‘I have a bank account in an offshore tax haven.’ If you had heard the phrase from somebody several decades ago, you would have probably thought that the person was a fraudster who laundered criminal money and evaded taxes.
You might have had a reason for making such an assumption: it is true that offshore tax havens were previously used for illegal financial operations. Where do things stand now? First, very few tax havens remain in the modern world. Second, it has become impossible to launder money and evade taxes with the help of offshore bank accounts. International efforts have (almost) put an end to such practices.
Few as they are, some tax havens still exist on the planet and probably the best known tax haven is the Cayman Islands in the Caribbean. If you establish tax residence in the jurisdiction, you will be able to reduce your tax liabilities almost to zero. Income tax, corporate tax, inheritance tax, and many other taxes charged elsewhere are NOT charged in the Caymans.
Opening a non-resident bank account in the Cayman Islands would bring many benefits but you have to realize two important things from the start. First, setting up a non-resident bank account in the jurisdiction is a task that is difficult to accomplish. Second, banking in the Caymans is comparatively expensive.
What is the legal status of the Cayman Islands?
It is an overseas territory of the British Crown with a high degree of autonomy. You might think that lack of independence makes Cayman Islands a second-rate territory as the ultimate political decisions are made in the faraway Great Britain. However, the UK authorities have seldom interfered in what is going on in the Caymans and the islanders have been left to themselves most of the time. Moreover, the international reputation of the United Kingdom actually gives a nice backing to its overseas territories including the Cayman Islands.
As you know, the UK lost a number of its former colonies in the 20th century. In particular, a number of Caribbean islands that used to be British colonies before are independent states today. Are they doing any better than the islands in the region that are still under British governance? Not necessarily. To be frank, not at all! There is a historic anecdote that is indicative of how people in former British colonies in the Caribbean feel sometimes.
At one point, Anguilla, St Kitts, and Nevis broke away from British rule and formed an independent association of three islands. Later, the people of Anguilla decided that they did not want to be independent. They thought they should return under the wing of Great Britain and so they did. St Kitts and Nevis is an independent country now while Anguilla is a British overseas territory.
The anecdote shows that for some Caribbean people, the UK is a pretty nice ‘master’ to have. Not speaking of the country’s military power, Great Britain has a strong economy with a highly efficient banking sector in particular. The UK was a member of the European Union for a while but the country had never even thought of joining the Euro Zone. Why?
Because the British banking system is much better balanced than the banking systems of European countries and the UK would have suffered economic losses if it had adopted the euro. (We are not saying ‘of other European countries’ because the British don’t refer to themselves as ‘Europeans’.) Thus, the fact that the Cayman Islands is part of Great Britain for legal purposes is an advantage of the territory, not a disadvantage.
Banking in the Caymans would be highly beneficial but certain difficulties are associated with setting up a bank account in the jurisdiction. Non-resident banking opportunities exist in the Cayman Islands but it may be hard to make use of them. That is to say, local banks prefer providing services to local residents or foreigners who have some sorts of ‘ties’ with the islands.
The notion of ‘ties’ is rather ambiguous and it can be interpreted in different ways by different bank administrators, which doesn’t make things any easier. What can qualify as a ‘tie’ with the Caymans? If you have a legal residence permit there, you will certainly have great chances to set up an account with a local bank.
The Caymans has a residence-by-investment program (that is, you can ‘buy’ a residence permit) but the required investment amount is high. A less expensive way of acquiring a ‘tie’ with the islands would be participating in a local business venture. Thousands of companies, trusts, and hedge funds are registered in the Cayman Islands and even though their founders are foreign nationals, the companies, etc. are considered Cayman-based anyway.
In addition to that, you can qualify for opening a bank account in the jurisdiction if you have some relatives there. You might think of marrying a local person, for example.
The second obstacle to banking in the Caymans is the high cost of banking services that you will find there. The economy is prospering, the sun is shining, and the sea is warm… They are not desperate for foreign direct investments in the Caymans. The quality of banking services is superb there: it is the fifth largest financial center in the world. But because the Caymans offer elite banking opportunities, the costs of financial services are high.
The Cayman Islands is not for everybody but there are other places for offshore banking that deserve your attention. As far as the Caribbean goes, you can consider setting up an offshore bank account in Belize or Nevis, for example. This opportunity may look especially attractive if you also register a company in the respective country. Besides, there are some interesting options in Eastern Europe.
Banks in Serbia, for instance, offer high interest rates on deposits by the European standards. Banks in Georgia and Armenia will gladly take international clients onboard without putting forward any strict requirements. Even though banking in the Caymans would be superb, there are other offshore banking opportunities that you should also consider.