UNIVERSITY OF MUMBAI PROJECT ON OFFSHORE BANKING

BACHELOR OF COMMERCE (BANKING & INSURANCE) SEMESTER V

SUBMITTED BY MANISHA LILANI A027

PROJECT GUIDE PROF. MR. S.KRISHNAN KETs V.GVAZE COLLEGE OF ARTS, SCIENCE & COMMERCE MULUND (E), MUMBAI-400 081.

DECLARATION

I Ms. Manisha Lilani, student of KETs V. G. Vaze college of arts, science and commerce, Mulund studying in T. Y. B com Banking and Insurance, semester V, Hereby declare that I have completed the project on Offshore Banking in the academic year 2011-2012.

This information is true and to the best of my knowledge and belief.

Signature

Acknowledgement
After so many days of hard work in completing this project, it finally comes to a day of expressing to a number of people. I would like to extend highest appreciation and gratitude to our principle, Dr. BHARAT. B. SHARMA. A special thanks to Mr. S. Krishnan who has always been a combination of strict, vigilant and guided nature. I would also like to thank our course coordinator Mrs. Seema Pawar for providing guidance regarding this project. I thank them for their continuous support and valuable inputs of this project. A special mention must be made to Librarian Mr. Paritosh Pawar and Assistant Librarian Mrs. Kavita Mehta who has provided me the right information and study material at the right point of time. I would also like to express my deep sense of gratitude to Mr. Devvrat of State Bank of India for their valuable support in providing information. I would also like to thank the University for giving a chance to conduct this project. From this project I was able to gain more knowledge for the future. I cannot end without thanking my father and friends on whose constant encouragement and love I have relied throughout my project. Last but not least, thanks to God. May your name be exalted, honored and glorified. THANK YOU ALL.

OFFSHORE BANKING

Design of the study

Scope:
The researcher has tried to study about the OFFSHORE BANKING. The project has been designed to cover the concept of offshore banking in detail. The project tries to take a glance over the various aspects of offshore banking, its meaning, appearance & development, advantages & disadvantages, services, need & importance etc.

Objective:
To understand the concept of Offshore Banking. To cover various aspects relating to Offshore Banking.

Research methodology:
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The researcher has collected all the information by help of the research methodology tools i.e. primary datas and secondary datas. For primary data the researcher has visited State Bank of India, Seeps branch and collected relevant information. For secondary data the researcher have referred a relevant websites of bands, some books related to the project topic.

Limitations:
The researcher has tried to study about Offshore Banking faced limitations

in depth,

however faced some of difficulties in collecting information and also

Time, length and depth of study were limited in making of the project, as per the requirement of the Mumbai University.Limitations:

The researcher has tried to study about Offshore Banking faced limitations

in depth,

however faced some of difficulties in collecting information and also

Time, length and depth of study were limited in making of the project, as per the requirement of the Mumbai University.

INDEX
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CHAPTER NO. I.

TOPIC

PAGE NO.

OFFSHORE FINANCIAL CENTRES 1.1 INTRODUCTION 1.2 DEFINITION 1.3 CHARACTERITICS 1.4 OFFSHORE BANKING CENTRES 10 11 11 13

II.

INTRODUCTION TO OFFSHORE BANKING 2.1 INTRODUCION 2.2 FEATURES 2.3 MYTHS 2.4 HISTORY 2.5DEVELOPMENT AND APPEARANCE 2.6 ADVANTAGES & DISADVANTAGES 15 17 18 19 21 23

III.

OFFSHORE BANKING- A RECENT TREND 3.1 NEED FOR OFFSHORE BANKING 3.2 OFFSHORE BANKING SERVICES 3.3 ONLINE OFFSHORE BANKING 3.4 OFFSHORE CREDIT CARD & ITS WORKING 3.5 OFFSHORE BANK ACCOUNTS 3.6 RECOMMENDED OFFSHORE JURISDICTION 31 33 40 42 43 46

IV.

OFFSHORE BANKING IN INDIA

4.1 OFFSHORE BANKING IN INDIAN CONTEXT 4.2 ROLE OF RBI IN OFFSHORE BANKING 4.3 REPUTED OFFSHORE BANKS IN INDIA 4.4 PARTICIAPATION OF INDIAN BANKS 4.5 OFFSHORE BANKING CENTRE IN INDIA 4.6 OFFSHORE DEVELOPEMNT-A FAVOURITE DESTINATION INDIA 4.7 SCOPE FOR OFFSHORE BANKING IN INDIA 4.8 STATISTICS CONCERNING OFFSHORE BANKING

52 53 57 58 59 60

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V.
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LEGAL ASPECTS 5.1 REGULATION OF OFFSHORE BANKING 5.2 CHANGING LEGISLATION 63 64

VI.

FUTURE PROSPECTS 6.1 FUTURE OF OFFSHORE BANKING 6.2 TRENDS TO EXPECT IN 2011 6.3 FINDINGS,SUGGESTIONS & CONCLUSION 71 73 76

CHAPTER 1: OFFSHORE FINANCIAL CENTRE INTRODUCTION: In todays highly integrated global network, international offshore financial centres (OFCs) have come to play a vital role in facilitating investment worldwide. An offshore centre exists by usage. It is recognised by an amalgam of features which, taken together, offer particular advantages for investment by non-residents. OFCs are jurisdictions where offshore banks are exempt from a wide range of regulations, which are normally imposed on onshore institutions. Specifically, deposits are not subject to reserve requirements, bank transactions are mostly tax exempt from regulatory scrutiny with respect to liquidity or capital adequacy. Information disclosure is also low. Offshore financial centres provide financial management services to foreign users in exchange for foreign exchange earnings. There are many channels through which offshore financial services can be provided. These include the following: Offshore banking, which can handle foreign exchange operations for corporations or banks. These operations are not subject to capital, corporate, capital gains, dividend, or interest taxes or to exchange controls; International business corporations (IBCs) , which are often tax-exempt, limited-liability companies used to operate businesses or raise capital through issuing shares, bonds, or other instruments; Offshore insurance companies , which are established to minimize taxes and manage risk. Onshore insurance companies establish offshore companies to reinsure certain risks and reduce their reserve and capital requirements; Asset management and protection allows individuals and corporations in countries with fragile banking systems or unstable political regimes to keep assets offshore to protect against the collapse of domestic currencies and banks. Individuals who face unlimited liability at home may use offshore centres to protect assets from domestic lawsuits. Many leading offshore financial centres are located in small tropical Caribbean countries.

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DEFINITION : An offshore financial centre (or OFC), although not precisely defined, is usually a low-tax, lightly regulated jurisdiction which specializes in providing the corporate and commercial infrastructure to facilitate the use of that jurisdiction for the formation of offshore companies and for the investment of offshore funds. "The use of this term makes the important point that a jurisdiction may provide specific facilities for offshore financial centres without being in any general sense a tax haven." CHARACTERISTICS OF AN OFFSHORE FINANCIAL CENTRE: Jurisdictions that have relatively large numbers of financial institutions engaged primarily in business with non-residents; Financial systems with external assets and liabilities out of proportion to domestic financial intermediation designed to finance domestic economies

Centers which provide some or all of the following services: low or zero taxation; moderate or light financial regulation; banking secrecy and anonymity.

Taxation

Although most offshore financial centres originally rose to prominence by facilitating structures which helped to minimise exposure to tax, tax avoidance has played a decreasing role in the success of offshore financial centres in recent years. Although most offshore financial centres still charge little or no tax, the increasing sophistication of onshore tax codes has meant that there is often little tax benefit relative to the cost of moving a transaction structure offshore.

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Critics of offshore financial centres argue that a lack of transparency in offshore financial centres means that they are vulnerable to being used in illegal tax evasion schemes. A number of international organizations also suggest that offshore financial centres engage in "unfair tax competition" by having no, or very low tax burdens, and have argued that such jurisdictions should be forced to tax both economic activity and their own citizens at a higher level.
Regulation

Most offshore financial centres now promote themselves on the basis of "light but effective" regulation, and generally only seek to regulate high-risk financial business, such as banking, insurance and mutual funds. Critics of offshore financial centres suggest that they are not effectively regulated in all areas, and in particular that they are vulnerable to being used by organised crime for money laundering. However, partly in response to international initiatives and partly in a defensive move to protect their reputations, most offshore financial centres now apply fairly rigorous anti-money laundering regulations to offshore business. Some even argue that offshore jurisdictions are in many cases better regulated than many onshore financial centres. For example, in most offshore jurisdictions, a person needs a licence to act as a trustee, whereas (for example) in the United Kingdom and the United States, there are no restrictions or regulations as to who may serve in a fiduciary capacity.
Confidentiality

Critics of offshore jurisdictions point to excessive secrecy in those jurisdictions, particularly in relation to the beneficial ownership of offshore companies, and in relation to offshore bank accounts. The criticisms are slightly difficult to assess. In most jurisdictions banks will preserve the confidentiality of their customers, and all of the major offshore jurisdictions have appropriate procedures for law enforcement agencies to obtain information regarding suspicious bank accounts. However, there are certainly well documented cases of parties using offshore structure to facilitate wrongdoing, and the strong confidentiality laws in offshore jurisdictions have clearly played a part in the selection of an offshore vehicle for those purposes
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OFFSHORE STRUCTURES The bedrock of most offshore financial centres is the formation of offshore structures. Offshore structures are characteristically involve the formation of an:

offshore company offshore partnership offshore trust private foundation

Offshore structures are formed for a variety of reasons.

OFFSHORE BANKING CENTERS: The development of the concept of offshore banking center is one of the most important legal, social and economic phenomena. This has occurred thanks to a lot of modern factors such as development in technology and communication, the spectacular growth in transnational companies and of course the development of transnational banking. Actually, nowadays the offshore banking activity is seen as the most dynamic sectors of financial activity. However, the well known concept offshore banking brings some negative connotation as well and an image of unethical, illegal or even criminal activity. This is a very narrow view in relation to what offshore banking activity represents in its entirety because it transcends such illegal activities as tax evasion or money laundering. In contrast, many offshore banking centers ensure compliance with international norms and practices. The creation of offshore banking sector is the result of the laws and represents a legitimate phenomenon in itself. The demand for offshore banking services is determined by several factors. Offshore banking centers aim to supply the demand of increase revenue. They take advantage of what in modern times it is called financial sector which goes beyond criminality, illegality and financial abuse or fraud. Today offshore banking centers aim at facilitating taxation for investors, use of modern and sophisticated banking, dynamic investment and mutual funds. Moreover, offshore banking centers view the principle of confidentiality in banking issues as an essential and crucial element which deserves to be protected and guaranteed. At the same
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time let us not forget that in many parts of the world the offshore banking sector is the main contributor to economic development and growth in the jurisdiction were it exists. The offshore banking sector developed step by step. The basic structure of tax havens elevated to such sophisticated entity as offshore financial center with multiple financial services, including offshore banking. The movement of banking institutions offshore resulted in a huge scale offshore bank deposits. This resulted in the creation of a big network of onshore external financial centers and onshore-related offshore finance centers. The development of such a big network was primarily possible due to rapid development of telecommunications and air travel. Thus, the offshore banking sector is rightly seen as one of the most dynamic sector. This sector is using heavily in its activity the rapid development of modern technologies and at the same advances it. In terms of offshore banking centres, in terms of total deposits, the global market is dominated by two key jurisdictions: Switzerland and the Cayman Islands, although numerous other offshore jurisdictions also provide offshore banking to a greater or lesser degree. In particular, Jersey, Guernsey and the Isle of Man are known for their well regulated banking infrastructure. Some offshore jurisdictions have steered their financial sectors away from offshore banking, as difficult to properly regulate and liable to give rise to financial scandal. Offshore banking centers offer the following benefits: Exemption from minimum reserve requirements. Freedom from control on interest rates. Low or non-existent taxes and levies.

