Offshore banking simplified is utilizing financial and legal advantages available in a country outside the beneficiary’s country of residence. These banks are located at countries with low tax jurisdiction and more discreet privacy laws. The most infamous of these countries is Switzerland. Other countries which fit the profile characterized are Luxemburg, Andorra and the Cayman Islands.
The advantages sought after by clients of offshore banks are mainly:
1) Privacy and bank secrecy
2) Lenient tax regulations and zero tax rates
3) Easy and discreet access to accounts
The term offshore is also used to describe sophisticated tax planning designed to lower tax liability of various companies by registering them in the countries with the most suitable tax regulations.
Offshore banks provide other advantages such as stability for residents of unstable countries, lower costs base and higher interest rates, potential for combining offshore tax planning and banking, creating competition in the banking industry. Among the disadvantages of offshore banking is mainly the place of offshore banks in money laundering and organized crime and also as a safe haven for corrupt leaders. Other disadvantages include high entrance fees (offshore banks are inaccessible to the common depositor) and their remote location.