Offshore trading account: definition and target
An offshore trading account of how does it work? This is the question that can be asked before starting all the steps of a possible relocation, legitimate although complex. From the question of legality to the more down-to-earth question of the procedure of opening the offshore trading account, it is necessary to think of many points before embarking on the adventure.
An offshore account is an open bank account in an offshore bank. An offshore bank is an offshore bank located in another country than the residence of the owner of the account. Offshore, because originally, “off the coast”, this term now applies to tax havens, that is to say, low-tax countries .
Public opinion tends to think that these foreign accounts are reserved for a certain category of people, tax evaders, gangsters, outlaws, and even secret agents. This idea conveyed by television and cinema is not quite true. The real users of offshore accounts are mainly offshore companies seeking to optimize their taxation.
These accounts, although specific, are legal, and everyone is free to open an offshore bank account.
Since these accounts are located in tax havens, it is important to remember that:
For the OECD ( Organization for Economic Cooperation and Development ). So for the OECD, a tax haven is so called if it combines the following characteristics :
- Low tax rate applied to foreigners
- The institutions of the country must be opaque in their operation
- Bank secrecy must be strong
- Reluctance to share certain information with other countries
- The absence of an obligation to be present on the national soil to conduct commercial activity.
The OECD publishes each year three lists of tax havens. A white, a gray and a black. The white list lists member countries that conduct transparent tax policies and in accordance with international conventions.
The gray list is for the countries, which although not having signed all the conventions, are on track.
The blacklist, for its part, lists the countries that have not signed any of the conventions. The last three countries on the OECD blacklist, Monaco, Liechtenstein and Andorra were withdrawn in 2009, but these are only listings for OECD member countries. There are many other tax havens, which do not appear on any list because they are simply not members of the organization. These are the ” refractory countries “.
The best known of the utilities of the offshore account is to create its extraterritorial company. Without a bank account, a company, offshore or not, can not exist.
Accounts in foreign countries can also be used to circumvent a sanction of bank prohibition pronounced on French soil. Foreign banks and especially offshore ones, will not worry about this prohibition, and will issue you means of payment . So, even if you will still be unable to issue a check, even foreign, you will enjoy a credit card worthy of the name . During the banking prohibition, you will have, in France, generally only a card limited in possibilities.
And if this banking ban has led to the closure of your current account, then the interest of the offshore account becomes that of being able to choose his bank branch, so not to be limited to the bank that will be imposed on you.
This type of account can also allow you to prepare an investment or even a move abroad. Opening an account before the investment or the move is indeed very practical since it will allow you a greater simplicity in the payment of various expenses.
As you have seen before, the creation and possession of an offshore account are completely legal. However, under some conditions. First, this account should not be used to harbor the fruits of criminal activity, but that’s like all accounts …
Second, this account must imperatively be declared to the French tax authorities.
And undeclared offshore accounts, there are, surely many even. That is why the institutions managing the tax system have united , through the OECD, and have adopted the international convention called AEOI . The AEOI for Automatic Exchange Of Information, is a process by which banks all signatory countries (93 at 1 January 2018) will automatically transmit data on bank accounts they host.
For example, you are French and live in France, and you have an account in Switzerland. Switzerland will, without asking for your opinion transmit to the Fisc , a lot of data relating to this account. The tax administration will know that you have an account in this country, will be aware of the information declared when creating the account, its date of creation, its balance on December 31, etc.
In addition to the AEOI, France has entered the digital age, and now everything is going very fast. Monitoring or tax audit tools have been created. They are mostly based on what we call ” data mining “. That is to say, the Fisc will find, compile and operate , different databases , which, once crossed , will bring out a certain amount of information. These tools are able to detect a large number of frauds, and will attract the curiosity of the tax services on you, so that they can carry out further investigation.
Regarding the legality of an offshore account in the case of its operation by an offshore company, there are two scenarios. The first is that society is completely in rules, with the Fisc and the other administrations. The owner of the bank account is also the owner of the company, he pays his taxes where he has to pay them, without seeking fraud. So in this case, yes this account is legal.