CHAPTER 2: INTRODUCTION TO OFFSHORE BANKING INTRODUCTION

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Offshore simply means anything outside of a countrys jurisdiction. So if Im in the US which is considered onshore, any other country outside US jurisdiction is referred to as offshore.The term Offshore banking 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. For a depositor offshore banking is associated with the services of a bank from the country other than his country of residence. If you have invested or deposited funds to a bank outside the country (referred as Offshore Bank), where you live, you are engaged in offshore banking. On the other hand, any bank in your country of residence is often referred as a domestic bank. You dont have to be rich to take advantage of offshore banking so should you consider it? If you think that offshore banking is exclusively for the rich and famous then you are very much mistaken. In fact offshore banking is much more relevant now than it has ever been and the fact that many, if not most, of the UK banks offer offshore banking services alongside their onshore banking services reflects this. With more and more people working overseas, it becomes crucial that your money is put into a bank that you know and trust. Stability is key and, rather than trust local banks / governments/ economies with your hard earned cash, consider all your options.

Offshore banking has often been associated with the underground economy and organized crime, via tax evasion and money laundering; however, legally, offshore banking does not prevent assets from being subject to personal income tax on interest. Except for certain persons who meet fairly complex requirements, the personal income tax of many countries makes no distinction between interest earned in local banks and those earned abroad. Persons subject to US income tax, for example, are required to declare on penalty of perjury, any offshore bank accountswhich may or may not be numbered bank accountsthey may have. Although offshore banks may decide not to report income to other tax authorities, and have no legal obligation to do so as they are protected by bank secrecy, this does not make the nondeclaration of the income by the tax-payer or the evasion of the tax on that income legal.
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Following September 11, 2001, there have been many calls for more regulation on international finance, in particular concerning offshore banks, tax havens, and clearing houses such as Clear stream, based in Luxembourg , being possible crossroads for major illegal money flows. Defenders of offshore banking have criticised these attempts at regulation. They claim the process is prompted, not by security and financial concerns, but by the desire of domestic banks and tax agencies to access the money held in offshore accounts. They cite the fact that offshore banking offers a competitive threat to the banking and taxation systems in developed countries, suggesting that Organisation for Economic Co-operation and Development (OECD) countries are trying to stamp out competition. Offshore bank is simply a bank located outside your country of residence, usually in a low tax jurisdiction and legal advantages. Thus Offshore bank and banking account are similar in the sense that these are bank accounts opened at a country other than your own. Offshore banking is one of the most sought after banking solutions in today's world. Offshore banking denotes the banking options opted by an individual outside the country of residence. The term offshore banking has been inspired from the fact that these banks are mostly located in the island nations - offshore. However, with numerous exceptions to the fact, like countries like Switzerland, Luxembourg etc, this term is now used in global context as well.

FEATURES
Offshore banking is blessed with a number of features. The most significant ones are: Offers higher level of privacy as opposed to the local banks No taxation
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Protection against financial insecurities and instabilities in the local economy Less restrictive regulations Easy access deposits Except for the developed nations that offer for complete financial stability, individuals from the various undeveloped countries that are surrounded with instability may opt to resort to offshore banking for better steadiness in assets and resources

Offshore banks offer better rate of interest Offers features that banks in the domestic realm may not possess like unspecified bank account etc

Offers investment opportunities far greater and better in variety and quality than the ones available locally

Exceptionally preferable for international workers

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. In the 21st century, regulation of offshore banking is allegedly improving, although critics maintain it remains largely insufficient.

OFFSHORE BANKING MYTHS

There are lots of offshore banking myths that prevent people from taking advantage of the benefits that an offshore account can offer. Once you know the truth about using offshore banks, though, you can make educated decisions that help you protect your assets from law suits and privacy invasion. Offshore Accounts Are Illegal
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Perhaps the most persistent offshore banking myths are those that question the legality of using offshore accounts. Most of the time, this misperception comes from movies and television shows. The truth is that offshore accounts are perfectly legal as long as you use them properly. For instance, an offshore account can help you pay fewer taxes, but your country of residence will still require you to pay some taxes. Offshore Accounts Arent Safe Other offshore banking myths question whether offshore accounts are safe. There are some cautionary tales about people losing all of their money because their offshore accounts suddenly disappeared. This, however, only happens in countries with poor legal systems. When you choose offshore accounts in stable countries like Panama, you dont have to worry about the safety of your assets. In fact, you might find that the Republic of Panama has a system that is more stable than your own countrys. Offshore Accounts Are Only for Wealthy People Offshore accounts are useful for lots of people, not just those who are wealthy. You wouldnt want to spend the time and money establishing an offshore account for just a couple thousand dollars, but many people find that they can benefit from opening an offshore account that protects their assets from lawsuits and invasions of privacy.

THE HISTORY OF OFFSHORE BANKING

For those of you who can remember the 1970s, youll probably remember the UK and Europe levied the highest, most punitive taxes in the developed world, with high earners in the UK having their earnings taxed at a rate of 85 per cent, giving rise to the phrase tax exile, where the likes of the Rolling Stones, Michael Caine, Pink Floyd, Sean Connery moved abroad for years at a time to avoid paying high rates of income tax.

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And then the government and financial institutions in the Channel Islands predominantly Jersey and Guernsey realized that, rather than a person leave the UK to save tax, their assets could be moved offshore to Channel Island banks and tax could be saved that way. The Channel Islands fall into two separate self-governing bailiwicks Jersey and Guernsey, both of whom are British Crown Dependencies, but neither is part of the United Kingdom. The Channel Islands assisted dejected investors with two key offerings: confidentiality and lower taxation. The offshore banking industry was born. The Channel Islands bankers persuaded their clients that any deposits placed into offshore banks would be anonymous, free from the scrutiny plaguing the mainland and the UK, and would be liable for minimal taxation. As word spread across Europe and indeed throughout the world, other small island nations and jurisdictions seized upon the opportunity and began strengthening regulations regarding banking practices and client confidentiality in the hopes of attracting foreign depositors; thus becoming offshore banking jurisdictions and offshore financial centres. This became particularly popular in the small island nations of the Caribbean, which many tend to associate with offshore banking jurisdictions. Investors and depositors seeking politically and economically stable jurisdictions found their way to these offshore financial centres and this practice continues today. Rightly or wrongly, offshore banking has become synonymous with "tax haven", jurisdictions characterised by low - or zero - taxation on interest, dividends, royalties and foreign derived income, as well as having some degree of banking confidentiality. Over time this term has evolved to include other popular banking jurisdictions such as Switzerland, Austria, Lichtenstein, Luxembourg and more recently the United Arab Emirates (UAE), Singapore and Hong Kong. These gained popularity for the same reasons the small island offshore financial centers did: they implemented sound banking practices codified in law and regulations guaranteeing confidentiality, low taxation and security. Although an abridged and streamlined version of history, these are, fundamentally, the roots of the modern offshore banking industry.

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OFFSHORE BANKING - DEVELOPMENT,APPEARANCE

Many economists argued that offshore banking sector represented the new beginning of the international capitalism. They traced the evolution of the offshore banking sector to the development of transnational corporations. In this context the evolution of the international banking came as a response to the modern phenomenon of capital which obviously goes beyond national borders. At the same time the rapid growth and boom of the technology sector gave a great incentive and facilitated the creation of the international offshore banking area. This permitted global access of world market information and subsequently its management and control. Under the traditional national and international sectors there were several constraints which gave the possibility for offshore activity to grow. These are: the extension of national tax bases; intermittent fiscal and monetary instabilities; the existence of foreign exchange controls and fluctuations; limiting cross-border controls; conservative banking laws and regulations with regard to foreign and domestic industrial entry, systems of supervision and liquidity requirements, constraints on the issue of foreign and domestic bonds, the admission of securities to capital markets, stock exchange, insurance regulations ; company laws which restricted business. Also it has to be mentioned from the international perspective there was a lack of coherent set of international fiscal principles and laws in which transnational company could operate across border. The evolution of the offshore banking center is described from the perspective of its tax and banking functions. More recently, however, other constraints onshore have served as an incentive element which pushed for offshore investment and have emphasized the importance of that investment. These include: the need to provide for what is seen as the vulnerability of professionals and investors to creditors; the desire to avoid onshore laws and regulations which mandate the reservation of assets to spouses and heirs; the need for savings and investment vehicle for ordinary persons.

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Offshore banking center came with innovative solutions to all these constraints that were mentioned above. Let us refer for example to taxation. There are 3 models of offshore banking centers from the perspective of taxation: with zero-tax (here even residents do not pay taxes); with low-tax; tax at normal rates but exemption or other preferential treatment is granted to non-resident investors or investment for certain categories of income. Notwithstanding the fact that the above categories refers only to tax aspects of offshore banking activity, it clearly shows the scope of such centers.

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ADVANTAGES OF OFFSHORE BANKING

Access to politically and economically stable nations: 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 (see the corralito for example, during the 2001 Argentine economic crisis). However it is often argued that developed countries with regulated banking systems offer the same advantages in terms of stability.

Lower cost base with high returns: 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 characterise government regulation as a form of tax on domestic banks, reducing interest rates on deposits.

Growth of developing countries: 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.

Tax free income: 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, or who feel that they can illegally evade tax by hiding the interest income.

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Financially engineered banking services: 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.

Other advantages: Offshore banking is often linked to other structures, such as offshore companies, trusts or foundations, which may have specific tax advantages for some individuals. Many advocates of offshore banking also assert that the creation of tax and banking competition is an advantage of the industry, arguing with Charles Tiebout that tax competition allows people to choose an appropriate balance of services and taxes. Critics of the industry, however, claim this competition as a disadvantage, arguing that it encourages a "race to the bottom" in which governments in developed countries are pressured to deregulate their own banking systems in an attempt to prevent the off shoring of capital.

IMPORTANCE OF OFFSHORE BANKING

Offshore banking has now become an important segment of the international financial system. Offshore banking is simply a practice of working with an offshore bank. An offshore bank refers to a bank located outside the country where the depositor lives. Usually, these banks may be located in such a jurisdiction with substantial financial as well as legal advantages. Offshore banks provide a continuum of services in connection with financial management, such as, deposit taking, money transmissions, creation of provision of foreign exchange, trade finance, credit facilities, investment and fund management, corporate administration, and trustee service. Creation of a bank account with an offshore bank is great alternative particularly for those who have to travel frequently or someone whose career changes a lot. People prefer offshore banking for a myriad of other purposes such as expansion of your business, tax-free
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investment, and anonymity with regard to financial matters, asset protection, and estate planning. A specialty of offshore banking is that an account can be opened with an offshore bank simply as a saving account. Account can also be opened to carry out main business functions. Apart from these, through an offshore bank, you can even make investments and take loans. This type of banking has now been legally used by many individuals and corporations worldwide. Offshore banking is usually preferred by people falling under three categories, such as, high net worth individuals, expatriates, and business owners. High net worth individuals are usually people with a non-refundable income in excess of one million US dollars. Included in the expatriates are people residing oversees away from their country for employment purposes or any other reasons. Business owners are usually those people who own business and whose shares are owned by family members or any other close people. Nowadays, many of the corporate clients including multi national corporations, large industrial as well as trading companies, shipping companies, and banking corporations, are also getting attracted to the benefits offered by offshore banking. One of the prime benefits of offshore banking is that it provides access to economically as well as politically stable jurisdictions. This proves to be advantageous to such people whose residing area has risks of political disorders. There are certain offshore banks that function with low cost base, which in turn can offer higher interest rates to the depositors when compared to their home country. Another great benefit is that it is a great way for developing countries to enhance their economic growth, since offshore banking allows redistributing finance from the developed economies to the developing economies. Perhaps the most prominent of the offshore banking is tax benefits, i.e., most of the offshore banks makes payment of interest without deducting the tax. This is highly beneficial to individuals who do not make tax payment on worldwide income or who do not make payment until the tax return is agreed. Further, many of the services rendered by the offered by offshore banks many not be available from banks located in home country.
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Offshore banking is usually associated with formations including offshore trusts, offshore foundations, and offshore companies, which in turn may provide some kind of benefits in the form of tax as well as asset protection. As a healthy competition is seen in the industry of offshore banking regarding tax benefits, it enables to choose the most appropriate facility offering tax advantages. In addition, offshore banking allows you to easily move your assets, if you want to join an employment or spend long periods outside your home country. Other significant benefits of offshore banking are: Since it provides a broad range of features, offshore banking can provide you absolute safety and security - As offshore banks are mostly located in a jurisdiction with sound economic and political condition, it provides stability - Many of the offshore banking facilities assure privacy and confidentiality - Above all, offshore banking system provides flexibility, ie, it provides flexible structure to business owners and expatriates requiring global access to their fund In order to acquire the full benefits above mentioned, it is recommended to review or examine your decision of opening an account with an offshore bank. Primarily, it must be checked whether the offshore bank you have chosen is located in such a jurisdiction that can meet your requirements. The next to be considered is that whether the chosen offshore bank renders all the services it mentions. Despite any challenge, setting up an offshore bank account is considered a wise decision.

