There are many myths surrounding offshores: high confidentiality, complete inaccessibility for foreign government agencies, zero taxes, legal flexibility, and minimal financial reporting requirements. For many, it’s seen as a real paradise for any entrepreneur.

This legend also applies to accounts in offshore banks. They seem like the perfect solution for any business or individual looking to expand their operations and protect their hard-earned capital. So, let’s get to the bottom of what an offshore account truly is, its pros and cons compared to non-offshore accounts, and who should consider opening one.

Why do you need an account in a foreign bank?

Most people wanting to open an offshore account generally pursue the same goals as anyone opening an account in a foreign bank:

  • Protection in the country of residence from adverse factors like inflation, economic crises, and various financial restrictions;
  • Expansion of investment tools and access to foreign securities markets;
  • Opening a current account for transactions with foreign clients, suppliers, and other counterparties;
  • The ability to conduct business directly in foreign currency, bypassing national currency regulations (if they exist).

These are the main reasons why entrepreneurs from all over the globe choose to set up offshore bank accounts.

What is meant by “offshore account”?

Often in business and the media, “offshore” refers to any companies, accounts, or assets located outside the owner’s country of residence. While this approach isn’t entirely incorrect, it’s too generalized; no one would likely call a company in Denmark or Germany offshore. For the purposes of this article, an offshore account is a bank account opened at a financial institution in a “classic” offshore territory. Examples include the Cayman Islands, Seychelles, and British Virgin Islands, Panama, Belize, Saint Lucia, and others.

Pitfalls of an offshore account

Despite a number of advantages typically associated with classic offshores, many remain largely on paper. The main practical benefit that only a few can take advantage of is that it’s much easier to navigate compliance procedures in offshore banks. However, this doesn’t apply to British Overseas Territories (BVI, Gibraltar, Cayman Islands, Bermuda, etc.) and its crown dependencies, as they fall directly under the jurisdiction of the United Kingdom. Therefore, it might be better to look at banks in Seychelles, Belize, Panama, and other countries.

Moreover, offshore banking hides many less obvious risks. You can open an offshore account at Bank of Asia (BVI), Hermes Bank (Saint Lucia), and many other places, but the banking infrastructure in such countries is often much worse than in regular jurisdictions. For example, most offshore banks can’t boast about having current accounts in various currencies.

Additionally, when conducting international transactions, all banks, including offshore ones, use correspondent accounts, for instance, with JP Morgan Chase, Lloyds, Citibank, and so on. Such large organizations are suspicious of transactions involving offshore banks, often delaying the processing of such payments or even refusing to carry them out altogether.

Due to this and the poor banking infrastructure of offshores, transfers and returns of funds can take a long time, sometimes up to several months. Some offshore entities even resort to using third-party Fintech services, which significantly increases risks when dealing with such financial institutions.

An offshore account may be a decent solution for certain business sectors and for storing and accumulating funds. However, the drawbacks of offshore accounts severely limit their usability, raising the critical question: how useful are they really?

Offshore account or “ordinary” jurisdiction: is there a big difference?

Despite all the significant downsides mentioned earlier, the level of confidentiality in offshore banks is no different from that in regular banks. Most classic offshore jurisdictions, such as the Seychelles, British Virgin Islands, and Cayman Islands, Belize, and others, automatically exchange financial information with tax authorities of other countries using the CRS standard.

What does this mean in practice? Information about foreign bank accounts opened in these countries will be automatically sent to the tax authorities in the client’s country of tax residency.

Opening an offshore account is no easier than opening one in a “traditional” bank. Any financial institution, even an offshore one, doesn’t want to end up on blacklists and be completely cut off from the global banking infrastructure. For this reason, they pay just as much attention to the banking compliance process as their counterparts in regular jurisdictions.

In the end, the previously discussed downsides, the checks during account opening, and the functioning automatic exchange of financial information negate all the claimed advantages of offshore accounts. Currently, bank accounts in non-offshore jurisdictions can provide the same range of services as offshores without creating unnecessary risks and inconveniences for clients.

Opening an offshore account in 2025: documents and general requirements

As with any foreign bank, you can open an offshore account for both legal entities and individuals. At this stage, the bank’s main task is to gather as much information as possible about its future client:

  • Determine the nature of their activities and ensure its legality;
  • Verify the source of the funds that will be deposited into the bank account;
  • Ensure that the future client or associated individuals are not included in the sanctions lists of the USA, EU, UN, and others.

This procedure is known as “Know Your Customer” (KYC). Typically, you’ll need to fill out a series of detailed forms and questionnaires, and if you’re applying through a representative, you’ll need to draft a power of attorney for account opening.

Anyone wanting to open an offshore account will also need to verify his/ her identity. Besides a passport, the bank may request a tax ID, social security number, and other details at its discretion. In some cases, the applicant will have to undergo remote identification by submitting “live” photos of their document and face. Also, during the KYC process, the bank may require proof of actual residence in a country not on the sanctions list.

At the same time, documents must be legalized and translated if necessary. For example, a company registration certificate must have an apostille in the country of issuance and be notarized and translated into the language of the country where the account is being opened.

Once all documents are received, the bank begins a comprehensive review, after which a decision is made to approve or deny the account opening. The duration and depth of the compliance process depend on the specific bank, the asset size, and the potential sanctions or other risks the financial institution takes on by servicing a new client. Even after the account is opened, the bank continues to monitor client transactions through AML/CFT systems, requesting additional information about payment purposes and the source of funds when necessary.

Conclusion

When opening an offshore bank account, people are driven by various reasons: from the desire to preserve assets in a stable financial institution to expanding the geography of their business and counterparties.

However, nowadays, an offshore account is no different from an account in a non-offshore jurisdiction. On the contrary, its use comes with a number of serious restrictions and risks. Ultimately, opening an offshore account seems reasonable only for those who, for various reasons, cannot become a client of a “traditional” bank in a non-offshore jurisdiction.

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