An overseas bank account refers to a bank account you have in a country you don’t reside in. This type of bank account can be used for a host of financial transactions, including making and receiving payments, holding money, and establishing savings and investment accounts in various foreign currencies.
Why Open a Foreign Bank Account?
A foreign bank account is an excellent method of managing in various jurisdictions. This is especially beneficial among individuals and other entities that perform international transactions on a regular basis. Convenience is a major selling point of setting up an international bank account; hence more private investors are keen on setting up their own in attractive jurisdictions.
As a responsible client, it is important to do your due diligence and research about existing banking and regulatory legislation in the country where you intend to open a foreign bank account.
The Importance of International Banking in the Global Financial Sector
There are negative connotations when foreign banking comes to mind. While it is true that some members of the ultra-rich exploit international banking to funnel their wealth to avoid tax assessments or money laundering purposes, the process of opening a foreign account is founded upon a strict set of legal and regulatory provisions. It’s high time that the general public leans the many benefits of opening a foreign bank account and how it can be put into good use.
Things you Need to Know about Foreign Bank Accounts
- A foreign bank account is any account that an individual may hold outside his country of residence.
- Standard financial institutions such as banks offer the opportunity for any individual to open a foreign account.
- You don’t need to be extremely wealthy to open an international bank account under your name.
- The most common foreign account holders are as follows: individuals who are (1) working overseas, (2) spends a good chunk of your time traveling across multiple countries, (3) or regularly transfers money between countries.
- Depending on the country, foreign bank accounts come with their own sets of financial and legal advantages.
- Reduced tax rates are one of the major selling points of opening an international account in certain jurisdictions. Just like a standard bank account, a foreign bank account is typically a savings account and requires a minimum initial deposit upon establishment.
Countries that are globally recognized to have excellent banking provisions among foreign account holders include Switzerland, Singapore, Cayman Islands, and Belize among many others.
Foreign Bank Account Types
- Savings Account
International savings account that can either be a fixed or variable rate account.
- Variable Savings Account
- Fixed Savings Account
Fixed time period, wherein a bank account holder must have the money untouched in their account for one to five years before they are legally allowed to use it for different transactions.
- Debit Cards
- Credit Cards
Unless you own a multi-currency bank account, the type of currency that will be issued is that which is used by the country where an account was opened and is currently held.
All foreign bank accounts are equipped with robust features, including Internet banking, affordable international transfers, and complementary services, including the acquisition of loans and insurance services.
Foreign bank accounts are highly beneficial among international investors who have set up a company outside their country of residence.
The Major Selling Points of Opening and Maintaining a Foreign Bank Account
- Manage accounts in different currencies. You can send and receive payments in various currencies with a foreign bank account under your name.
- Foreign exchange or FOREX feature present in most foreign bank accounts enables account holders to fix currency prices ahead of time. When you deal internationally, having an international bank account will be advantageous to you in the long run.
- Manage financial transactions in various countries using a single bank account simplifies daily financial activities.
- Opening a foreign bank account in a country with an attractive banking system and stable financial landscape provides added security and safety for bank account holders.
- Prepare your finances in a new country where you plan on relocation in the near future.
The Benefits of Opening an International Bank Account
- Highly flexible, easy, and access to your money. You can complete foreign financial transactions smoothly with an international account as opposed to facilitating transactions using your domestic bank account.
- Opening a bank account in countries known for their attractive banking system offer higher interest rates and lower taxes than traditional domestic accounts.
- Having multiple foreign accounts in different countries will enable you to invest in promising opportunities in multiple jurisdictions.
- Foreign bank accounts enjoy a greater level of security and privacy than accounts held by your domestic bank. Account holders take advantage of confidentiality agreements, which means your personal information will not be sold or shared to third-party companies.
The Drawbacks of Opening an International Bank Account
- Higher minimum initial deposit. Additionally, bank account holders are deemed to maintain a certain amount of money in their account to avoid expensive banking fees.
- Banks that offer international bank accounts to foreigners usually assess higher transactional fees and administration fees.
- While foreign accounts are typically protected security features in financially unstable nations, money in bank accounts are not wholly protected by guarantee provisions.
