Offshore Savings Tax

Tax authorities in the United Kingdom and the United States such as Her Majesty’s Revenue and Customs (HMRC) and the Internal Revenue Service (IRS) are making many efforts to tackle funds deposited in offshore tax free bank accounts. Until recently, the act of freeing oneself from overwhelming tax burdens only turned into what seems like a mad dog hunt to amass revenue for treasuries.

Offshore tax havens generally do not impose taxes on offshore savings, but the insistence of U.S and U.K tax authorities to apply offshore savings taxes only make many more of us scared of exercising the legal right to establish offshore tax exempt savings. Both the IRS and HMRC have offered amnesties as a way of assisting holders of offshore savings from facing the full penalties of avoiding offshore savings tax.

It is unfortunate that it almost seems as though offshore savings are placed in the names of governments rather than in the names of the rightful owners, owing to the fact that interests on tax free offshore savings are often paid in gross amounts, which governments scoop and claim as theirs.

In Isle of Man and Guernsey where the EU Savings Tax Directive was implemented for levying EU offshore savings taxes on offshore accounts in these countries, offshore savings taxes are paid out in lump sums to the respective tax authorities in order to avoid giving out information on the personal identity of offshore savings holders. This way of handling the demands of the EU’s directive on offshore savings tax by offshore banks in the EU demonstrates the willingness and commitment of offshore banks to continue providing banking privacy and confidentiality to its clients despite the imposition of offshore savings taxes and laws.

However, unlike the U.S which places offshore savings taxes on both personal and corporate accounts, the EU directive on offshore tax free savings exempts offshore company accounts and is only levied on personal offshore accounts and on offshore tax havens that are members of the European Union and Dependencies of an EU country. The application of the offshore tax savings directive only within the EU, however, makes it legally possible to open offshore tax free savings in non EU states within the region as well as in offshore tax havens where well established respected offshore savings privacy laws exist and zero offshore savings taxes are levied.

In the countries where interests on offshore savings must be declared, the account owners are advised to do meet the necessary offshore savings taxes by filing the necessary reporting requirements while in the meantime seeking sound legal tax advice either from the bank or a tax lawyer about offshore entities that are specially structured for offshore savings tax purposes. Offshore banks are also often equipped with legal tax advisers who are able to guide savings holders into various legal and safe tax deferment strategies which help in reducing the amount of funds that can be lost through offshore savings tax. All in all, offshore tax free savings are useful to both corporate entities and private individuals since offshore savings do not only provide an efficient means of saving, but allows for a platform from which international business can be done effectively.

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