An offshore bank account is good for holding cash for many reasons, including Privacy, Flexibility and to a degree Safety. For the majority of ‘Offshore’ account holders they are a completely legitimate way of managing their own affairs with a high degree of privacy.
The fact that many depositors considered them ‘Tax Efficient’ by not actually declaring the income is not a real benefit of offshore banking, it’s criminal. Hiding money and evading taxes might have worked in the past but the future looks very different.
Transparency is certainly important when it comes to combating criminal activities, but the privacy provided by offshore accounts was a major and legitimate benefit for many holders .
The reasons for seeking privacy are many and varied and come down to individual choice, but the advent of the ‘Common Reporting Standards’ are now removing that choice and privacy goes out of the window as information on accounts is freely transferred between different countries.
The ‘offshore’ account will of course survive as the erosion of privacy doesn’t affect the flexibility, and the ability to transact high volume business quickly and efficiently is still valid and of great importance.
However, it is still worth considering the way we view things and look at the opportunities and options available in adjusting the way things are set up.
The EU commission seem to be advocating ‘Ring fencing’ retail banking from the trading activities of a bank to remove contagion and risk to depositors.
The possibility to apply that same sort of system and ‘ring fence’ longer term cash deposits exists using a properly constructed Private Placement Life Insurance contract. (PPLI)
In doing so it often takes that money outside the scope of the reporting legislation and provides the privacy previously enjoyed by an offshore account holder. It effectively splits your account so you keep the flexibility of the account you have by retaining sufficient funds to meet your needs whilst segregating longer term deposits or dormant cash.
Cheque book & debit card for use as normal
Cash is Ring Fenced and Protected
PPLI is fully compliant, universally recognised and currently falls outside the reporting requirements in most jurisdictions, including Russia.
I mention Russia because Privacy and Security seem to be top of the list for Russian clients and the RF Government are introducing a formal reporting procedure for their residents Foreign Accounts and this looks likely to become effective as from January 2016.
Of major significance is the obligation to disclose movements on their foreign accounts and consider the ‘permitted source’ rules. In general, interest and dividends can be credited to foreign accounts but sales proceeds cannot, they must be routed through the residents Russian bank account first. Failure to comply can lead to huge fines of up to 100% of the transactions!
It would therefore make sense to consider setting up any investment portfolio inside a Private Placement contract that can hold a dedicated fund with a portfolio managed by your existing portfolio manager. It can be done and removes the risk of fines, maintains the privacy and protection with the added benefit of making the portfolio tax efficient!
A PPLI contract is not a replacement for an offshore bank account as it is not for day to day use, but as a supplement it can add a lot of valuable advantages. Privacy, Security, Tax Efficiency, creditor free, safe from Government intervention or bank failure and the ability to nominate and change beneficiaries whilst avoiding probate are some of the benefits of PPLI.
There is no instant answer or one quick and easy solution to every need, however, whilst there are still opportunities to protect yourself and your clients they should be seriously considered. For longer term deposits or managing an Investment portfolio, Private Placement contracts make a lot of sense and they can also be integrated into an existing International Trust.
Tax Free Interest
Avoid Tax Return reporting*
* In most countries an entry is not required on a tax return for PPLI where no money is withdrawn
**Bank accounts within the EU provide maximum protection of €100,000. PPLI can guarantee up to €40 million