An offshore bank is a bank situated not in the depositor’s resident country, providing greater privacy with no taxation or very low taxation. Offshore banking provides easy to access deposits in terms of regulation and protects against political, local or financial instability. Offshore banking is always associated with underground economy via tax evasion. When offshore banking, one still legally needs to pay taxes. Offshore banking is an advantage for the people living in residents where there is a fear of political turmoil. Some offshore banks operate on less cost base and provide a high interest rate because of no intervention on them by the Government. This interest rate will be more than the home country bank rate. This type of banking increases the economic growth of the developing countries along with the source investment.
Offshore finance is one of the industries in which remote island nations can competitively engage in trade. Some offshore banks give loans on very less interest and provides more facilities like the anonymous bank accounts which the domestic banks does not provide. Even though these are some characteristic advantages of offshore banks, there are disadvantages too. Offshore bank accounts are less economically secure. Offshore banking has been associated with organized crime through money laundering. Physical access and access to information becomes very difficult as offshore banks are located very far often in remote areas which are costly to visit. But with global communication system, accounts can be handled online. Still a personal and physical approach would not be easy. Costs of maintaining and establishing offshore bank accounts are costly and hence offshore private banking is more accessible to people having higher incomes. Offshore banking provides account to anyone who can be started by just paying some legal fees and these anonymous accounts become dangerous to the bank on the basis of terrorism and crimes.