Step-by-Step Process of Opening a Foreign Bank Account
The process of opening a bank account in a foreign country is identical to opening one in your home country. You are required to provide the same set of personal details, including full name, address, date of birth, and primary contact number.
Other documentation that an applicant needs to submit to open a foreign bank account are as follows:
- Copy of passport
- Valid ID photo
- Proof of residence
- Proof of income
Banks that allow the opening of international bank accounts are more strict in their application. Depending on the financial institution, you may be required to submit additional documents to be deemed eligible to open a bank account:
- Bank statements and references from your domestic bank account
- Documents that prove source of income and finances overseas
- Comprehensive information on your day-to-day financial transactions
- Related documents relevant to the type of account you plan to open overseas. For instance, if you are looking to open an investment account, you will be required to submit documentation of your existing real estate transactions.
- For international banks with a set initial deposit requirement, additional documentation is required to guarantee that this condition can be met.
Available Currency Options for Foreign Bank Accounts
- When you open an international bank account, you need to decide on the specific currency you wish your money to be held in.
- Your chosen currency will influence the interest rates and the total value of money you have stored in your account.
- Majority of foreign banks offer multi-currency options. Bank account holders can perform financial transactions in their chosen currency, regardless of the country where the funds are held.
- Before choosing the multi-currency option, be aware that transacting using various currencies correspond to different fee amounts as well.
Foreign Bank Account Utilization
Setting a foreign bank account does not happen by impulse or on a whim. In majority of cases, foreign account bank account holders use their accounts for business and financing purposes.
International current accounts allow account holders to withdraw money on a daily basis. Make sure to understand that most banks will still set a withdrawal minute regardless of the amount of cash in your account. On the other hand, international savings account usually comply with a few restrictions on certain transactions.
Before processing any transaction using your foreign account, it is imperative to check their corresponding fees. Remember that transacting using multi-currencies are subject to higher processing fees. Event ATM payments are assessed with higher fees if you withdraw funds from an international bank account while staying in a different country.
The Legality of Opening an International Bank Account for Non-Residents
The foreign banking scheme is 100% legal. Established banks that have locations in various countries offer international banking as a standard service to all of their clients. Strict compliance to banking rules is a must if you wish to maintain a foreign bank account in the long run.
It is prohibited to use foreign bank accounts for any illegal transactions that include:
- Opening a foreign bank account to evade tax payments in your home country.
- Stash funds that were undeclared to local tax authorities.
- Keep money generated from illegal transactions or activities.
Certain tax provisions may seem complex in certain countries. With this in mind, it is important to check the existing legislation in your country of residence to establish strict adherence to the law.
Foreign bank account owners caught using their international accounts for illegal purposes will be assessed with heft penalties, or worse a jail sentence when found guilty.
Greater Level of Security in International Bank Accounts
When you open a bank account in a country renowned for its stable economy, you will enjoy a higher level of safety and security.
However, if you open an account in a country with a less stable economy or political landscape, your funds are not wholly protected by guarantee schemes.
You will need to seek expert advice on which countries offer superior level of protection for foreign bank account holders.
Tax Implications when Opening an International Bank Account
- Interest earned on foreign savings account are usually tax free, but the interest earned usually have set limits. Any interest earned above the limit are required to be declared to the concerned tax authorities. Non-compliance to this rule result in expensive penalties.
- The delay between the time your account has earned interest and tax payments means you end up accumulating funds through interest earned on your account. This can mean the interest you earned may end up paying taxes altogether.
- It is important for bank account holders to check any double tax treaty between your home country and the country where your funds are held. This will help you avoid paying twice on your taxes.
International Banking Apps
As mobile or online banking transactions is slowly growing in popularity, banks that offer international banking have successfully integrated the use of banking and investment apps to better cater to their clientele.
International banks now offer consumers the opportunity to open their own investment account in exchange of a low monthly fee. Most international banking and investment apps come with detailed guidelines on how to use the program, making it a suitable investment platform for first-time investors.
At the same time, international banks create streamlined and easy-to-use apps for bank account holders to manage their accounts with a few taps in their phones. Bank account holders can process transactions without having to go to a physical branch or accessing information through desktop.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.