it. But if you search around the internet there are, unfortunately, a lot of folks who talk like it’s still 1979. In this day and age there’s only one way to go offshore: that’s to be transparent, to report what you have to report, and to file what you have to file.
There are plenty of reasons to bank offshore, but if you’re being sucked into any of these four traps, then you need to realize that you may run into a lot of problems down the line. If you need help, we have the resources to help you figure out how to bank offshore legally and how to plan what your next step should be.