Why own an offshore bank account? What is asset protection? How much wealth should you have in order to take advantage of an offshore account? What if I am an American? These are the questions clients most often ask us and I just thought I would address them in this blog. So why own an offshore account? Well, to answer this question you must first ask yourself why you own a bank account or several bank accounts in the first place? That’s easy to answer, your bank accounts are normally used for savings, expenditure and investment. An offshore account should not be viewed in the same way. An offshore account is an asset. It is a means by which you hold the most valuable asset you have, your money! This leads to the second question, what is asset protection? I think the best definition I have heard for the concept of asset protection as it relates to finance was put in the form of an analogy.
Let’s say you are playing a game of poker. A tried and true winning strategy is never to expose all of your chips at once. The idea is to play it safe, only exposing a limited amount of chips, whilst at the same time making decisions that optimize your own gains when acquiring chips from the other players. Throughout the game, you are therefore periodically taking your chips off the table, while only betting a limited number so that you only ever have a small number of chips up for grabs at any given time. This is in essence what asset protection is, and what an offshore account is meant for. It is meant to allow you to take your chips off the table. It allows you to take your money out of the equation. So what are you protecting your money from exactly?
The reasons for protecting your assets and your money are numerous. If you run a business, then the contracts you constantly enter into whenever you complete a transaction exposes you to liability. Anything can happen. Mistakes can happen, unforeseen events can happen, all of which may affect your ability to perform your obligations under the contract. If you become exposed in this way, you can be sued, and if the person suing you wins, then the money which will be available to liberate the judgment against you, will be your companies assets. These assets will be either in bank accounts or may be actual physical assets, if the person suing you goes so far as to seek a winding up of your company.
Your personal assets may also be exposed to the general risk to you that is inherent in everyday life. You may be involved in a civil suit brought against you personally. Alternatively, market fluctuations may also expose your money to risk where your money is kept in a fund or pension. Finally tax liability and how much tax you expose yourself to “onshore” is another important consideration where asset protection is concerned. In fact, I would argue, minimizing your exposure to onshore tax liability and also general liability from civil action, are two concerns that go hand in hand in the context of asset protection. An offshore account, and structuring your company through an offshore IBC or Trust company, reduces the exposure to you for liability and protects these assets by removing them from the poker table and gives you control over which assets you reveal, and therefore expose as part of your wealth.
So how much wealth should you have before you start thinking about utilizing an offshore account? This is relative. It is a big misconception to believe that offshore accounts are for the super rich. I tell people all the time, if you have assets that matter to you, like money in a bank account that you feel you need to tuck away safely, out of reach from potential creditors, then you should be thinking about an offshore account. Many of these offshore accounts carry no charges on deposits, or monthly payments, and allow your funds to simply sit there out of sight and out of reach from “predators”. We have clients spanning the entire gambit of financial wealth, and each of these entities consider their offshore interests a means to protecting themselves and their businesses or their personal wealth. But wealth is relative. What’s that saying? One man’s ten thousand dollars is another man’s one million dollars. I of course made that up , but I think you get the point!
Finally, what if you are an American Citizen? FACTA or the Foreign Account Tax Compliance Act is the signature legislation passed in the U.S., that permits banks to release information on bank accounts owned or beneficially owned by American Citizens to the I.R.S. This is a requirement placed on the bank which holds the account and not the account holder. This means that the bank must automatically report the level of deposits held by American citizens where this amount exceeds US$50,000.00. It is not relevant to the reporting requirement, that the account is not actually in the name of an American citizen, all that is needed is that the account is beneficially owned by an American citizen. Ownership could be through a company or a trust or some other corporate structure the account holder has set up to open the account. From there, anyone with more than US$50,000.00 on deposit is reported to the IRS, and the bank will provide the account details of these individuals who are American citizens.
Despite the implementation of FACTA there is still a strong necessity to protect your assets if you are an American citizen. America is one of the most litigious Countries in the world and Americans constantly sue each other over business arrangements and civil disputes. There is definitely a strong incentive to take your most valued chips off of the table, in the event they are exposed to liability. Even if the IRS’s reach has been extended globally to every American on the planet, that does not mean in the commercial context, protecting your assets is any less important, especially when these assets become extremely valuable to you. This is where an offshore account can help you and this is why it is important to think about setting up an offshore company and corporate account even if you are an American citizen.
The point is that the world has changed. The global financial market does not end at your local main street and at your local bank. Banks exists to serve the same exact function all over the world. It just so happens that some of these banks are located in Countries like St Lucia, which offers a very low tax incentive. Technology has advanced now to the point where connectivity is in real time and services can be offered and transactions executed in real time and across international borders. We at FortGate pride ourselves by offering services to companies and individuals in all four hemispheres. We do this despite the time difference and despite the language barriers. The reason our clients do well is because we understand the nature of globalization, and we have embraced it. Our clients do well because they too have embraced it, and the success that follows is immeasurable.
Author-Tonjaka Ewart Kho-Hinkson-Barrister at Law, B.A. (Ont.), L.L.B (Lond.), BVC