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BENEFITS OF OFFSHORE BANKING FOR CORPORATIONS

Offshore banking has been around for many years. It is synonymous with illegal activities like tax evasion and money laundering. The growth of offshore financial havens like Bermuda, Seychelles, Isle of Man and the Dominican Republic was fuelled by illegal transactions. However the offshore banking industry has started to change because companies have realized the potential of legal offshore banking services. The growth of reputable financial hubs like Hong Kong, Singapore and New Zealand as offshore banking centers have contributed to cleaning the reputation of the service. The banking industry itself is credited with tightening rules and regulations on what is acceptable behavior for banks dealing in offshore banking services. Besides that account opening procedures are now more transparent and it is difficult to hide illegal activities from the surveillance of international regulators. Companies are now beginning to appreciate offshore banking services because it offers numerous advantages such as:

There are multiple currencies allowed in offshore accounts making it more efficient for companies dealing with on a multinational basis. Offshore banking pays out higher interest rates as the interest is exempted from tax. International banking has become a legitimate and secure way for individuals and companies to make tax efficient financial transactions internationally. Companies can spread out their financial transactions so that they can diversify their tax rates. A lot of companies are using multiple subsidiaries to lower their tax obligations in one country.

Offshore banking provides opportunities for good investments especially during economic downturns as offshore regulations may make it a more stable economic situation compared to the companys main country of residence.

Opening an offshore bank account for corporations is not a difficult process and there are many local companies and legal services in these havens to make the process even easier. With an offshore bank account, there can be efficiency in the transfer of funds for companies with multinational branches and dealings. It is essential to find a good offshore banking provider as this make the whole process even more efficient. Many international banking groups have

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subsidiaries in reputable offshore financial havens so the companies do not even have to change bankers when engaging in such opportunities. If you have a company and is still undecided about offshore banking services, then you might want to research more about the matter or seek professional advice. There is plenty of information available on the subject in the internet while consulting a lawyer well versed in international financial operations would be the best in terms of professional advice.

DISADVANTAGES OF OFFSHORE BANKING

Financial security: Offshore bank accounts are less financially secure. In a banking crisis which swept the world in 2008 the only savers who lost money were those who had deposited their funds in offshore branches of Icelandic banks such as Kaupthing Singer & Friedlander. Those who had deposited with the same banks onshore received all of their money back. In 2009 The Isle of Man authorities were keen to point out that 90% of the claimants were paid, although this only referred to the number of people who had received money from their depositor compensation scheme and not the amount of money refunded. In reality only 40% of depositor funds had been repaid 24.8% in September 2009 and 15.2% in December 2009. Both offshore and onshore banking centres often have depositor compensation schemes. For example The Isle of Man compensation scheme guarantees 50,000 of net deposits per individual depositor or 20,000 for most other categories of depositor and point out that potential depositors should be aware that any deposits over that amount are at risk. However only offshore centres such as the Isle of Man have refused to compensate depositors 100% of their funds following Bank collapses. Onshore depositors have been refunded in full regardless of what the compensation limit of that country has stated thus banking offshore is historically riskier than banking onshore.

Associated with underground economy: Offshore banking has been associated in the past with the underground economy and organized crime, through money laundering. Following September 11, 2001, offshore banks and tax havens, along with clearing houses, have been accused of helping various
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organized crime gangs, terrorist groups, and other state or non-state actors. However, offshore banking is a legitimate financial exercise undertaken by many expatriate and international workers.

The jurisdictions are at remote places: Offshore jurisdictions are often remote, and therefore costly to visit, so physical access and access to information can be difficult. Yet in a world with global telecommunications this is rarely a problem for customers. Accounts can be set up online, by phone or by mail.

Accessible mostly to higher income group: Offshore private banking is usually more accessible to those on higher incomes, because of the costs of establishing and maintaining offshore accounts. However, simple savings accounts can be opened by anyone and maintained with scale fees equivalent to their onshore counterparts. The tax burden in developed countries thus falls disproportionately on middle-income groups. Historically, tax cuts have tended to result in a higher proportion of the tax take being paid by high-income groups, as previously sheltered income is brought back into the mainstream economy. The Laffer curve demonstrates this tendency.

Offshore bank accounts are sometimes touted as the solution to every legal, financial and asset protection strategy but this is often much more exaggerated than the reality. European Savings Tax Directive

In their efforts to stamp down on cross border interest payments EU governments agreed to the introduction of the Savings Tax Directive in the form of the European Union withholding tax in July 2005. A complex measure, it forced EU resident savers depositing money in any country other than the one they are resident in to choose between forfeiting tax at the point of payment, or allowing notification by the offshore banks to tax authorities in their country of residence. This tax affects any cross border interest payment to an individual resident in the EU. Furthermore the rate of tax deducted at source will rise in 2008 and again in 2011, making disclosure increasingly attractive. Savers' choice of action is complex; tax authorities are not
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prevented from enquiring into accounts previously held by savers which were not then disclosed.

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CHAPTER 3: OFFSHORE BANKING-RECENT TREND NEED FOR OFFSHORE BANKING

Quite simply, Offshore Accounts facilitate greater financial privacy. Residents of the UK and EU can now enjoy the same financial benefits as offshore companies and affluent individuals have done for many years. It is an affordable and secure solution, providing anonymous offshore banking and offshore asset protection for everyone. Shielding finances and assets from creditors, legal action and the divorce courts, for example, are some of the major reasons to bank offshore. Overseas Bank Accounts can be opened in the name of offshore companies in order to provide the maximum possible anonymity, privacy and offshore asset protection. In the past, Offshore Bank Accounts were perceived as just for the wealthy. This is no longer the case. There is a distinct rise in the number of Europeans who are investing or depositing their money into anonymous bank accounts. In doing so, they achieve complete offshore protection. Anonymous Banking Most offshore jurisdictions have fiercely strict privacy and confidentiality regulations established which help to ensure that the identities and transactions of individuals and, indeed, companies are carefully shielded and protected. Whilst this confidentiality is almost legendary, it is not possible to guarantee absolute privacy and anonymity. All offshore financial centres, just like onshore financial institutions, throughout the world have an implicit legal obligation to comply with investigations into suspected serious criminal activity such as money-laundering and, more recently, the funding of terrorism. This is the only time that OFCs will impart information to a third party. In the vast majority of offshore bank accounts and companies, where there is no compelling criminal or terrorism accusation, personal information including the details of the owner of the offshore account and transactional information are completely shielded. These OFCs are designed to provide complete confidentiality and serve to totally protect and safeguard individual and company information. This, the highest level of confidentiality available anywhere in the world, is especially worthy of note as it relates to protecting assets from legal
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action within the home jurisdiction and civil matters such as divorce or inheritance matters. The only time that an offshore bank will divulge even the slightest amount of information will be when they are compelled to by a foreign government IF certain rigorous standards and tests have been met by the governmental body. This would be in the case of substantial evidence in a money laundering or terrorism case. The overseas banks do everything in their power to protect the identity and information surrounding the accounts they hold as their primary concern is safeguarding their investors. It is in the interest of these offshore financial centres to ensure that no leaks or breaks in confidentiality occur as it would completely shatter the confidence of other offshore account holders and investors. Along with losing face, they would stand to lose millions of pounds worth of business. Other offshore vehicles and entities provide an even deeper and tighter level of anonymity and confidentiality. These include the International Business Company (the IBC) or Offshore trusts, although these are more complicated to set up and run than simply opening an offshore bank account. Although anyone can open an offshore bank account, the objective should be to address the need of, and to strike the appropriate balance between, effective asset protection, reduced taxation, complete anonymity, security of transactions and accessibility.

Who can go offshore?

So, if youre thinking of upping sticks and heading abroad, or if you already own an overseas home or you perhaps regularly work abroad for your company, you may benefit substantially from an offshore bank account. Expatriates, those who own a property abroad or people termed as having an international lifestyle, can all potentially profit from an offshore bank account. By its very nature such an account is flexible and when youre living abroad or sending money back and forth between more than one country or transacting in more than one currency, then the very thing you need is flexibility from an offshore account. Common misconceptions of offshore banking include theories on hiding money, a service reserved for the rich and famous or a plan to evade or even avoid taxation! Many of the leading high street banks offer offshore banking services to clients so accessible is offshore banking to all. Basically offshore banking is the management of financial assets from a jurisdiction other than the one in which you live. For some people it

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does have very real and legitimate taxation advantages, but for the vast majority of us, it is all about simplicity of money management. Offshore banking in its simplest form suits those who make the very most of the fact that we can travel, live and work anywhere, invest in properties overseas or different money markets and who think outside the small box that is the UK.

OFFSHORE BANKING SERVICES

It is possible to obtain the full spectrum of financial services from offshore banks, including Acceptance of Deposits Major types

Checking accounts: A deposit account held at a bank or other financial institution, for the purpose of securely and quickly providing frequent access to funds on demand, through a variety of different channels. Because money is available on demand these accounts are also referred to as demand accounts or demand deposit accounts.

Savings accounts: Accounts maintained by retail banks that pay interest but can not be used directly as money (for example, by writing a cheque). Although not as convenient to use as checking accounts, these accounts let customers keep liquid assets while still earning a monetary return.

Money market account: A deposit account with a relatively high rate of interest, and short notice (or no notice) required for withdrawals. In the United States, it is a style of instant access deposit subject to federal savings account regulations, such as a monthly transaction limit.

Time deposit: A money deposit at a banking institution that cannot be withdrawn for a preset fixed 'term' or period of time. When the term is over it can be withdrawn or it can be rolled over for another term. Generally speaking, the longer the term the better the yield on the money.

