Some useful advice on offshore banking.jpg

Some useful advice on offshore banking

By: Bill Blevins

Financial Correspondent

Blevins Franks

[email protected]

BRITONS LIVING abroad tend to open an offshore bank account to help with their banking arrangements. You will also need to open a local bank account in Portugal.

An offshore bank is one situated outside the country where the account holder lives. It can therefore refer to a landlocked country like Switzerland as well as islands like the Isle of Man.

Offshore banks have various attractions such as higher interest rates, tax planning, services not supplied by domestic banks, banking confidentiality (though this is slowly being eroded as a result of international legislation) and accounts in both Sterling and the Euro.

It is relatively easy to open an offshore bank account and you don’t have to visit the jurisdiction to do so. Telephone banking and internet access will make your account simple to manage wherever you live. You’ll have to provide a tax identification number to prove that you are in the tax system of the country where you are living; proof of your identity and address (passport and utility bills) and information about where your money has come from.

The Savings Tax Directive’s withholding tax

Until July 1, 2005, interest from bank accounts in Jersey, Guernsey and the Isle of Man was paid gross and it was up to the individual to declare these earnings to their tax authority.  Tax residents of Portugal and the UK are legally obliged to include these earnings on their tax returns.

Under the EU Savings Tax Directive, banks in the British offshore islands are now deducting a withholding tax from the interest earnings of EU residents. The tax is currently 15 per cent, but it will increase to 20 per cent next year and to 35 per cent in 2011.  You can instead authorise your bank to automatically exchange information with your local tax office each year, in which case your interest will be paid gross.

It is a common misconception that paying the withholding tax exempts you from declaring the interest earnings on your local tax return. This is not the case – it is fundamental that all your worldwide interest earnings are fully declared for tax in your country of residence, even if from an offshore bank applying the withholding tax.  You should be paying the full amount of tax due on these earnings as per the regulations and rates of your country of residence. Failure to declare the interest earnings is tax evasion and a crime.

As we move closer to the days when automatic exchange of information will apply across the board, replacing the withholding tax, it is important to ensure that your banking and tax planning conforms with the laws in your country of residence.

International bank account numbers(IBANs)

To increase security on international bank transactions, standardise the identification of bank accounts, speed up the process of international bank transfers and avoid manual intervention and extra costs, the EU introduced IBANs on January 1, 2007, although many European banks were already using them.

The IBAN uniquely identifies a bank account wherever it is located. It comprises around thirty alphanumeric numbers consisting of the country code, control digits, bank code, branch code and account number. When making transfers you will also need to include the Bank Identification Code (BIC), alternatively known as the SWIFT code.

IBAN numbers are for use mainly with Euro transfers (where their use helps avoid delays and additional charges) but banks in offshore jurisdictions are also using them. At present, IBANs don’t have to be provided for cross-border Sterling transactions, although some major UK banks have issued IBANs to Sterling accounts.

Identity fraud

Identity fraud is one of the fastest growing crimes and customers of banks worldwide are vulnerable to identity fraud.

Phishing fraud is also rising fast. It is mainly executed through the internet by criminals attempting to steal your identity and cash by conning you into divulging your bank account numbers, passwords, credit card and PIN numbers.

Phishing normally takes the form of an unsolicited email leading you to a spoof website representing your bank and asking you to reveal bank and identity details, usually on the pretext of updating the bank’s security arrangements.

Banks are vigilant in avoiding online fraud but you can help by adhering to some basic rules:

Don’t reveal your account password to anyone or write it down where it can be seen by other people.

Don’t reveal your CHIP and PIN numbers to anyone other than in a legitimate transaction.

If you receive an email, telephone call or letter purporting to be from your bank, contact the bank for verification.

Check your statements immediately for any transaction you did not make.  If you suspect any criminal activity you need to first report it to your bank or the financial institution concerned.

Shred your financial documents like utility bills, bank and credit card statements.

If you move house set up a mail forwarding system for at least 12 months and notify all relevant organisations of your change of address.

If you do not receive your bank statements through the post report this to the organisation concerned. Criminals can change your address with your bank or re-direct your post to gain access to your personal details.

In today’s world, devious fraudsters will use various tactics and the most mundane of documents to steal your identity. Following the above rules will significantly reduce the chances of you becoming a victim.