What are tax havens and offshore bank accounts? and 2625-23 World Bank

What are tax havens and offshore bank accounts?

I have 3 questions for you.

Q1) How can the countries get funds to run the country?
Q2) What are offshore bank accounts?
Q3) Are offshore bank accounts illegal?


bank best answer:

Answer by Nomad
1. Tax havens function somewhat differently than the country you probably live in. Places like the Cayman Islands, Seychelles, or Labuan in Malaysia are small jurisdictions with small populations. They may not have a lot of natural resources that can be exploited. That forces them to come up with other ways to make money. These countries allow you to start a corporation there and pay annual fees (and usually, pay lawyers there to help you, hence stimulating the economy) which go into their coffers. They also allow for "trading" at no or very low tax rates, which helps bring money through their economy.

2. Offshore bank accounts are bank accounts in a jurisdiction other than your own. While "offshore" tends to refer to international financial centers that specialize in attracting foreign money for banking purposes, it's somewhat nebulous. The term "offshore bank account" has taken on a somewhat shady implication because it has been associated with hiding money or evading taxes. But you can open a bank account in the Cayman Islands, Switzerland, Hong Kong, or anywhere else and be fully compliant with all laws.

3. In the United States and most other places, yes. At least for now. For US citizens/residents, you must complete as many as several IRS/US Treasury forms each year depending on the value of your accounts. There is no such think as bank secrecy for Americans; you must report basically any account you have, any you must report any interest earned from said account and pay tax on it. However, having such an account is not per se illegal. There are, however, restrictions that governments are imposing to make it more difficult to move money abroad. Look at what's happening in Cyprus and how people aren't allowed to take money out of their bank accounts or out of the country. I suspect these will serve as indirect deterrents to offshore banking going forward.

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2625-23 World Bank


Image by World Bank Photo Collection
Machava BCI Bank Autobank Counter staff. Mozambique. Photo: Eric Miller/ World Bank

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