Credit
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Credit is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately (thereby generating a debt), but instead arranges either to repay or return those resources (or other materials of equal value) at a later date. The resources provided may be financial (e.g. granting a loan), or they may consist of goods or services (e.g. consumer credit). Credit encompasses any form of deferred payment.
[1]

Credit is extended by a creditor, also known as a lender, to a debtor, also known as a

borrower. Credit does not necessarily require money. The credit concept can be applied in barter economies as well, based on the direct exchange of goods and services (Ingham 2004 p.12-19). However, in modern societies credit is usually denominated by a unit of account. Unlike money, credit itself cannot act as a unit of account. Movements of financial capital are normally dependent on either credit or equity transfers. Credit is in turn dependent on the reputation or creditworthiness of the entity which takes responsibility for the funds. Credit is also traded in financial markets. The purest form is the credit default swap market, which is essentially a traded market in credit insurance. A credit default swap represents the price at which two parties exchange this risk the protection "seller" takes the risk of default of the credit in return for a payment, commonly denoted in basis points (one basis point is 1/100 of a percent) of the notional amount to be referenced, while the protection "buyer" pays this premium and in the case of default of the underlying (a loan, bond or other receivable), delivers this receivable to the protection seller and receives from the seller the par amount (that is, is made whole). Wire- and Electronic Funds Transfers Electronic money (also known as e-currency, e-money, electronic cash, electronic currency, digital money, digital cash, digital currency, cyber currency) refers to money or scrip which is only exchanged electronically. Typically, this involves the use of computer networks, the internet and digital stored value systems. Electronic Funds Transfer (EFT), direct deposit, digital gold currency and virtual currency are all examples of electronic money. Also, it is a collective term for financial cryptography and technologies enabling it. While electronic money has been an interesting problem for cryptography (see for example the work of David Chaum and Markus Jakobsson), to date, the use of e-money has been relatively
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low-scale. One rare success has been Hong Kong's Octopus card system, which started as a transit payment system and has grown into a widely used electronic money system. London Transport's Oyster card system remains essentially a contactless pre-paid travelcard. Two other cities have implemented functioning electronic money systems. Very similar to Hong Kong's Octopus card, Singapore has an electronic money program for its public transportation system (commuter trains, bus, etc.), based on the same type of (FeliCa) system. The Netherlands has also implemented a nationwide electronic money system known as Chipknip for general purpose, as well as OV-Chipkaart for transit fare collection. In Belgium, a payment service company, Proton, owned by 60 Belgian banks issuing stored value cards, was developed in 1995.[1] A number of electronic money systems use contactless payment transfer in order to facilitate easy payment and give the payee more confidence in not letting go of their electronic wallet during the transaction. Foreign Exchange The foreign exchange market (forex, FX, or currency market) is a global, worldwide decentralized over-the-counter financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends. The foreign exchange market determines the relative values of different currencies. The primary purpose of the foreign exchange is to assist international trade and investment, by allowing businesses to convert one currency to another currency. For example, it permits a US business to import British goods and pay Pound Sterling, even though the business's income is in US dollars. It also supports speculation, and facilitates the carry trade, in which investors borrow low-yielding currencies and lend (invest in) high-yielding currencies, and which (it has been claimed) may lead to loss of competitiveness in some countries. In a typical foreign exchange transaction, a party purchases a quantity of one currency by paying a quantity of another currency. The modern foreign exchange market began forming during the 1970s when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system.

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Letters of Credit and Trade Finance A standard, commercial letter of credit (LC) is a document issued mostly by a financial institution, used primarily in trade finance, which usually provides an irrevocable payment undertaking. The letter of credit can also be payment for a transaction, meaning that redeeming the letter of credit pays an exporter. Letters of credit are used primarily in international trade transactions of significant value, for deals between a supplier in one country and a customer in another. In such cases, the International Chamber of Commerce Uniform Customs and Practice for Documentary Credits applies (UCP 600 being the latest version).[2] They are also used in the land development process to ensure that approved public facilities (streets, sidewalks, storm water ponds, etc.) will be built. The parties to a letter of credit are usually a beneficiary who is to receive the money, the issuing bank of whom the applicant is a client, and the advising bank of whom the beneficiary is a client. Almost all letters of credit are irrevocable, i.e., cannot be amended or canceled without prior agreement of the beneficiary, the issuing bank and the confirming bank, if any. In executing a transaction, letters of credit incorporate functions common to giros and Traveler's cheques. Typically, the documents a beneficiary has to present in order to receive payment include a commercial invoice, bill of lading, and documents proving the shipment were insured against loss or damage in transit. Investment management and Investment custody Investment management is the professional management of various securities (shares, bonds and other securities) and assets (e.g., real estate) in order to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations, charities, educational establishments etc.) or private investors (both directly via investment contracts and more commonly via collective investment schemes e.g. mutual funds or exchange-traded funds). The term asset management is often used to refer to the investment management of collective investments, (not necessarily) while the more generic fund management may refer to all forms of institutional investment as well as investment management for private investors. Investment managers who specialize in advisory or discretionary management on behalf of (normally

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wealthy) private investors may often refer to their services as wealth management or portfolio management often within the context of so-called "private banking". The provision of 'investment management services' includes elements of financial statement analysis, asset selection, stock selection, plan implementation and ongoing monitoring of investments. Investment management is a large and important global industry in its own right responsible for caretaking of trillions of yuan, dollars, euro, pounds and yen. Coming under the remit of financial services many of the world's largest companies are at least in part investment managers and employ millions of staff and create billions in revenue. Trustee services A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. The body sometimes has a different name, such as board of governors, board of managers, board of regents, board of trustees, board of visitors, or executive board. It is often simply referred to as "the board." A board's activities are determined by the powers, duties, and responsibilities delegated to it or conferred on it by an authority outside itself. These matters are typically detailed in the organization's bylaws. The bylaws commonly also specify the number of members of the board, how they are to be chosen, and when they are to meet. In an organization with voting members, e.g., a professional society, the board acts on behalf of, and is subordinate to, the organization's full assembly, which usually chooses the members of the board. In a stock corporation, the board is elected by the stockholders and is the highest authority in the management of the corporation. In a non-stock corporation with no general voting membership, e.g., a university, the board is the supreme governing body of the institution; its members are sometimes chosen by the board itself. General duties of trustees

Trustees have certain duties (some of which are fiduciary). These include the duty to carry out the express terms of the trust instrument, the duty to defend the trust, the duty to prudently invest trust assets, the duty of impartiality among the beneficiaries, the duty to account for their actions and to keep them informed about the trust, the duty of loyalty, the duty not to delegate, the duty not to profit, the duty not to be in a conflict of
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interest position and the duty to administer the trust in the best interest of the beneficiaries. These duties may be expanded or narrowed by the terms of the instrument creating the trust, but in most instances cannot be eliminated completely. Corporate trustees, typically trust departments at large banks, often have very narrow duties, limited to those explicitly defined in the trust indenture. A trustee carries the fiduciary responsibility and liability to use the trust assets according to the provisions of the trust instrument (and often regardless of their own or the beneficiaries' wishes). The trustee may find himself liable to claimants, prospective beneficiaries, or third parties. In the event that a trustee incurs a liability (for example, in litigation, or for taxes, or under the terms of a lease) in excess of the trust property they hold, they may find themselves personally liable for the excess. Trustees are generally held to a "prudent person" standard in regard to meeting their fiduciary responsibilities, though investment, legal, and other professionals can be held to a higher standard commensurate with their higher expertise. Trustees can be paid for their time and trouble in performing their duties only if the trust specifically provides for payment. It is common for lawyers to draft will trusts so as to permit such payment, and to take office accordingly: this may be an unnecessary expense for small estates.

Corporate Administration Management in all business and organizational activities is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively. Management comprises planning, organizing, staffing, leading or directing, and controlling an organization (a group of one or more people or entities) or effort for the purpose of accomplishing a goal. Resourcing encompasses the deployment and manipulation of human resources, financial resources, technological resources, and natural resources. Because organizations can be viewed as systems, management can also be defined as human action, including design, to facilitate the production of useful outcomes from a system. This view opens the opportunity to 'manage' oneself, a pre-requisite to attempting to manage others.
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Not every bank provides each service. Banks tend to polarise between retail services and private banking services. Retail services tend to be low cost and undifferentiated, whereas private banking services tend to bring a personalised suite of services to the client. not every banks provides each of these services. Banks tend to polarize between retail service and private banking services. Retail service tends to be low cost and undifferentiated; where as private banking services tend to bring a personalized suit of services to the client. Offshore banking is an important part of international financial system. Experts believe that as much as half the words capital flows through offshore centers. Tax havens have 1.2 per cent of the world population and hold 26 per cent of the worlds wealth, including 31 per cent of the net profits of the United States multinationals. The international monitory fund (IMF) has said that between $600 billions and $1.5 trillion of illicit money is laundered annually, equal to 2 to 5 per cent of global economic output. Today, offshore where most of the words drug money is allegedly laundered, estimated at up to $500bilion a year, more than the total income of the worlds poorest 20 per cent. In the twenty first century, regulation of offshore banking is allegedly improving, although critics maintain it remains largely

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ONLINE OFFSHORE BANKING

Online offshore banking or in other words ibank represents an internet bank system through which a holder of an offshore corporate or personal bank account, with both offshore credit card and debit card, can manage and monitor his/her account(s) via internet from all over the world. Advantages of online offshore banking As already mentioned above, a holder of an offshore corporate or personal bank account may access his/her account via ibank from all over the world. The only thing that you need is a computer and internet connection. In addition, the offshore bank account can be accessed 24 hours /7 days. But this is not the last advantage, do not forget that via online offshore banking you have at your disposal except the possibility to manage and monitor your account also the possibility to use different banking services which may differ from bank to bank but generally enhance such services as: transfer of money, exchange of currencies, making deposits and many other transactions. Any of these transactions can be made immediately or booked for a certain date. In addition, what is the most important is that they are secured. Moreover, if you have any questions or you encounter problems or difficulties during the use of the online offshore banking services the majority of banks provide 24 hour assistance. All you need is to call them. The personnel of the offshore banks usually speak in several languages. How to use online offshore banking?
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Usually, online offshore banking can be used on different operating systems such as Microsoft Windows or Mac and many other systems. You can even access your private or corporate offshore bank account from a smart phone. In addition, all largely used browsers such as Internet Explorer and Mozilla Firefox, and others support the service. At the end of the day all you actually need is internet connection. It is important to mention that online offshore banking is a secured system so getting access to it presupposes several steps. Usually, you will have to use a username and a password to login into the system. Also each electronic transaction that you make through online offshore banking has to be confirmed by a personal security code. This reduces the risks of frauds or any other troubles that might occur if someone else gets access to your offshore bank account via online offshore banking.

Offshore Credit Card, Offshore Bank Account, Online Services, Secured Credit Cards

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Offshore credit cards are comparatively new type of service that offshore banks provide for their clients. Only couple of years ago typical offshore bank client did not have such a convenience to access his/her savings so easily through the credit cards that are linked to the offshore bank account. In the past if a client wanted to access money kept offshore, he/she had to personally withdraw it from his/her offshore bank account by physically visiting bank office or transfer it to onshore bank account. Both ways had serious disadvantages. In case of withdrawing money from the account an individual faced a risk of getting robbed on the way home and in second case when money was transferred from offshore to onshore account his/her privacy was seriously challenged, since it became possible to trace offshore account through this transfer. This whole process was extremely inconvenient, inflexible and time consuming. Offshore credit cards made a huge step towards simplification of the ways an individual can access funds that he/she keeps in the offshore banking center. Offshore bank issued Visa and MasterCard offshore credit cards made a revolution in offshore banking business. Offshore credit cards have almost the same features as the domestic ones. They are also branded under Visa and MasterCard and are accepted at millions of locations for paying in exchange for goods and services. In addition, they allow getting cash advances through automated teller machines (ATMs). Offshore credit cards also provide insurance, car rental benefits, card replacement, offshore banking online services, carrying balances forward and many other services that is also available to normal credit card owners. Although offshore credit card and domestic credit card have numerous similarities, there are some aspects by which they differ. As a rule offshore banks require their clients to provide certain amount of guarantee a security deposit together with the application for the credit card. The amount requested by offshore banking institutions varies from case to case, however normally it is 125-150% of the credit amount requested. For instance, to get credit card balance of $20,000, a client should provide a security amount of $30,000. There are cases, when banks require security deposit of 200%. It is possible to increase offshore credit card balance, but offshore banks require client to increase security guarantee as well by wiring funds or by any other acceptable method. The system of security deposits differs from the requirements that domestic banks set for their
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customers. In fact offshore credit cards are some kind of hybrid card, where credit that is extended is secured by clients own money, therefore offshore banks often refer to such cards as offshore cards.

