Offshore banking
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 your country of residence, but if you retain financial transactions in the UK, or wish to benefit from higher interest rates, then an offshore bank account can be an asset.
An offshore bank is one situated outside the country where the account holder lives. The term ‘offshore’ refers to jurisdictions like the Channel Islands since they are ‘offshore’ from Britain, but it can also refer to a landlocked country like Luxembourg or Switzerland.
Offshore banks have various attractions such as higher interest rates, tax planning, additional services not supplied by domestic banks, banking confidentiality (though this is slowly being eroded as a result of international legislation), protection against local political or economic instability and accounts in both sterling and the euro.
It is relatively easy to open an offshore bank account and you do not have to visit the jurisdiction to do so. Telephone banking and internet access will make your account simple to manage wherever you live. You usually have to provide your local tax identification number to prove that you are in the tax system of the country where you are living, as well as proof of your identity and address like your passport and utility bills, and information about where your money has come from. All this is to prevent identify fraud, tax evasion and money laundering. It also helps the bank to build up a profile of your banking activities in order to monitor the account and to see if there are any unusual transactions which may alert them to the fact that your identity has been stolen.
The Savings Tax Directive’s Withholding Tax
Under the terms of the EU Savings Tax Directive, banks in the British offshore islands deduct withholding tax from the interest earnings of EU residents. The tax increases to 20 per cent from 1 July and to 35 per cent in 2011. You can instead authorise your bank to automatically exchange information with your local tax authority each year, in which case your interest will be paid gross. To set this up you usually need to provide your tax registration number.
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 therefore 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, avoid manual intervention and extra costs, the EU introduced IBANs on 1 January 2007, although many European banks have been using them for some time.
The IBAN uniquely identifies a bank account wherever it is located. It is made up of around 30 alphanumeric numbers consisting of the country code, control digits, bank code, branch code and account number. When making transfers you will also need to also include the Bank Identification Code (BIC), alternatively known as the SWIFT code, which was a bank’s identification number used before the introduction of IBANs.
IBAN numbers are for use mainly with euro transfers (where their use helps avoid delays and additional charges being applied) but banks in offshore jurisdictions, even though not in the EU, are now also using IBANs. At present, IBANs do not have to be provided for cross-border sterling transactions although some of the major UK banks have issued IBANs to sterling accounts.
Identity Fraud
Identity fraud is on the increase. It is one of the fastest growing crimes and customers of banks worldwide are vulnerable to identity fraud particularly if they have internet access to their accounts.
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 being sent to your email address 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:
- Do not reveal your bank account password to anyone or write it down where it can be seen by other people.
- Do not reveal your credit card 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 but you are not sure, contact the bank for verification.
- Check your bank and credit card 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. It is then up to the bank to pass details to the police.
- Shred your financial documents like utility bills, bank and credit card statements before throwing them away.
- If you move house set up a mail forwarding system for at least twelve 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 another address to gain access to your personal details.
- If you lose any personal documents or have them stolen report the matter to the organisation concerned immediately.
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.
See also:
The author, David Franks of Blevins Franks, is a specialist in the expatriate financial sector.
First published in Homes Overseas Magazine July 2008.
Some information contained within this article may have changed since it was first published. Homes Overseas strongly advises you to seek current legal and financial advise from a qualified professional.
