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Offshore Banking
About offshore banking

An offshore bank is a bank located outside the country of residence of the depositor, typically in a low tax jurisdiction (or tax haven) that provides financial and legal advantages. These advantages typically include:
  • Greater privacy (bank secrecy, a principle born with the 1934 Swiss Banking Act).
  • Low or no taxation (i.e. tax havens).
  • Easy access to deposits (in terms of regulation).
  • Protection against local political or financial instability.
  • Having access to services or investment product that are not available in your country of residence or monopolized by governments.

While the term originates from the Channel Islands being "offshore" from the United Kingdom, and most offshore banks are located in island nations to this day, the term is used figuratively to refer to such banks regardless of location, including Swiss banks and those of other landlocked nations such as Luxembourg and Andorra.


Advantages of offshore banking
  • Offshore banks can sometimes provide access to politically and economically stable jurisdictions. This will be an advantage for residents in areas where there is risk of political turmoil, who fear their assets may be frozen, seized or disappear.
  • Some offshore banks may operate with a lower cost base and can provide higher interest rates than the legal rate in the home country due to lower overheads and a lack of government intervention. Advocates of offshore banking often characterize government regulation as a form of tax on domestic banks, reducing interest rates on deposits.
  • Offshore finance is one of the few industries, along with tourism, in which geographically remote island nations can competitively engage. It can help developing countries source investment and create growth in their economies, and can help redistribute world finance from the developed to the developing world.
  • Interest is generally paid by offshore banks without tax being deducted. This is an advantage to individuals who do not pay tax on worldwide income, or who do not pay tax until the tax return is agreed.
  • Some offshore banks offer banking services that may not be available from domestic banks such as anonymous bank accounts, higher or lower rate loans based on risk and investment opportunities not available elsewhere.

Banking services
It is possible to obtain the full spectrum of financial services from offshore banks, including:
  • Easy deposits and withdrawals.
  • Access to credit.
  • Wire and electronic funds transfers.
  • Foreign exchange.
  • Letters of credit and trade finance.
  • Investment management and investment custody.
  • Fund management.
  • Trustee services.
  • Corporate administration.

Not every bank provides each service. Banks tend to polarize between retail services and private banking services. Retail services tend to be low cost and undifferentiated, whereas private banking services tend to bring a personalized suite of services to the client.


Statistics concerning offshore banking

Offshore banking is an important part of the international financial system. Experts believe that as much as half the world's capital flows through offshore centers. Tax havens have 1.2% of the world's population and hold 26% of the world's wealth, including 31% of the net profits of United States multinationals. According to Merrill Lynch and Gemini Consulting's "World Wealth Report" for 2000, one third of the wealth of the world's "high net-worth individuals"—nearly $6 trillion out of $17.5 trillion—may now be held offshore. Some $3 trillion is in deposits in tax haven banks and the rest is in securities held by international business companies (IBCs) and trusts.


Regulation of offshore banks

In the 21st century, regulation of offshore banking is increasing. The quality of the regulation is monitored by supra-national bodies such as the International Monetary Fund (IMF). Banks are generally required to maintain capital adequacy in accordance with international standards. They must report at least quarterly to the regulator on the current state of the business.




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