Legitimate uses for offshore accounts
The Panama Papers revelation has raised over-arching questions about the legality and ethics of using offshore accounts. However, in all the bluster, the many legitimate uses for offshore accounts have been largely forgotten.
For many small business owners and freelancers, an offshore account is simply a practical means of achieving something that they couldn’t otherwise, and is declared in full to local tax authorities when required.
Here’s some of the most common legitimate uses for offshore accounts:
Working across national boundaries
Internet-based small businesses and freelancers often have an international customer base, but perform little-to-no operations in the country that the owner lives in.
An offshore account enables them to utilise a consistent tax rate, take advantage of financial products in their countries of operation and easily process payments from several countries. Such accounts can be held in a variety of currencies, including sterling, dollars, euros and many others, which can make currency conversion cheaper in favourable economic conditions.
It can help to secure trade secrets. Therefore preventing competitors from seeing which markets you might want to expand into. If providing sensitive services (such as for a foreign military in a warzone), an offshore account can provide a level of anonymity that keeps the service provider safe. Account holders can also protect their assets from illegitimate seizure by authoritarian regimes.
Facilitating migration
Small business owners and freelancers who migrate for work often keep an account in their home country to use on return visits, or to support family members that may be reliant on financial assistance. An offshore account can be used from both countries regardless of political arrangements. In some cultures, financial dependence can continue through many generations through processes such as inheritance, which it’s difficult to take account of via other means.
Legal protection of assets
Small business owners may wish to legitimately protect their business assets against civil action (such as divorce), lawsuits or third-party attack.
Account holders with a level of wealth, or stake in a controversial profession, can save themselves from disproportionate attention and what they deem to be malicious activities. Health professionals working outside of the NHS and mainstream private sector are one such example. 40% of malpractice cases have been found to be groundless (Harvard, 2006), yet a frivolous lawsuit could jeopardise the business.
Maintaining individual financial anonymity
Business owners may see a strategic advantage in keeping the financial records of individual employees private in order to maintain morale and promote operational continuity. If a small business with a number of partners has an arrangement whereby income is supplemented with bonus payments, the latter can be kept private.
Service suppliers also have a habit of upping their prices for individual clients depending on industry and reputation, meaning small businesses can be charged higher amounts based on relatively arbitrary standards. An offshore account helps to circumvent this by ensuring that a service supplier can get access to basic details only.
While the Panama Papers are likely to be poured over for many years to come, it’s clear that there are many legally and morally sound reasons for small businesses and freelancers to use an offshore account.
If you want more expert insight and accounting insight for small businesses, call on the experts at 3 Wise Bears today.
