What an offshore account actually is — and the two very different things people mean by it

An offshore account is an account held with a financial institution outside the country you live in, or outside the country your company is registered in. That is the entire definition. Everything else the word suggests - secrecy, complexity, somewhere warm with a flag - is reputation rather than meaning.

This page explains what the term covers, how such an account actually works, whether holding one is legal, and the distinction that causes most of the confusion: personal offshore accounts and business accounts held in another jurisdiction are different products, used by different people, for entirely different reasons.

An account is offshore when the institution holding it is in a different country from the person or company that owns it. A British resident with an account in Jersey has an offshore account. So does a Portuguese company with an account in Lithuania, and so does an American living in Singapore with an account back in the United States - offshore is relative to you, not to any particular place.

Nothing in the term implies a tax arrangement, a shell structure or a jurisdiction chosen for its discretion. Those things exist and the word has been attached to them for decades, which is why it now carries a suggestion most of its ordinary uses do not deserve.

In practice an offshore account is an ordinary bank or payment account. It has an account number and usually an IBAN, it is held with a regulated institution, and it is opened only after that institution has verified who you are and what the account is for.

Almost every article written about offshore accounts is about one of two situations, and they have very little to do with each other.

The personal one. An individual holds money outside their own country - because they have moved abroad and still have ties at home, because they are paid in a currency their domestic bank handles badly, because they live in one country and their family is in another, or because they want savings held somewhere with a different currency or a different banking system. This is what the offshore savings accounts, the expatriate banking services and the comparison tables are for. It is the older meaning and it is the one most search results are about.

The business one. A company registered in one jurisdiction holds an account with an institution in another. A Cyprus company banking in Lithuania. A Dubai company holding euro. A Canadian company that invoices European customers and needs euro settlement. This is not exotic and it is not a structure - it is what happens when a business operates across borders and its domestic bank cannot hold the currencies or reach the payment networks its customers use.

The two get written about as though they were the same thing, and they are not. They involve different providers, different documentation, different regulation and different reasons. If you are reading this because you run a company registered somewhere other than where you want to bank, most of what is written about offshore accounts is not addressed to you.

Yes. Holding an account outside the country you live in, or outside the country your company is registered in, is legal. Millions of people and businesses do it for reasons that have nothing to do with tax - they moved, they trade abroad, they are paid in another currency.

What is not legal is failing to declare income or assets you are required to declare. That has always been the distinction, and it has nothing to do with where the account is: undeclared income in a domestic account is the same offence as undeclared income in a foreign one.

It is also worth knowing how much the picture has changed. For years now, financial institutions in most of the world have automatically reported account information about non-resident holders to the tax authorities of the countries those holders live in, under an international framework agreed for exactly that purpose. The secrecy the word "offshore" still implies has not described how these accounts work for a long time. An account in another country is visible to your own authorities as a matter of routine, not as the result of an investigation.

What any of that means for your own tax position depends on where you live and where your company is registered, and it is a question for an accountant in that country rather than for a payments provider.

Mechanically, it works like any other account, and the differences are narrower than people expect.

You apply, and the institution carries out its due diligence - identity, address, the source of the funds, and for a company the ownership structure and the nature of the business. This is usually more thorough than a domestic application rather than less, because the institution has less context about you. Anyone offering to open an account without it is not offering a regulated account.

Once open, the account has an identifier - an IBAN in most of Europe, a local format elsewhere - and sends and receives payments through whichever networks that institution reaches.

Three things do genuinely differ. The regulator is the one where the institution sits, not where you sit. Deposit protection, if it exists at all, is that country's scheme and its limits, which may be lower than you are used to or absent entirely. And the payment networks the account reaches determine a great deal about how it behaves day to day - an account holding euro inside the SEPA area moves money very differently from one that converts euro on arrival.

The reasons are ordinary and there are only a few of them.

The customers are there. A company selling into Europe gets paid more reliably and more cheaply with a euro account inside the payment area than with a euro balance converted into something else on arrival.

The company is registered there. A business incorporated in one jurisdiction frequently cannot get banking in it - not because anything is wrong, but because local banks will not take a company with no local operations. The account then has to be somewhere else by necessity.

The currency is there. Holding the currency you invoice in removes conversion from every transaction rather than paying for it on each one.

The domestic bank cannot do it. Plenty of banks are excellent domestically and poor at cross-border payments, multi-currency balances or anything involving a company registered abroad.

None of those is a tax reason and none of them requires a structure.

It is worth being direct about this, because the internet is not.

It is not for anyone whose reason is that they would rather their own authorities did not know. That no longer works, as above, and it has not for some time.

It is not for anyone shopping for a jurisdiction that will ask fewer questions. Regulated institutions ask the same core questions everywhere, and the ones that appear not to are either unregulated or about to ask them later, at a worse moment - typically after money has arrived.

And it is not for anyone who expects to open an account without documentation. Every legitimate provider, Keytom included, verifies the people behind a business before it opens anything. A provider that does not is a provider whose other customers were not verified either, which is a problem that eventually becomes yours.[What we ask for and why]

What is an offshore account?

An account held with a financial institution outside the country you live in, or outside the country your company is registered in. It is defined by the relationship between you and the institution's location, not by any particular country or type of account.

Is putting money in an offshore account illegal?

No. Holding an account in another country is legal. Failing to declare income or assets you are required to declare is illegal, and that is true whether the account is foreign or domestic.

What is the difference between an offshore account and a normal bank account?

Mechanically, very little. The differences are which regulator oversees the institution, what deposit protection applies, and which payment networks the account can reach. Due diligence on opening is usually more thorough, not less.

How do offshore accounts work?

You apply to an institution in another country, it verifies your identity and, for a company, its ownership and business activity. Once open, the account has an IBAN or local identifier and sends and receives payments through the networks that institution reaches.

Do I need to be wealthy to open one?

No, though some private banks and expatriate services set high minimums and that is where the association comes from. Business accounts in other jurisdictions are ordinary commercial products without a wealth requirement.

Is an offshore account the same as an offshore company?

No, and conflating them causes a lot of confusion. An offshore company is a company registered in a particular jurisdiction. An offshore account is an account held outside your own country. You can have either without the other, and most businesses with an account abroad are registered perfectly ordinarily at home.

Can a business open an account in a country where it has no office?

Often yes, with a payment institution; frequently no, with a traditional bank. It depends on the provider and on the jurisdiction the company is registered in, and it is the single question worth asking before starting an application [→ /blog/business-banking/offshore-business-accounts].

Keytom provides euro and US dollar accounts to businesses registered in a range of jurisdictions, which for most of those businesses makes the account an offshore one in the plain sense of the word - it is not in the country the company is registered in.

That is the ordinary version of the arrangement described on this page, and it comes with the ordinary conditions: verification of the company and the people behind it, a clear account of what the business does, and no jurisdiction chosen for what it will not ask. [Business accounts]

Keytom Services Ltd is registered with FINTRAC as a money services business, registration number M21788474.