About Expatriate Offshore Banking For US Citizens
As a US expat tax firm, we are regularly asked about expat offshore banking, best overseas countries, and banks for US citizens and incorporation. It’s a well-known fact that a right bank can save money for full-time US expats and US citizens traveling abroad over an extended period. Many Americans living (semi-)permanently abroad are looking into ways to invest through financial institutions either in their place of residence, in popular financial city centers or in offshore destinations. When choosing a bank, everyone usually pays attention to following criteria:
- Ease of opening,
- Investment access and liquidity,
- asset protection,
- foreign transaction fees,
- exchange rate used to convert foreign transactions to USD,
- wire transfer charges,
- customer service etc.
Read further if you want to learn more about opening an overseas bank account as an American abroad.
Where Are The Best Overseas Banks For US Citizens? Countries And Tax Rates
Before we name our best overseas banks for US citizens, let’s take a quick look at what actually offshore banking means. First things first – opening an offshore bank account is 100% legal and is available to anyone who meets the requirements. There is a common misconception that offshore banking is illegal, used for money laundering or tax evasion but actually, the official term “offshore banking” means having a bank account outside of your residence country.
The advantage of offshore banking #1: Having an offshore/overseas bank account means protecting yourself from government intervention and political risk to your savings.
Higher returning investments are also available in overseas bank accounts when you are trading the foreign markets, buying real estate etc. For instance, according to data from 2016, the best real estate markets were all abroad in countries such as Colombia, Panama and not in the US.
Hong Kong is popularly cited as an ideal place to open a bank account and incorporate. It’s not particularly easy to bank there yet it’s possible to US citizens with local operations there. However, operating in Hong Kong subjects you to HK income tax at 15%. The country doesn’t impose a tax on those with no Hong Kong income but it’s hard to qualify for this exception. You can open a bank account with minimum deposit requirements of $1,300. Country’s banking system is sound by the global standard as the banks in Hong Kong are extremely liquid and well-capitalized while the government’s “net savings” exceeds 350% of GDP.
Singapore ranks high in offshore banking ratings. The country won’t become broke any time soon with net assets over 100% of GDP. Just the fact that Singapore has never had a banking failure in its history already wins over many other popular offshore banking countries. It used to be a perfect destination for you to open an overseas bank account there but it has gotten much harder. Singaporean banks don’t want the hassle of FATCA reporting. But if you are a wealthy US citizen, who can deposit $250,000 to open an account, or you are a legal resident there, you may be able to find a bank to help you out.
Belize is an easy place to both bank and incorporate. It’s not prestige as Hong Kong or Singapore but it doesn’t have the income tax, Belizean international accounts are not subject to local taxes or exchange control restrictions. Don’t worry about the privacy as the international banks in Belize only cater foreign clients thus having high privacy standards.
Estonia offers an e-residency program, which allows you to open and operate an Estonian corporation and bank account remotely. It has a tax rate of 20% but it only applies to earning actually distributed.
Speaking about incorporation, British Columbia in Canada has an interesting offer of partnerships and corporations to non-residents by paying out all the earnings in the form of wages to officers (i.e. you). Also if services were performed outside of Canada, then you wouldn’t have any tax to pay. However, the corporation still has to file a tax return and wages would be a subject to reasonable compensation rules.
Expat Banking Advice For US Citizens Overseas
One of the most important things every US citizen, who is planning to bank abroad, needs to know about is how it impacts your US tax obligations. Our expat banking advice for US citizens overseas is simple: be aware of FBAR and FATCA reporting.
Many US expats or dual citizens don’t even know they have to file a tax return with the IRS, so it’s fair they may have never heard about Foreign Bank Account Reporting (FBAR) and FATCA reporting.
- FBAR refers to FinCEN Form 114. You need to file one if you are a U.S. citizen or a Green Card holder living abroad, who have individually or jointly owned a foreign financial account or a signature and other authority over, with an aggregate value exceeding $10,000 at any time during the calendar year.
- FATCA (The Foreign Account Tax Compliance Act) is a law which reflects the US governments to combat offshore tax evasion. The law also requires financial institutions in foreign countries to report information about accounts held by US people to the US government.
- You need to submit a Form 8938 if you have more than $200,000 of specified foreign financial assets at the end of the year and you live abroad. This applies to those who are married filing a joint income tax return and the total value of your specified foreign financial assets is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year.
The advantage of offshore banking #2: Now as you know about US governments efforts to track all your money in foreign countries, you care about your security from the IRS. When you open an overseas bank account, you better focus on offshore banks without U.S. ties, so that IRS can’t seize your account. You still need to file tax returns and submit forms as you don’t want to deal with FBAR/FATCA penalties.
It’s difficult to put a finger on one option of expat offshore banking or best overseas bank for US citizens, and we strongly recommend everyone to seek for a professional tax advice before proceeding with banking abroad. The above-mentioned countries to bank offshore for US citizens were included based on our own experience and knowledge. Would you like us to help you?
The advantage of offshore banking #3: With currency diversification, you increase opportunities and/or reduce risks since no bank can guarantee 100% security, you shouldn’t deposit everything in one currency and one bank. Only a high percentage of security can be achieved, which is why it makes sense to diversify your assets. Since it is impossible to predict exchange rate movements with any accuracy, spreading funds across sterling, euro and dollar accounts might reduce the risk of being caught out by any sudden swings. For those with income and outgoings in the same currency, it can eliminate the burden of exchange costs that result from the gap between currency buying and selling rates. Multiple currency accounts can be beneficial to those with an international wealth profile. A multi-currency offshore account can also make hedging against swings in currency easier.
Final Expat Offshore Banking Recommendations
If you are an American citizen or a Green Card holder and you’re moving overseas for work, retirement or simply to start a new life abroad, then it’s important to keep on top of your finances. Expat offshore banking can help, making it easier for you to manage your finances in multi-currencies. Most importantly, don’t forget about your US tax obligations and how offshore banking impacts your tax situation!
Have a question? Contact Olivier Wagner.
Your comments are always welcome!