Offshore and Onshore Banking – Know the Difference

What is Offshore?

The term offshore refers to a location outside of one’s national boundaries, whether or not that location is land or water-based. The term can be used to describe foreign banks, corporations, investments, and deposits.

A company can legitimately move offshore for the intent of tax optimisation, asset protection or privacy or to enjoy relaxed regulations. Offshore Structures can also be employed for entrepreneurs who carry out their businesses in countries that is within the same region to reflect the soundness and stability of the company, which can result in the feeling of trustworthiness, and the potential of your business growth.

Types of Offshore Banking Accounts

Offshore banking accounts are marketed and identified by various names. Although, they can be segmented into three broad groups :-

Commercial Bank Accounts (Offshore)

Commercial bank accounts are mainly used by companies, trading houses, exporters and importers, consultancy services and e-commerce companies for conducting day to day business functions. These accounts are distinguished by a large number of banking transactions inflow and outflow of funds as they are connected to the business of the company.

Furthermore, these accounts may need additional requirements like linkages to credit card terminals for collecting funds. The businesses can also at particular times need commercial documents like bank guarantees and Letters of Credits.

Because a massive number of primarily low-value transactions and the unstable amount of account balance, the Commercial Bank Accounts are not offered by various offshore banks that aim to offer specialised banking services only.

Private Offshore Bank Accounts

Private offshore bank accounts are a form of Private Banking Service where private banking through a personal relationship manager is offered to high net-worth individuals (HNWIs). These accounts can be opened under individual names, company names or the form of trusts and numbered accounts.

The private banking services target is to offer a wide range of banking services to the customer who usually deposits a very huge sum of money but has very less time to spare for banking services. Customers accessing private banking services are given individualised service and a massive range of banking services including brokerage, asset management, and investment banking.

Certain private bankers also offer VIP privacy protected service wherein the personal details of the account holder are given to a very select few and he is offered services by a senior manager of the Bank who handles of all his banking needs.

Offshore Retail Banking

Offshore retail banking denotes a massively plain vanilla retail banking services offered at offshore destinations to individuals and businesses. In these situations, the customers wish to understand the process of offshore banking by opening general accounts at offshore locations.

The services offered are usually similar to normal commercial banks with the associated benefits of the country where the bank is located. These services are best suited for the individual or businesses who are experimenting with the process of offshore banking and how they can benefit from it.

What is Onshore Banking?

Onshore banking is the banking activity which is undertaken within the jurisdiction and territories of a nation or a sovereign state. An onshore banking is nothing else but your typical branch of the bank in which you maintain saving or a current account. An onshore banking operates under the rules and regulations governing all banking institutions in this country.

Difference Between Offshore Banking & Onshore Banking

  • Privacy and Secrecy

For offshore banking, authorities, regulators and even governments cannot access information except few exceptions.

For onshore banking, there is a standard privacy and security policy.

  • Stability

For offshore banking, the stability remains neutral in any situation such as wars, economic up-down, rules and regulations and political changes. All these are not going to impact the account.

For onshore banking, all types of adverse conditions will impact the account.

  • Initial Deposits

For offshore banking, the initial deposit is in large amount.

For onshore banking, the initial amount is much lesser than the offshore banking account.

  • Flexibility

Offshore banking is highly flexible as it serves the particular services as per their need. It has a high level of personalisation.

Onshore banking is not flexible but it offers services up to a particular extent of personalisation.

  • Reputation of Client

Offshore banking has a high level of goodwill owing to high net-worth customers who deals in international trade.

Onshore banking has a normal level of reputation in the market because the customers are from the national boundary.

  • Tax Benefits

An offshore bank account has no tax or a negligible tax.

An onshore bank account has standard tax rules.

  • Rules and Regulation

Offshore banking has minimum rules and regulation.

Onshore banking has to follow standard rules and regulations of many authorities such as tax department, central bank and government.

 Labuan Banking Licenses

The Labuan Financial Services Authority (Labuan FSA) is the regulator and supervisory for investors applying for Labuan banking licenses such as Commercial Bank, Investment Bank, Digital Bank and Private Bank. When considering to apply for banking license in Labuan, our QX Trust team of consultants will guide clients at every stage of the license application. Prior to everything else, QX Trust team will conduct a feasibility study to facilitate clients in complying to all of the Authority’s requirements. Our team will also assist in all legal, compliance and financial matters, up to the final stages of approval including setting-up of a registered financial institution with the Labuan FSA.

Contact our QX Trust consultants for more insights on how to setup an offshore bank at +60 3 9212 6940 or and secure a free consultation today.