But often offshore companies, in a concern of anonymity of the real owner, are built differently. In a will of discretion, the real owner of the company does not wish to appear on its statutes. He will therefore constitute these statutes by not mentioning himself. The legal owners of the entity will be people he has probably never met. These “nominees”, nominees , or men of straw are, whatever their name, people hired by confidence .
The real owner of the company will be legally the owner, only the bank account. And this is a concern, because indeed if the real owner is not on the statutes, it is that he is neither legally the owner of the company nor shareholder. But if he is not really among those who own the business, how is it that he gets the dividends?
In this case, the legality of the offshore account can be questioned.
Account opening steps
Before going to sign the account opening papers in your bank branch, you will have to think about some things.
First you need to define the country in which you want to open the account. All tax havens are not equal, it will depend on your expectations in terms of taxation, or even the activity of the offshore company, if this account will be that of a company. Each tax haven is more or less “specialized” in a field of activity , and that’s what we have to look for.
All major banks have international branches, even in tax havens. But it will still be necessary to choose one, always according to your expectations, but also using more pragmatic criteria such as the minimum balance to be deposited at the opening, or the annual cost of account keeping, or even the price necessary for this opening. And that’s of course not counting on the annual dividends offered, which are also different in each bank.
These preparatory steps can seem very complicated when you think of the impressive amount of data that must be collected and analyzed before making your choice. But do not worry, a tax lawyer will be happy to inform you and guide you through this process. Specialized in the field, he is used to comparing his expertise and your requirements to define with you the right compromise.
The same opening
The tax lawyer, or a law firm expert in “offshoring” can also accompany you for the opening itself, the offshore account. Of course, you will need to produce certain administrative documents that the bank will need.
First of all, you will need the application form to open an account, but also a photocopy of your passport, your current bank references, and a proof of address. Depending on the country you choose, or even the bank that has caught your attention, the list of these documents may change.
As imaginable, the cost of opening the account is very variable too, always depending on the country and bank chosen. Opening an account in Seychelles costs 280 euros cheaper, and one in Latvia 400. Generally, these fees are included in the price that you will ask the intermediary who will work on your file.
The annual cost of maintaining the offshore account is about 200 euros but is not the biggest expense that will be inherent to its operation. Indeed, more than the “processing fees”, it is the banking costs related to the operations that you will carry out during the year which are to be taken into account. For example, in Latvia, an outgoing transfer costs 25 euros, and a withdrawal of cash, 2% of the amount withdrawn. For a tax haven, it’s more than reasonable.
The minimum deposit balance at the opening of the account can represent in itself a good sum. In Switzerland, for example, it will require an amount of at least 5000 euros, which can go up to 10,000.
Lastly, if the account is opened in foreign currency, then the conversion must be paid.
These sums can seem important, but they are to put into perspective by putting them in parallel with the French taxation.
The tax burden, the economic crisis, and globalization have made ” offshoring ” very popular. And all that is fashionable with the annoying tendency to attract those who would like to enjoy it. Why pay the fees of a tax lawyer specializing in the field of offshore, while for a few hundred euros, you can get advice from experts on the internet?
So specialized law firms on the web, which are honest and competent, there are. But surely very little compared to the impressive number of sites of pseudo-experts who have opened in recent years. They promise you on their site “flashy”, mountains and wonders. No taxation, minimum fees, a derisory commission, a return without taxation of funds in France. Some even say in words and without detours, they launder your money … they call it the “change of origin of capital.”
So you have to be more than cautious in choosing your advice or intermediaries, the scammers are on the lookout and it would be really a shame to lose all your fortune by having wanted to save a few thousand euros of taxes.
An incompetent adviser will put you in the parade with the administrations, tax or others, it will do anything and reassure you by giving you copies of some jurisprudence and other legal texts. Only he will import his or her commissions. While the scam advisor will go even further, since he will make fun of your project, the only thing he wants is to find a way to dispossess you of your money.
So it is worth remembering that badly earned profits never benefit, and that offshore accounts are of real interest only if you stay within their legal framework, or that you have enough money to create money. complex montages (which this text does not recommend).