Offshore Banking Institutions

Recommended Offshore Banking Jurisdictions The most financial advantageous Offshore banking jurisdictions for providing financial security, privacy, convenience and return upon investment are listed below, in order: For initial deposits of over 100,000:

Switzerland Luxembourg Lichtenstein Isle of Man

The Offshore Company UK specialises in offering offshore bank account setup in Switzerland and we have compiled an entire section on Swiss Banking. For deposits under 100,000, these are the recommended jurisdictions:

Caribbean (many countries, call for details) Latvia

Banking in the European Union Jurisdictions With the advent of a piece of legislation called the European Union Savings Tax Directive 2005, the financial confidentiality and privacy of EU citizens has been compromised, if they are subject to it. The reach of this directive extends to certain offshore banking locations if they are either European Union members or fall under its purview and jurisdiction. Whilst scrutiny is lower and confidentiality is higher in tax haven jurisdictions, potential European account holders should note that this EU Tax Directive may adversely affect their financial privacy.
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This limits the financial privacy of certain accounts held in certain offshore banking institutions. The member states of the European Union are currently: Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden and the United Kingdom. Offshore Banking within jurisdictions that are part of the commonwealth of, or is governed by or is a consigner, of these countries and their laws is subject to this European Union Savings Tax Directive. Other offshore financial centres, such as Switzerland and the United States of America, may also comply voluntarily. In essence, the European Union Savings Tax Directive 2005 is an agreement between EU Member States which allows the exchange of financial or transactional information. This agreement is known as the automatic exchange of information option and is the hallmark of the Directive. European Union citizens must take extra care, therefore, when selecting an offshore banking institution to ensure their financial privacy. It is essential to choose an offshore jurisdiction which is not subject to EU law or EU directives and do not participate in this agreement to guarantee their confidentiality and privacy, thus resulting in increased offshore bank account security and stronger asset protection. Other Offshore Bank Account Jurisdictions All of this being said, there are other offshore financial centres which provide many of the same offshore benefits that the EU jurisdictions do, but which are not bound by this EU Directive. These other offshore jurisdictions, not subject to EU Directive reporting, are where European investors need to look to open an offshore bank account if confidentiality, less tax and increased financial privacy are important to them. Although an important consideration, however, it should not be presumed that it would always be advantageous to bank in a non-EU Directive adhering jurisdiction. A more substantial depositor meeting the initial deposit amount requirements might still favour swiss bank accounts and Switzerland as his offshore banking jurisdiction of choice. Although careful consideration including a fiscal needs analysis would
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have to be undertaken to ensure that the location met personal and financial requirements. If not, there are alternative jurisdictions which are not subject to the EU Tax Directive that would be very competent in dealing with large sums of money whilst still maintaining abject privacy. Additionally, these offshore financial centres have much lower initial deposit requirements than those required to open an account in a swiss banking institution, for example. Some OFCs like Panama and Belize only require 250 or 500 to open an account.

OFFSHORE BANK ACCOUNTS

In the current economic climate, many persons are turning to offshore banking as an alternative method of saving and investing their hard earned money. Why setup an offshore bank account? The main reason people setup offshore bank account is to save on taxes. Another reason is to keep money away from creditors reach. While it is not illegal in most countries to open an offshore bank account, if you are doing so for illegal reasons then be prepared not to be protected from the long arm of the law. One major advantage of banking in the US is the fact that the government insures the money. This generally is not the case with an offshore bank account though. So, in the event of a catastrophe you may wiped out financially in one fell swoop!

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The most famous of countries to have an offshore bank account in is: Switzerland. Offshore Bank Account Features True offshore banking No bank references for the account signatory No reporting requirements No taxation 24-hour online internet banking from any PC Multi-currency accounts Low monthly account management charges International ATM debit and credit card facilities ATM anonymous cash card (aka debit card) Gold and business credit cards

What You Need to Know Before Opening an Account? Offshore banking, we have all heard about it before. Unfortunately, many are misinformed when it comes to offshore banking. We have all heard news reports of offshore accounts being used to front illegal activities or to avoid taxes. In fact, we have also seen it in the movies, being used a similar way. This has led many individuals to believe that offshore banking is illegal. Despite what you may believe, offshore banking is legal. However, how you use it may be considered illegal.Offshore banking is done through a bank that is known as an offshore bank. Offshore banks are banks that are located in another country, other than the country that you reside in. For instance, if you live in the Untied States an offshore bank would not be located in the United States. Many popular offshore banks are located in Switzerland. There are a number of advantages to offshore banking, but there are disadvantages as well. The biggest advantage of offshore banking is that you are offered privacy and stability. There are many individuals who place their money in offshore accounts for security purposes. When your money is in an offshore account, you can access it, but many choose not to. It is easier to access and spend your money if it is at a local bank. That is why a large number of individuals use offshore banking to help them increase their savings.
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Another advantage of offshore banking is that just about anyone can open an account. The most common users of offshore banking are corporations, the self-employed, or individuals who wealthy. Offshore banks may have restrictions on the amount of money that is needed to open an account, but it is not always a large amount. Whether you are a small business owner, wealthy, or you consider yourself middle class, you should still be able to open up an offshore bank account. How much money do I need to invest offshore? There is no absolute low limit, but the extra costs of taking advice, opening new bank accounts, phone communication at a distance, transaction costs mean offshore investment is unlikely to be worthwhile for those earning less than 25,000 a year. However, because of the internet, costs are being reduced. Offshore banks will take deposits down to 1,000, but for a personalised 'private banking' service, you may need to deposit 100,000 or more. Each offshore bank will have its own requirements, so these are meant as a rough guide. Additional Information about Offshore Banking Accounts There are popular offshore financial centres thoughout the world and based on all continents. Selecting the right OFC for you is crucial to ensure the correct level and balance of confidentiality, taxation and offshore asset protection. One of the most effective ways of asset protection and banking anonymity, as touched on above, is the use of an offshore company to own the offshore bank account. The offshore location with the greatest privacy for an offshore company is not necessarily the jurisdiction with the greatest privacy for the offshore bank account. To provide maximum protection and wealth management, a combination of OFCs would be of benefit. For example, an offshore company established in Nevis could own an offshore bank account in Switzerland. The Island of Nevis has terribly strong offshore company law that offers maximum privacy of ownership. Switzerland, however, provides the strongest combination of international bank security and financial privacy. It is crucial to establish the best combination for your specific financial requirements. There are several tips that depositor (offshore account owner) should take into consideration before opening an account:

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1. Depositor should find out whether offshore banking jurisdiction follows bank secrecy policy. Bank secrecy is in fact one of the main benefits that offshore banking offers though offshore bank accounts and in practice all tax havens provide such benefits, however the degree to which anonymity is ensured varies from one jurisdiction to another, therefore it is worth deepening into the legislation of the country to determine to what extent bank secrecy is ensured; 2. Depositor should specify what services does offshore banking center offers. Can he/she receive a credit card? In what currencies can he/she open an account? What about foreign exchange operation, offshore investment opportunities, letter of credit provision, time deposits, checking, online banking and etc? Before actually making a decision of opening an offshore bank account one should have a clear idea about advantages and disadvantages of a specific bank and financial sector in general. It may happen so that a you may start with opening just account and later decide to use other offshore services as well. It may turn out that other services are not available in this offshore banking jurisdiction and moving to other jurisdiction may be quite costly; 3. Dont forget to check out the taxation policy for the jurisdiction you choose. Although many offshore banking centers have low or no taxes, there are cases when this is not the case. In other words not all offshore banking centers are tax havens and not all tax havens are offshore banking centers; Although different banks in different offshore banking jurisdictions require different documents for opening offshore bank accounts, most of them typically ask for the following documents:

For a Personal Account: 1. Filled out bank application form; 2. Signature sample; 3. Notarized copy of passport with clients original signature or any other acceptable identification;
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4. Original bank reference for each signatory of the account; 5. Document confirming clients address; Bank application form varies from bank to bank. Some require it to be signed in front of the public notary, while some in front of bank officer, some do not have any of these requirements. For Corporate Offshore Bank Account: 1. Memorandum and Articles of Association (original or certified copy); 2. Certificate of Incorporation (original or certified copy); 3. Board resolution to open account (original or certified copy);

OFFSHORE BANK ACCOUNT COSTS

Offshore Bank Account Tariffs & Fees Offshore bank accounts are frequently opened under the name of an offshore company. The reason for this is the increased privacy as all banking transactions, if traced, would be under the name of the offshore company, not the client. Establishing an offshore bank account in this way could cost between $350 to $550, plus the cost of setting up the offshore company. An offshore company typically costs between $1495 and $2,495. So, one could expect the total offshore account costs to be about the $1845 for both. It is essential that any potential owner of an offshore bank account should research the necessary information to make a strong, informed decision when proceeding with an offshore bank account setup and forming an offshore company. With 30 years experience in the Offshore Services Industry, we strongly recommend that you contact an offshore advisor for help in selecting the right offshore jurisdiction (OFC), offshore banking institution and company types for your requirements. Offshore Bank Accounts have to be opened with an initial deposit to activate the account. Although, some offshore provider's bank account types, fees, interest rates, etc. vary, most offshore financial institutions (OFCs) have competitive costs and a high level of bank account security. Additionally, the interest rates tend to be higher than in the UK and EU, providing an
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extra benefit for those saving abroad. Process fees, courier charges and various small costs (for notary, etc.) will be incurred during the process of establishing an offshore bank account. The Offshore Company UK has helped thousands of individuals and companies open private banking accounts, offshore companies and corporations and can assist you in establishing the right offshore vehicles for you

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CHAPTER 3 : OFFSHORE BANKING IN INDIA OFFSHORE BANKING IN THE INDIAN CONTEXT

India has made a cautious beginning in offshore banking by permitting for the first time Offshore Banking Units (OBUs) to be set up in Special Economic Zones (SEZs). The SEZs have been set up with a view to providing an internationally competitive and hassle free environment for export production. SEZs will be specially delineated duty free enclave and deemed to be a foreign territory for the purpose of trade operations and duties / tariffs so as to usher in export-led growth of the economy. The OBUs virtually would be foreign branches of Indian banks located in India. These OBUs, inter alia, would be exempt from reserve requirements and provide access to SEZ units and SEZ developers to international finances at international rates. The Reserve Bank of India (RBI) has permitted banks operating in India, whether Indian, public/private sector or foreign, to set up OBUs in the SEZs. The OBUs would carry out essentially wholesale banking operations. The OBUs will be set up as branches of the banks and therefore no separate assigned capital will be required. All prudential norms applicable to overseas branches of Indian banks would apply to OBUs. Thus, the necessary risk management practices that are in vogue internationally, would have to be adopted by the OBUs. The OBUs will be regulated and supervised by RBI. They will be required to scrupulously follow Know Your Customer and other antimoney laundering directives of RBI from time to time. Unlike the OFCs in other developing countries which conduct offshore banking in a significant manner, the OBUs in India have a limited mandate. In fact, the approach appears to be facilitating the SEZ policy rather than introducing offshore banking in India. This is in line with the cautious policy stance adopted by the regulators in regard to the opening up of the financial sector. Notwithstanding the limited scope for offshore banking in the light of the relevant regulations, many Indian banks have set up OBUs in SEZs. Available feedback is encouraging. Over the years, India has tightened the legal framework to combat money laundering and other cross border financial crime. These include the Prevention of Money Laundering Act 2002,
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passed keeping in view the FATF deliberations and recommendation and international initiatives at the United Nations and others. There are other laws such as The Smugglers and Foreign Exchange Manipulation (Forfeiture of Property) Act of 1976, The Code of Criminal Procedures 1973, Prevention of Corruption Act, 1988, The Narcotic drugs and Psychotropic Substances Act of 1985.

ROLE OF RESERVE BANK OF INDIA IN OFFSHORE BANKING

The role of Reserve Bank of India has been very critical in initiating the process of offshore banking in India. For plenty of years, the various Indian banks had been trying to convince the Reserve Bank of India to introduce offshore banking in the country. Eventually, the Reserve Bank of India understanding the needs and prospects of offshore banking in India, allowed the setting up of offshore units in the special economic zones. Many of the Indian banks made use of that provision to set up offshore banks in India. Reserve bank of India Offshore banking units guidelines Scheme For Setting Up Of Offshore Banking Units (Obus) In Special Economic Zones (Sezs)

The Government of India has introduced the Special Economic Zone (SEZ) scheme with a view to providing an internationally competitive and a hassle free environment for export production. As per the Government's policy, SEZs will be a specially delineated duty free enclave and deemed to be a foreign territory for the purpose of trade operations and duties / tariffs so as to usher in export-led growth of the economy. It was also indicated by the Union Commerce Minister in his speech announcing the Exim Policy for 2002-07 that for the first time, Offshore Banking Units (OBUs) would be permitted to be set up in SEZs. These units would be virtually foreign branches of Indian banks but located in India. These OBUs, inter alia, would be exempt from CRR, SLR and give access to SEZ units and SEZ developers to international finances at international rates.

