Is it worth opening an offshore account? From the many perks of opening an account to how you can apply for one, we give you the deets on offshore banking.
Relatively high net worth? Frequently travel abroad for work? Instead of jumping straight into priority banking that requires a large amount of funds to be deposited or transacted with the bank, maybe you’d prefer a no-frills alternative: offshore banking.
Even if you don’t travel often, you may still be able to benefit from an offshore account. Higher interest rates? Check. Ability to diversify your portfolio? Check.
Whether you’ve been thinking of applying for one or are simply open to the idea of it, here’s a lowdown on all you need to know about opening an offshore account in Singapore.
What is an offshore bank account?
For the uninitiated, offshore banking might seem like an obscure, highly-exclusive type of banking that not many can access. But to put things simply, an offshore bank account is just a bank account that doesn’t belong to your home country.
However, not anyone can apply for one. Most offshore accounts require a large sum of money, usually about US$200,000 or S$350,000 of fresh funds, depending on the currency and bank.
Once you cross this hurdle, you’ll be able to benefit from the many perks that offshore accounts bring. Here are some advantages to opening one.
Pros of opening an offshore account:
#1 Attractive tax benefits
Opening an offshore account may entitle you to lower taxes and tax deductions as compared to when you open a bank account in your home country, with some offshore accounts even imposing no taxes at all.
You won’t have to worry about double taxation either, since Singapore has Double Taxation Agreements (DTAs) with over sixty countries including the United States, so be sure to check beforehand.
However, be sure to consult a tax advisor beforehand as opening an offshore account would change the way you file taxes, and may require you to notify the tax authorities well beforehand. If you do not file your taxes properly, you may come under suspicion of tax evasion and get into trouble with the law.
Regardless of where you put in your money, you’ll always want to make sure that your money is safe and protected. If you open an offshore account in Singapore, not only does it always have strong regulations set by the government, but you can be assured that your assets are safeguarded.
This reduces the risk of having your assets seized, eradicating the chances of your funds being disrupted due to the downtime of your portfolio.
Most people open offshore accounts mainly due to the convenience as well. If you’re always travelling to Singapore for business trips or have a child who will be studying abroad in Singapore, having an offshore account will be highly beneficial.
Imagine being able to easily access your funds via the various ATM machines strewn all over the island, and having 24/7 access regardless of time zone or geographical location. There are also service utilities like internet banking to help you get hold of your funds anytime.
Cons of opening an offshore account
#1 Requires a large capital
One of the largest drawbacks would be the high capital you need to get started, (usually around US$200,000 or S$300,000, depending on each bank). This creates a rather high barrier to entry.
On top of that, locking in a huge sum of money into the account would entail opportunity cost, which can instead be invested in a robo-advisor or stocks, or saved in a cash management account or endowment plan, which usually have higher interest rates. Alternatively, you can also look into a savings account that promises higher interest.
It may be a bit of a hassle if you’re not used to the country that you’re applying for an offshore account in. It will be even harder if you don’t speak the language. On top of that, some offshore banks require you to send over physical documents via mail.
However, if you’re applying for one in Singapore, they can mostly be done entirely online.
Considerations to take note
#1 Check if the banking options are sufficient
Find out the exact process for depositing or withdrawing money from the account. With some offshore banks, the process can be extremely complex and time-consuming. For example, some banks will demand that you be physically present to withdraw sums above a given amount.
Likewise, depositing money is an inefficient process for some banks. They may require you to wire the money over via an alternative service, which will incur fees.
If you are going to live or work in Singapore, consider the accessibility of ATMs. You don’t want to pick a bank that has only five ATM machines, and end up driving downtown every time you need to retrieve cash.
Choose a bank that has a robust online banking and investment platform. This will also go a long way in terms of convenience.
#2 Check reviews of the bank
Listen to what Singaporeans have to say about the bank you’re interested in, and if you can, contact them to get their opinion. There may be a disparity between what the bank claims it can do and how it actually operates.
For example, a bank may claim to offer free financial advice. But a quick conversation with existing customers may reveal the ‘free advice’ is really just a sales pitch to get you to buy their products, and you are better off looking for an alternative.
In particular, check news reports of the bank in question, and look out for any negative ones. A bank with a sound reputation is what you are looking for.
#3 Compare fees
Banks have different fee structures for holding your money or making transactions. Always ask about:
- The fee for maintaining your deposit (there is often a fee imposed if the amount deposited falls below a certain threshold)
- Fees for currency exchange
- Fees for deposits and withdrawals, particularly if they are made overseas
- Fees for investment transactions, such as buying or selling shares
You must have a clear objective of what you want the offshore account for. This will allow you to zero in on the fees that matter most to you. If you will be frequently sending money to your child studying abroad, for example, you’ll want to assess the funds transfer fees.
How do you open an offshore account?
It differs for different banks and different countries, but for Singapore, they can mostly be set up online.
Be sure to prepare your necessary documents such as your passport, identification details like your social security number, NRIC or driver’s license, proof of address (that can normally be found on your home ownership papers or utility bills), and bank statements that range from six months up to a year.
Depending on the country and bank that you’re applying with, you may be required to submit your documents via mail with an apostille stamp, which you’ll have to obtain from your local government for the sole purpose of verifying your identity.
Is it worth it?
This can be really worth it for investors who are looking to diversify their portfolio with foreign currency, or frequent travelers who are always on business trips, and, of course, have sufficient cash to meet the requirements.
A key thing to note is the stability of the country. Be sure that the country that you’re looking into opening an offshore account with is reliable with strong regulations in place to ensure that your assets are safeguarded.
However, if you’re looking to grow your wealth, your money might be better off invested in a robo-advisor or a brokerage instead, with much higher projected returns.
Read these next:
Best Savings Accounts In Singapore To Stash Your Cash
Best Alternatives To Savings Accounts In Singapore (2021)
Differences Between Bank Account Types You Need To Know
A Full Guide To Priority Banking In Singapore (2021)
Comparing The Returns & Fees Of The Top Robo-Advisors In Singapore (2021)
By Deborah Gan
A mahjong addict with an undying love for dogs, Deborah is always on the hunt for cheap deals because she is always broke. That is why she is attempting to be more financially savvy to be.. less broke.