Saturday, Aug 22, 2009

To some people, the term "offshore" banking evokes images of discreet dealings and high-net worth individuals stashing their illegal gains in secret accounts. Many often associate it with tax evasion or money laundering. But in a nutshell, offshore banking simply means putting your money in a bank located outside your place of residence or home country.

So, if you're from Paris, you can consider Switzerland or Luxembourg as an offshore, or if you're from England, Jersey or Guernsey of the Channel Islands can be your offshore. But why anchor your savings away from home, you ask?

Many people resort to offshore banking for a number of reasons. Some of these include the fact that offshore banks are generally located in an area that offer greater privacy to depositors, low or zero taxation and less restrictive legal regulation, among others.

Tony Walker, 60, an expatriate from England, has been keeping his savings in an offshore account for a long time. The management consultant has been living abroad most of his life: he first came to Dubai in 1969 and later moved to Bahrain, the United States, Egypt and Russia. About six years ago, he came back to Dubai.

Obviously, it is the demands of his internationally mobile lifestyle that prodded him to set up an offshore account with HSBC about 15 years ago.

His current account, which he opened about a year ago through Lloyds TSB, is run from the Isle of Man, considered one of the famous tax havens in the world where depositors are generally not taxed on the interest they earn.

"You have it for different reasons. To me, it's security, flexibility and access. The money is safe and you can control it. I have a chequebook, a card and I can withdraw funds wherever. As an expat, you keep a local account to cover things you pay for locally.

"The good thing is, if something happens to me - heaven forbid - my account won't be frozen and my wife would have funds available from there," he adds. An offshore bank account is managed just like any local or domestic account, says Steve Gregory, director or technical services of Holborn Assets. You will have a debit card and online banking services and your account can be accessed from anywhere in the world.

"If your local account is frozen for any reason [due to loss of residence visa or death], the offshore account remains accessible. On death, a joint account passes to the survivor automatically in many offshore jurisdictions. Due to Sharia in this country, joint accounts are frozen until probate has completed. [Also], it may be convenient to have an account in a country where you own a property," he explains.

Darren Ashley, managing director of Candour Consultancy, agrees with Gregory, saying that in the event of a depositor's death, countries or offshore jurisdictions where accounts are usually run from do not freeze funds and will grant the surviving spouse access to an account which is in joint names.

"On the unexpected death of an expatriate in the UAE, their bank accounts are frozen even if they are in joint names with a spouse. They can remain frozen for up to 18 months while the probate is passed in their home country and these wishes are confirmed by the courts here in the UAE," notes Ashley.

"If no wishes are made via a valid will, it is likely the estate will be distributed via Sharia law at this time as no alternative was clearly stated. Either way, for the 18 months the accounts may be frozen, the surviving family will have no access to cash if all their savings are in a UAE account."

There are several countries around the world that specialise in offshore banking (see box). They are considered specialist offshore centres because they have nil or low tax rates and financial centres that are specifically set up for the development and service of overseas financial business.

Gregory says, the International Monetary Fund considers an offshore financial centre to have the following characteristics:

  • They deal primarily with non-residents and have a number of financial institutions engaged principally with that purpose.
  • They have financial systems with external assets and liabilities which are greater than the normal scale of domestic activity required to finance a home economy.
  • They may provide some or all of these services: low or zero taxation; moderate or light financial regulation; banking secrecy and anonymity.

Gregory says that while the UK is not seen as an offshore centre to Brits, it is in fact a thriving "offshore centre for financial services" for people who are not Brits and they enjoy certain tax advantages that Brits don't.

"Essentially, any country which is not someone's home country or their country of residence may be considered to be an offshore country. In that sense, the UAE is possibly an offshore centre to people who hold accounts here but are not Emiratis and also not resident here.

The UAE does market its freezones as offshore centres to some degree," Gregory adds.

By Cleofe Maceda, Staff Reporter

Gulf News 2009. All rights reserved.