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2. The Scheme 2.1 Eligibility Criteria Banks operating in India viz. public sector, private sector and foreign banks authorised to deal in foreign exchange are eligible to set up OBUs. Such banks having overseas branches and experience of running OBUs would be given preference. Each of the eligible banks would be permitted to establish only one OBU which would essentially carry on wholesale banking operations. 2.2 Licensing Banks would be required to obtain prior permission of the RBI for opening an OBU in a SEZ under Section 23(1)(a) of the Banking regulation Act, 1949. Given the unique nature of business of the OBUs, Reserve Bank would stipulate certain licensing conditions such as dealing only in foreign currencies, restrictions on dealing with Indian rupee, access to domestic money market, etc. on the functioning of the OBUs. The parent bank's application for branch licence should itself state that it proposes to conduct business at the OBU branch in foreign currency only. No separate authorisation with respect to the OBU branch would be issued under FEMA. As currently in vogue with respect to designating a specific branch for conducting foreign exchange business, the parent bank may designate the branch in SEZ as an OBU branch. A separate Notification No. FEMA71/2002RB dated September 7, 2002 issued by the Exchange Control Department (ECD) of RBI on OBUs is enclosed. 2.3 Capital Since OBUs would be branches of Indian banks, no separate assigned capital for such branches would be required. However, with a view to enabling them to start their operations, the parent bank would be required to provide a minimum of US$ 10 million to its OBU.

2.4 Reserve Requirements 2.4.1 CRR

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RBI would grant exemption from CRR requirements to the parent bank with reference to its OBU branch under Section 42(7) of the RBI Act, 1934. 2.4.2 SLR Banks are required to maintain SLR under Section 24(1) of the Banking Regulation Act, 1949 in respect of their OBU branches. However, in case of necessity, request from individual banks for exemption will be considered for a specified period under Section 53 of the B.R.Act, 1949.

2.5 Resources and deployment The sources for raising foreign currency funds would be only external. Funds can also be raised from those resident sources to the extent such residents are permitted under the existing exchange control regulations to invest/maintain foreign currency accounts abroad. Deployment of funds would be restricted to lending to units located in the SEZ and SEZ developers. Foreign currency requirements of corporates in the domestic area can also be met by the OBUs. If funds are lent to residents in the Domestic Tariff Area (DTA), existing exchange control regulations would apply to the beneficiaries in DTA. 2.6 Permissible Activities of OBUs OBUs would be permitted to engage in the form of business mentioned in Section 6(1) of the BR Act, 1949 as stipulated in the enclosed ECD Notification no. FEMA71/2002-RB dated September 7, 2002 and subject to the conditions of the licence issued to the OBU branches. 2.7 Prudential Regulations All prudential norms applicable to overseas branches of Indian banks would apply to the OBUs. The OBUs would be required to follow the best international practice of 90 days' payment delinquency norm for income recognition, asset classification and provisioning. The OBUs may follow the credit risk management policy and exposure limits set out by their parent banks duly approved by their Boards. The OBUs would be required to adopt liquidity and interest rate risk management policies prescribed by RBI in respect of overseas branches of Indian banks as well as within the overall risk management and ALM framework of the bank subject to monitoring by the Board at prescribed intervals. The bank's Board would be required to set comprehensive overnight limits for each currency for these branches, which would be separate from the open position limit of the parent bank.
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2.8 Anti-Money Laundering Measures The OBUs would be required to scrupulously follow "Know Your Customer (KYC)" and other antimoney laundering instructions issued by RBI from time to time. Further, with a view to ensuring that anti-money laundering instructions are strictly compiled with by the OBUs, they are prohibited from undertaking cash transactions, and transactions with individuals.

2.9 Regulation and Supervision OBUs will be regulated and supervised by RBI through its Exchange Control Department, Department of Banking Operations and Development and Department of Banking Supervision.

2.10 Reporting requirements OBUs will be required to furnish information relating to their operations as are prescribed from time to time by RBI. 2.11 Ring fencing the activities of OBUs The OBUs would operate and maintain balance sheet only in foreign currency and would not be allowed to deal in Indian Rupees except for having a special Rupee account out of convertible fund to meet their day to day expenses. These branches would be prohibited to participate in domestic call, notice, tem, etc. money market and payment system. Operations of the OBUs in rupees would be minimal in nature, and any such operations in the domestic area would be through the Authorised Dealer (distinct from OBUs) which would be subject to the current exchange control regulations in force. The OBUs would be required to maintain separate nostro accounts with correspondent banks which would be distinct from nostro accounts maintained by other branches of the same bank. The Ads dealing with OBUs would be subject to ECD regulations.

2.12 Priority sector lending The loans and advances of OBUs would not be reckoned as net bank credit for computing priority sector lending obligations. 2.13 Deposit insurance Deposits of OBUs will not be covered by deposit insurance.
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2.14 Choice of SEZ OBUs would be permitted in SEZs approved by Government of India, where according to Government policy, OBUs can be set up.

REPUTED OFFSHORE BANKS IN INDIA

With the introduction of offshore banking numerous banks made a beeline for setting up an offshore banking unit at the special economic zones. One of the banks which took to offshore banking in India is the Bank of Baroda. It set up an offshore unit in the city of Mumbai. Punjab National Bank is another banks which boasts of an offshore banking unit at Santacruz Electronics Export Promotion Zone or SEEPZ in Mumbai. The State Bank of India is also one of the banks with an offshore unit at SEEPZ.

PARTICIPATION OF THE INDIAN BANKS

Few Indian banks, such as State Bank of India, Indian Overseas Bank, Bank of India and Bank of Baroda, have set up offshore banking units for deposit taking and final lending at Bahrain, Hong Kong, Colombo, Cayman Islands, and so on. Indian Bank, Bank of Baroda and Union Bank of India jointly floated a deposit taking company, IBU International Finance, in Hong Kong for both offshore and onshore banking. The benefits for the Indian banks from these ventures are: Sizeable profits as these ventures involve relatively low operating costs. With multi-currency deposit bases, the banks would be able to serve better the needs of their customers who have set up joint ventures abroad in the form of foreign currency finance. The banks would strengthen the country's balance of payments through repatriation of profits from the venture.

OFFSHORE BANKING CENTRE IN INDIA

Financial experts have been pleading to establish an offshore banking centre in India. Geographically,
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India provides distinct advantages in attracting offshore banking units, because it has a stable economic and political performance, a vast market, technical manpower that could find employment in these centers. Another advantage is that the Indian market would open a little before the Tokyo market closes, and close before New York opens, thus providing a vital time link for international money market dealers. In an era where many Indian corporations are functioning abroad and many corporations are granted permission to seek overseas finance, establishing an offshore unit will help tap the resources: Exporters would benefit in terms of finer margins on loans and better foreign exchange rates available via an offshore banking unit. The benefits of multi-currency operations which, to an extent, minimize currency fluctuation risk, will be an added advantage. Salaries paid by offshore banks and local expenditure incurred by them contribute to the economy's welfare. For smaller countries, the benefit would be greater. For a larger country such as India, however, this may not form a significant portion of the total income. India may earn revenue in the form of licence fees, profit taxes imposed on the banks operating in the area. It may also get the benefit of banks' funds in the form of capital and liquidity requirements. the country can gain improved access to the international capital markets. the domestic financial system may become more efficient through increased competition and exposure of the domestic banks to the practices of offshore banks. Offshore banking centers will provide opportunities to train the local staff which will, in turn, contribute to faster economic growth. Offshore banking units would help channelize non-resident Indian investments. Setting up offshore banking centers would trigger enforced development of more advanced communication facilities a must for their functioning.

OFFSHORE DEVELOPMENT - A FAVOURITE DESTINATION INDIA

Softwares are the ultimate need of the present business. Every business organization needs softwares to carry out their business processes successfully and efficiently. The organization always wants a well worthy software in a very optimum price, so they tend to look for a better option of solutions and off course in a lesser price to maximize the profits.
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Due to the high market value of USD,UK-POUND and EURO the development cost of the software are most likely to be very high in these Developed Nations. Therefore, the business organizations are looking for a lower cost options and the same same quality of work as well. So, they are Outsourcing their Business Processes to the developing nations like India. India is considered as the best destination to outsource the IT related work in the last 5 years from the USA, UK and other European Countries. India is the leading beneficiary of the IT related outsourcing, because of the following reasons A large pool of Technically Qualified Professionals are available in India with above average IQ, which makes it a large force in the IT related works. The most important advantage is the cost factor - in India a Professional Software Engineer or IT Professional is available to work for a monthly salary of less than USD500 equivalent which is not likely to be happened in US/UK etc. The quality of services provided by them is at par the International Standards and they are flexible to work in any time zone of this world. The Geographical Distance is not a problem for the Software or IT related services. It is possible to implement the developed software online from any place connected to Internet unless it is a very complex application and the support needed for the maintenance can be provided from any place in the world via Internet. So, the Geography has now become History for the modern day technology.

THE SCOPE FOR OFFSHORE BANKING IN INDIA

The favourable factors for an OFC in India are well known. These include availability of skilled and quality banking, legal professionals, vastly improved Tele communication systems ensuring connectivity, the time zone advantage. The benefit by way of fillip to local economy is also well understood. However, clearly the regulatory regime governing it would be critical. Accordingly the proponents of offshore banking would need to address the key concerns of the regulator. Apart from the apprehension of offshore banking being used for dubious ends
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and in financial crime, the regulator would also be concerned about the systemic risks to the financial system. It would perhaps not be inappropriate to evolve a regulatory framework with a road map for informed public debate. Such a framework would need to address issues such as First, should only offshore banking be permitted or other activities within the umbrella of an OFC? Some of the other activities may appear as meeting specific needs such as insurance, fund management, trusts, etc. Second, for an OFC being set up should there be a single regulator for all the activities of the OFC or different regulators mirroring the pattern in the corresponding onshore sub sectors? Also, should there a single regulator for onshore and offshore banks? Third, should there licensing of firms in the OFC as it is currently stipulated for OBUs in SEZs? Or should it be simple incorporation as is the practice in most OFCs? Or should licensing be restricted to financial intermediaries? Fourthly, granted that licensing would be required for OBUs, who would be the eligible parties not just banks operating in India as per current policy, but also foreign banks, their subsidiaries/ affiliates? What would be the permissible activities? Here again the regulator would need to strike a balance between the fundamental objective of ensuring financial stability and the business growth compulsions of the OBUs. For instance, if private banking were to be permitted, the requirements of confidentiality would need to temper the anti-money laundering safeguard measures. The RBI is today well respected in the international community as a proactive regulator in the adoption of international standards and the maintenance of financial stability while at the same time, aiding development and growth. A slew of policies adopted by RBI in the last few years have been aimed at strengthening the banking system. These include adoption of prudential norms, consolidated supervision, connected lending, using technology to upgrade settlement systems, payment systems, widening and deepening the various segments of the financial markets, the unrelenting emphasis on upgradation of risk management systems of financial intermediaries. The gradualist approach to financial liberalisation has paid rich dividend. The way forward appears to involve at the first step, an assessment of the robustness of the existing legislative and regulatory framework may be done keeping in view the principles of cross border cooperation, information sharing transparency, ongoing monitoring. Perhaps certain overseas jurisdictions with whom India can have reciprocal arrangements can be identified, that will ensure proper due diligence while licensing OBUs and subsequent supervision. In sum, the question before us
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may not whether to have an OFC, but how can we set up a well regulated OFC that will be beneficial to the Indian economy

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 individualsnearly $6 trillion out of $17.5 trillionmay 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. The IMF has said that between $600 billion and $1.5 trillion of illicit money is laundered annually, equal to 2% to 5% of global economic output. Today, offshore is where most of the world's drug money is allegedly laundered, estimated at up to $500 billion a year, more than the total income of the world's poorest 20%. Add the proceeds of tax evasion and the figure skyrockets to $1 trillion. Another few hundred billion come from fraud and corruption. "These offshore centers awash in money are the hub of a colossal, underground network of crime, fraud, and corruption" commented Lucy Komisar quoting these statistics.[1] Among offshore banks, Swiss banks hold an estimated 35% of the world's private and institutional funds (or 3 trillion Swiss francs), and the Cayman Islands (1.9 trillion US dollars in deposits) are the fifth largest banking centre globally in terms of deposits. Each year, an increasing number of investors around the world are attracted by international financial centers to establish business in a form of an offshore company, offshore trust, offshore mutual fund, offshore insurance company, open an offshore bank account or even start their own offshore bank. It is estimated, that around 60% of the world's wealth is held on offshore accounts by using offshore companies or offshore trusts and that around 50% of the world's trade in goods are transacted through various offshore jurisdictions. As the years have progressed, so has the application of offshore services along with the number of offshore jurisdictions offering such benefits. Offshore companies or offshore trusts are not the illicit hideaways from tax authorities as sometimes presented. When setup and managed correctly, they can in
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fact provide enormous tax savings and asset protection in a perfectly legal manner. In simple terms, an international business or offshore company is usually a normal limited liability company, which is used as a tool by corporations and individuals throughout the world to legally direct profits out of high tax countries into offshore jurisdictions or so called international offshore centers, thus taking advantage of the low or zero taxation and various double tax treaties.

