Study Analyzes Why People use Offshore Accounts
The use of offshore accounts is a point of contention in the media these days. The release of the Paradise Papers and Panama Papers arguably aimed to bring down the reputation of those who used these accounts, but the information may have led to an unforeseen result. Instead of just leading to negative press, the papers have also kindled a discussion on why people use these accounts.
The reasons to use an account in a country that is different than one’s place of origin abound, but two examples include:
- Political instability. A recent publication by CNN Money discusses research released by economists. This report dug into why people throughout the world would use foreign accounts. The researchers found that the United Arab Emirates and Saudi Arabia had the highest percentage of wealth in accounts outside of the country. This is of interest since both countries have zero personal income taxes. Instead of taking advantage of tax benefits, it appears these individuals are motivated to move their money offshore due to concerns about a corrupt political system.
- Tax benefits. This is likely the most well-known reason for the use of foreign accounts. When done wisely, this form of financial planning can result in reduced tax obligations.
The use of these accounts is not illegal. Generally, the accounts are legal as long as the assets are properly accounted for and the owner is not attempting to conceal the accounts from the Internal Revenue Service (IRS).
Those who hold such accounts are often at increased scrutiny from the IRS. A failure to properly report can result in an audit. As such, it is often wise to reach out to an attorney if you are contacted by the IRS for an audit or are concerned that accounts are not in compliance with tax law.