It’s tough to be a big company. Just ask Apple.
Facing the rumor of a massive iPhone 6 Plus recall, the company has yet to settle the lingering issue of tax evasion, which has raised a question: Is it legal to send over your business profits to an offshore bank account?
Apple was accused of receiving an illegal state aid in Ireland for more than 20 years, paying only 2 percent in tax. It’s raising eyebrows because other large companies headquartered in Ireland, such as Amazon, Facebook and Paypal, have to pay a rate of 12.5 percent.
But, obviously Apple is not the only one that is under the spotlight. Google was grilled for tax avoidance, only paying 2.6 percent for taxes in 2012, bringing almost all of its profits from overseas to a subsidiary in the tax-haven Bermuda.
Both Apple and Google claim that they are following the tax rules. It’s for the court to dedice.
For the general public like you and me, those allegations raised a big question: Does that make opening an offshore bank account illegal? Let’s find out about that. Read on.
What is offshore banking and why do you want to use the service?
Simply put, an offshore bank account is a bank account with a bank located outside your country of residence. Typically, the offshore bank is located in a favorable tax jurisdiction that offers various advantages.
Firstly, your benefit is typically but not always the lower tax rates. This is usually what attracts companies that want to secure their assets.
Corporate taxes, however, is not the only reason for forming an offshore company and/or opening an offshore bank account. Protection against your country of residence’s political and financial instability is also one of the main reasons.
The good news is, offshore banking is not for big companies only. An acquaintance at ICO Services dispels some myths that say offshore banking is for large companies. It’s not. It’s a misconception that many people have.
Is offshore banking legal? If so, why all the fuss with the tax evasion and all?
The short answer is: Yes, it’s perfectly legal. But some use it for illegal purposes.
Here’s the long answer: Opening an offshore bank account is perfectly legal. Unfortunately, companies – even the legitimate ones – are too creative with their financial management, exposing them to the risk of tax avoidance lawsuit.
Yes, people can use offshore banking for money laundering and other illegal activities, but that’s for those who up to no good. For those who just want to cut their taxes and other asset protection benefits, they need to be careful. Or else…
So, what’s making offshore banking legal or illegal?
It’s pretty straightforward: You could be doing something illegal if you are not declaring your offshore assets to the local tax authority in the country of your residence (reference).
It’s all about your personal intention; if you are taking your business assets to an offshore bank with the intention to hide your assets from the Government, then you are playing with fire.
Why? Today, offshore financial institutions are under massive pressure to disclose client information. Offshore jurisdictions’ key benefit of privacy is diminishing in value, in my opinion. You need a better reason to stay legit when opening an offshore bank account.
Legal/illegal issue can be both a straightforward and complex issue at the same time. If you want to stay away from the risks of acting illegally, then you should comply by reporting your oveseas assets. If you want to do things in between the lines or through loopholes, you need to do so with great caution.
As always, this article is not meant to offer any legal advices. Be sure to do your due diligence: Consult with the right lawyer and trusted company formation service provider to help you consider your options.