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CHAPTER 5 : LEGAL ASPECTS TRENDS IN REGULATION OF OFFSHORE BANKING

Since offshore banking emerged and grew in response to restrictive regulatory regimes, there are certain inherent risks that can potentially affect international financial stability. Three can be readily identified. First, the contagion effect with the increasing integration of financial markets worldwide and the explosive growth in cross-border capital flows, problems in a bank in a OFC can be transferred rapidly to other market jeopardising the stability of those markets. Second, the lack of reliable data on activities in OFCs may hinder effective supervision. Third, competitive liberalisation may lead to lowering regulatory standards in OFCs in order to attract a higher share of global business. Internationally regulators have been addressing the systemic issues posed by offshore banking. The `Basle Concordat of 1975 was implemented on best efforts basis for almost two decades. The bankruptcy of Bank of Credit and Commerce International (BCCI) in 1992 hastened the adoption of international supervisory standards. BCCI was a landmark in the sense that thereafter, it has become difficult for a bank incorporated in a jurisdiction with limited domestic market to carry on business in other countries. The standards adopted by the Basle Committee for Banking Supervision are as follows: All international banks should be supervised by a home country authority that capably performs consolidated supervision; The creation of cross-border banking establishments should receive the prior consent of both the host country and home country authority; Home country authorities should possess the right to gather information from their cross-border banking establishments; If the host country determines that any of these three standards is not being met, it could impose restrictive measures or prohibit the establishment of banking offices. This was followed by the Report of a Working Group of the Basle Committee which, inter alia, aims at improving access of home and host regulators to data necessary for effective consolidated supervision
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and ensuring all cross border banking operations are subject to home and host supervision. Subsequently there have been several international and regional supervisory and regulatory initiatives. These are aimed, inter alia, at curbing involvement of OFCs in financial crime such as money laundering, tax evasion, lax financial regulation including inadequate supervision.

Changing Legislation A look at how legislation has affected Offshore investors

Just as you would undertake due diligence on the prospective offshore bank with which youre considering opening an account, the bank is checking you out to make sure you are who you say you are. In effect, the bank will want to know a lot more about you than it would have a few years back, mainly because of money laundering and its association with terrorism. The legislation governing offshore banking was forever changed as a consequence of what happened on the morning of September 11th 2001. The US sought to crack down on potential terrorists who were using the offshore banking network to move money around by initiating farreaching banking regulations - applicable to all accounts (worldwide) that were transacted in US dollars. Following 9/11 the US introduced the USA PATRIOT Act, which authorises the US authorities to seize the assets of a bank where it is believed that the bank holds assets for a suspected criminal. Similar measures have been introduced in some other countries. This doesnt impact the normal offshore client directly (we assume your desire to open an offshore bank account is a legitimate one), but part of it is the clause entitled: Know Your Customer which is the due diligence and bank regulations that financial institutions must perform to identify their clients and ascertain relevant information pertinent to doing financial business with them. The international response to money laundering has been coordinated by the Financial Action Task Force (FATF), also known by its French name, Groupe d'action financire (GAFI), whose original 40 principles form the basis of most international responses to money laundering. As well as the opportunity to curtail terrorist financing activities, the governments of Europe saw an opportunity to use terrorism as an excuse to clamp down on what really annoyed them about offshore banking - tax avoidance. The European Union Savings Directive (EUSD), which came into effect in July 2005, contains the so-called European Union withholding tax, a tax deducted from interest earned by European Union residents on their investments made in another member state, by the state in which the investment is
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held. This directive makes EU residents with offshore bank accounts choose between one of two options: 1) Allowing their offshore bank(s) to report savings income directly to local tax authorities. 2) Pay tax immediately at such time income is provided to the account holder by their offshore bank. Over time, it is expected an increasing number of offshore banks will be affected by this decision. In addition, if the account holder chooses the second option mentioned above, then the tax rate used to collect monies due is scheduled to rise in 2011. This increase in the tax rate is viewed as a way of eventually forcing all account holders in offshore banks to choose the first option mentioned above - namely allowing those banks to report directly to their countrys tax collecting agencies. Any interest you receive on your accounts can either have tax withheld at source, or alternatively, you may continue to receive gross interest, but the bank will have to report details about you and the interest you have received to the tax authority in the EU member state where you are resident. This raft of legislation has certainly complicated the next question: WHO IS LIABLE TO PAY TAX? Your tax situation and potential benefits of placing your money offshore will depend on your personal circumstances, the institution you open the account with and the jurisdiction in which it operates. As a rule of thumb, theres generally no tax deducted on interest earned. Also, any offshore income may not be subject to tax. Depending where you live, income on an offshore bank account or investments may not be subject to tax in your country of residence, if that money is not remitted into your country of residence. Moreover, in jurisdictions such as the Isle of Man and the Channel Islands, theres no inheritance tax, capital gains tax or death duties. Perhaps the most prevalent tax on offshore banking is a withholding tax. When a dividend (or royalties or interest) is paid internationally, the country from which the payment is made usually taxes the payment as it leaves, by 'withholding' a proportion of it, usually between 10 per cent and 30 per cent. If there is a double tax treaty between the two countries concerned, its often possible to reduce the tax, or to reclaim some or all of the money. Some receiving countries allow the withheld tax to be set off against domestic tax liabilities. There's no point in setting up an offshore account if you do not really need one. If you could easily do what is required with a simple domestic account, that's the best course to follow. On the other hand, if some of the ideas above struck a chord with you, maybe it is a good time to move offshore.
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Is Offshore Banking Legal?

Is offshore banking legal? This is a question often asked these days, as various nations seek to clamp down on offshore tax havens and offshore banking. And while such banking may raise eyebrows in certain quarters, or invite disapproving comments from politicians seeking to balance budgets and maximise tax revenue, the fact is banking offshore is perfectly legal. However, it helps if one first clarifies the situation by defining the words "offshore" and tax havens. Offshore simply means some place other than your home country. So if you're in the USA, then having a bank account in the UK would be considered offshore. Or if you live in Australia and have a bank account in Singapore then that would be offshore also. Neither of these places are known tax havens of course, but never-the-less they would be considered "offshore" if you banked there but didn't live there. So while an offshore account may very well be in a tax haven, it doesnt have to be. There are various negative associations with the term tax haven, as such countries are widely perceived to be places where unsavoury characters do shady business dealings or worse, engage in money laundering. But the truth is, a tax haven is simply a country where either no income tax is paid, or less tax compared with other countries. The motivation for a country to become a low tax or no tax haven is usually to gain some competitive advantage. They do this by offering financial and incorporation services designed to attract foreign business - and boost the local economy. And this is usually the essence of the hostility towards such places. Most developed Western countries have a large socialist component to their economies, where high taxes are used to fund various social welfare programmes. So when some countries lower or eliminate their income tax it naturally attracts those who seek to pay less tax - both companies and individuals. The fact is, any sovereign nation has the right to determine its own tax rules and the rate of tax they seek to impose. And its perfectly natural for there to be tax competition in the world. Without it, nations
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would find no barrier to raising taxes and would no doubt exploit all of us in the process. Low tax and no tax nations provide an important counterbalance to the high tax countries and the existence of such tax competition is healthy and should not be discouraged. So if you see the advantage of banking in another country - offshore - then you are certainly free to do so. And provided you live in a country without currency exchange controls - which is most of the developed world - then transferring your funds to an overseas bank account is a simple matter, and like I said 100% legal. However, there can be complications, if you don't know your own countrys rules and regulations. Give you one example. If you're a US citizen or resident, then you are obliged to report the existence of any offshore bank account with a balance of $10,000 or more - or the existence of accounts where the aggregate balance is over $10,000. You're allowed to have as much money as you like in the account but are required to report it. Most other countries do not have this requirement. Another example would be the existence of various funds transfer reporting requirements. These vary from country to country, but let's say you wanted to transfer $50,000 from your domestic bank account to an offshore one - then it's highly likely the transaction would be reportable by your bank, meaning they would have to notify the relevant authorities that it has been done. Given these potential reporting requirements another obvious question would be, "So what are the advantages of banking offshore?". And the potential answers are many. It could be to seek more security, more financial privacy, to diversify currencies, or that overseas business dealings make having such a bank account necessary. Having access to foreign currencies is becoming increasingly useful, given the wild fluctuations between the value of such currencies. Right now, for example, the USD is on a long term downward trend, due to the negative economic fundamentals affecting the country. This means that anyone inside the USA, whose funds are exclusively in US dollars, is likely to see the value of their savings erode over time. Holding such savings in a stronger currency would be a rational decision, and using an offshore bank to achieve this would be a sane financial strategy. At the end of the day, given the increasing global nature of living and business, its perfectly natural for people to consider opening bank accounts in other countries if they can see any personal gain to be had
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from it. And as long as that demand exists there will always be reasons and ways to bank offshore.

Why criminals go offshore?

Criminal organisations are making wide use of the opportunities offered by financial havens and offshore centres to launder criminal assets, thereby creating roadblocks to criminal investigations. Financial havens offer an extensive array of facilities to foreign investors who are unwilling to disclose the origin of their assets. [...] The difficulties for law enforcement agencies are amplified by the fact that, in many cases, financial havens enforce every strict financial secrecy, effectively shielding foreign investors from investigations and prosecutions from their home countries (BLUM, LEVI, NAYLOR and WILLIAMS, 1998). Criminals prefer financial centres and offshore jurisdictions because the anonymity guaranteed by their banking, tax and company regulations provides an effective shield against requests for information by law enforcement agencies. Anonymity, in fact, is an essential requisite for the laundering of criminal proceeds and their reinvestment in the legitimate economy without incurring the law enforcement risk. It is possible to argue that the lesser this risk (due to the legislation governing the services offered by financial centres and offshore jurisdictions), the greater the probability that organised crime groups will use financial centres and offshore jurisdictions to launder the proceeds of their criminal Therefore the answer to the question is- NO, setting up offshore is not illegal. However, withholding information about your offshore investments is illegal in some countries. An offshore jurisdiction should be perceived as just another foreign country, but with certain advantages. These can take the form of banking secrecy laws, advantages in forming companies for international trade through tax treaties, no interest tax, no inheritance taxes, no capital gains tax, no individual tax, and many others. Depending on your personal needs or preferences, there will normally be one or more offshore jurisdictions offering the services you are looking for. This is one of the most frequently asked questions concerning the legality of offshore banking, and in short, Yes, offshore banking is legal. Offshore banking is a benefit to all of society and is indispensible. Using offshore banking for tax evasion purposes is what is not legal, and that is usually what is associated with offshore banking in general and is the cause of the misconception. Offshore banking is also associated with criminal activities such as money laundering. Let's clarify the
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distinction of legal and legal and examine why offshore banking will remain legal While Offshore banking has often been associated with the underground economy and organized crime, via tax evasion and money laundering; however, legally, offshore banking does not prevent assets from being subject to personal income tax on interest. Except for certain persons who meet fairly complex requirements, the personal income tax of many countries makes no distinction between interest earned in local banks and those earned abroad. Persons subject to US income tax, for example, are required to declare on penalty of perjury, any offshore bank accountswhich may or may not be numbered bank accountsthey may have. Although, and have no legal obligation to do so as they are protected by bank secrecy, this does not make the non-declaration of the income by the tax-payer or the evasion of the tax on that income legal. Following September 11, 2001, there have been many calls for more regulation on international finance, in particular concerning offshore banks, tax havens, and clearing houses such as Clearstream, based in Luxembourg, being possible crossroads for major illegal money flows. Defenders of offshore banking have criticized these attempts at regulation. They claim the process is prompted, not by security and financial concerns, but by the desire of domestic banks and tax agencies to access the money held in offshore accounts. They cite the fact that offshore banking offers a competitive threat to the banking and taxation systems in developed countries, suggesting that Organization for Economic Co-operation and Development (OECD) countries are trying to stamp out competition. Is it legal to set up an offshore bank account so that a court order cannot take money from your accounts? It is illegal to "conceal" assets offshore form the IRS, and/or to deny the possession of such assets in a written or oral statement when there is pending action or a judgment in place for creditor debt, alimony, restitution for personal injury suit and so forth. The reliability of offshore asset depositories are dicey at best and may become a nightmare rather than a haven for the depositer. If the action is in anyway connected with bankruptcy or any federal litigation such as the IRS, it is considered a federal felony and carries a mandatory prison sentence of 5-years for each count of which the person is found guilty. As previously mentioned, offshore banking is often associated with illegal activities. One of these illegal activities is tax evasion. If you set up an offshore bank account, you will still need to report your savings. Not reporting all of your money in an offshore account can lead to you be brought up on tax evasion charges. It is important to note that you have the ability to prevent this from happening. As long as you choose to use your offshore bank account legally, there shouldnt be any disadvantages to having
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one If you are planning on using your offshore account to avoid a lawsuit or to evade taxes, you may want to reexamine your decision. As previously mentioned, there are serious consequences for doing this. As long as you plan on using your offshore account in a legal way, you can benefit immensely from offshore banking.

CHAPTER 6 FUTURE PROSPECTS OFFSHORE BANKING TRENDS TO EXPECT IN 2011

The banking world has seen huge changes over the last three years, and 2011 will continue to manifest the secrecy, and more business and consumers are moving their money back onshore. But these changes in 2011 competition in low tax jurisdictions and more money flowing between continents. The banking world has seen huge changes over the last three years, and 2011 will continue to manifest the secrecy, and more business and consumers are moving their money back onshore. But these changes in 2011 competition in low tax jurisdictions and more money flowing between continents.
o

Reactions to the economic and financial crises show consumers have less tolerance for risk, governments have

Reactions to the economic and financial crises show consumers have less tolerance for risk, governments have

Competition: Hong Kong, Singapore will see competition as low tax zones.

Emerging markets are experiencing the fastest increase in high net worth individuals (i.e., persons with $1 m offshore banking in low tax jurisdictions, especially from Asian hubs. According to a report from KPMG

world, creating a new stream of revenue from consumers seeking wealth protection. This will help to ensu

rates,Global competitive developments over the past decade mean that many jurisdictions now have corporat

lower levels. Low tax jurisdictions must fight to remain competitive in 2011 or tax rates may not be enough to

over the long term. Hong Kong, rated last month as the most globalized economy in the world in 2010, "is facing

maintain its number one status in terms of globalization, according to Agnes Chan, Ernst & Youngs Regi rest on its laurels Chan said.

Hong Kong and Macau. Despite its success in evolving to become the most globalized economy in the world,

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Regulations: Greater transparency will be demanded from both individuals and financial inst

criminal enforcement efforts followed through.

A number of sanctions in overseas banking are likely to be enforced during in 2011, offshore assets be the focu organisations. Requirements imposed will include stricter and more extensive asset reporting, looser privacy

scrutiny all around. The U.S. is making bank accounts for non-residents more transparent. If the U.S. joins the directive would give the U.S. greater access to information about its residents offshore bank accounts banks. But this could also mean more witch-hunting, both for individual taxpayers and the professionals who

Directive (ESTD), non-U.S. account holders information will be divulged, diminishing the attraction to inv

are will also be a focus of governments. The U.S. is also stepping up enforcement and investigation of tax e

bigger cases could be used to make examples of and set precedents. Stronger regulations under the Bank S suspicious activity and cross-border transaction. The IRS has announced plans to introduce a new Program, but with stricter measures and repercussions than a similar program introduced two years ago.

increase in filing disclosure statements (FBAR filings), intensified programs for anti-money laundering, and

Asset protection: Investors will head East.

With an increasingly unfavorable mood to offshore investing in western and OECD countries, more investors w

Europe and the U.S. Investing individuals and institutions may choose to protect their assets by moving them

that offer greater growth outlooks in the recovery stages of the global recession, as well as greater privacy, s

Middle East. This is potentially damaging for the very countries asking for greater sanctions, as legal use of o jurisdiction in the world.

represents a large portion of financial revenue for the U.K.s banking system and the U.S. technica

Technology: Trends that will make it easier to conduct business abroad.

Just a year ago, amidst intense IRS and OECD pressure, UBS bankers in Switzerland were confident that the pri

have minimal effect on the Swiss offshore financial sector. However, a recent case where identities were leake

shows the pervasiveness of the Internet, secrecy is fast becoming a non-option for offshore banking providers. T

is in legal low-tax hubs. Growth in cloud computing results in more business conducted virtually. Get ready t

processed over the web, and more business conducted internationally. Trends to watch in 2011 include sec
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institutions, challenges and opportunities in tokenization, cloud computing and key management.

Consumer Behaviour

Much that will happen this year will be dictated by consumer behaviour. Recession and collapses of real estate

scared investors away from risk. In a recent interview with Financial Wealth Magazine , ABN AMRO Chief E

Banking Asia, Hans Diederen, shared that in the post-financial crisis climate, high net worth clients had increase

Products: Simpler, more liquid investment products, that offer more peace of mind. Diversifying: Increasing diversification to non-equity asset classes (e.g. bonds and funds). Proximity: Investments made closer to home country and region.

Information: more product information But one thing that hasnt changed, Diederen noted, is,

appetite is still very much driven by market sentiment.

With these consumer trends, offshore banking in Singapore and offshore banking in Hong Kong

investing with mitigated risks. Offshore wealth management will continue to remain dominant, accordin wealth growth rates.

Magazine. Asia will continue to be a key growth market for wealth management, outpacing the global average

THE FUTURE OF THE OFFSHORE INDUSTRY

Since the 911 incident, the international crackdown on money laundering has created a divide in the offshore industry, primarily between jurisdictions eager to comply with international standards of anti-laundering regulation and those that are less co-operative. The driving force behind those initiatives, have been influential organizations such as the Financial Action Task Force (FATF). The FATF was established by the G-7 countries in 1989 and is an intergovernmental body whose purpose is the development and promotion of policies, both at national and international levels, to combat money laundering and terrorist financing. As the FATF seek to apply more international pressure, it will become increasingly difficult for the less well-regulated regimes to do business.
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Another major issue is the exchange of information, the profile of which has been raised in the current climate. The recently agreed EU Savings Tax Directive will change the face of the offshore industry, although to what extent is somewhat harder to predict. Previously no information was exchanged automatically in Europe unless there were concerns about illegal activities on a bank account. However, with the introduction of the EU Tax Directive, customers living within the EU are likely to be forced to engage with these issues, either by having to pay a withholding tax or agreeing to exchange information. The new directive will affect not only the EU Member States but "all territories under their control", Switzerland and the USA. The UK has recently announced that if the Cayman Islands fail to voluntarily to comply with these new rules, the United Kingdom will legislate on its behalf. To this effect, Hong Kong will soon become a much more important jurisdiction for tax planning as it is one of the only respectable and well-regulated "offshore" banking centres which will not be subject to the new EU directive on automatic exchange of information and withholding tax. Hong Kong should also be seriously considered for clients wishing to register an offshore company, as it is one of the few respectable locations in the world that tax on a Territorial Basis. Consequently, this means that corporation tax is ONLY charged on profits derived from a trade, profession or business carried on in territory of Hong Kong. Income sourced elsewhere, even if remitted to Hong Kong, is treated as tax free. In general, the regulatory regime in respect of offshore banking may be expected to move forward on the basis of following four broad principles: First, consolidated supervision of banking operations through greater co-operation between home country and host country regulators; Second, higher transparency with reference to supervisory systems and programmes including dissemination of guidelines, publications of data of OFCs; Third, technical assistance to upgrade regulatory systems, supervisory policies and procedures through adoption of `best in class processes and policies. Fourth, setting up systems for independent monitoring of activities of OFCs and complying with supervisory standards.

But establishing offshore centers also comes with a price:

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 The supervision and regulation of offshore banks may involve substantial costs. Encouraging offshore banking may result in the diminution in autonomy of domestic monetary policy, since it is difficult to draw a line always between the offshore and onshore operations, particularly in the absence of exchange control. Offshore banking provides scope for tax evasion by residents. For instance, in Hong Kong, it was found that residents place deposits with offshore banks and take loans of the same amount. The interest on loan would be a deductible expenditure for taxation, while the income from interest on deposits is not taxed. Offshore banks may prove to be harmful competitors to the local banks and may inhibit their growth.

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FINDINGS AND SUGGESTIONS

STATE BANK OF INDIA OPENS INDIA'S FIRST OFFSHORE BANKING UNIT

State Bank of India has opened the first Offshore Banking Unit (OBU) in India at the SEEPZ Special Economic Zone, New Bank Building, Andheri (East) Mumbai 400,096 on 17th July 2003 - another landmark in the history of India's Financial Sector. The OBU will be deemed as an overseas branch of the Bank and undertake the following activities : 1. Raise funds in convertible foreign currency as deposits and borrowings from Non Residents sources. 2. Transact in foreign exchange with residents in India who are eligible to enter into or undertake such transactions in terms of various Rules and Regulations as framed under Foreign Exchange Management Act, 1999. 3. Open foreign currency accounts abroad as well as with other OBUs in India 4. Trade in foreign currencies in the overseas market and also with banks in India where both legs of the transactions are denominated in foreign currencies. 5. Provide customised loan and liability products for the benefit of clients 6. Maintain Special Rupee account with an Authorised Dealer in India out of the convertible foreign exchange resources for meeting local expenses 7. Buy Rupees from an Authorised Dealer in India to fund the Special Rupee Account. 8. All the KYC information is required to open up an account. 9. Minimum amount required is $1000 to open up this account.
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10. The interest rate is fixed in the same branch, and not by central bank of SBI or RBI.

CONCLUSION
In offshore banking, finding the right offshore service(s) that will allow you achieve your objectives at a reasonable cost and within the shortest possible time frame is paramount and should be considered with the utmost importance. Considering that the stock markets are continuously changing, the way that your offshore banking is handled must be in the best order, if not perfect. The bottom line is for you to find an offshore services firm that can service your needs and, has your interests and objectives at heart since it is your retirement benefits you are most likely to use. If you are able to find this type of institution then you can rest assured that your offshore account will grow successfully and will provide your needs well into the twilight of your life.

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BIBLIOGRAPHY AND WEBLIOGRAPHY

Webliography:

www.google.com www.yahoo.com www.sbi.co.in www.offshorebankingtoday.com

Bibliography : International banking & finance.

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