HOW OFFSHORE SAVINGS ACCOUNTS CAN AFFECT YOUR TAXES

By on May 8, 2013

Offshore savings account is a savings account maintained by an individual in a bank outside his country of residence. There are many advantages to offshore savings account like saving your money in a different currency, opening an account in an anonymous name, higher interest rate and having to pay minimum tax for the interest of your savings or none at all.
These advantages are sometimes abused by some of the wealthy individuals who wish to evade or lessen their tax dues. Offshore account may really benefit you with regard to lowering your due, but still gain a higher income, if you just know what to do.
First, you need to know what a tax haven is. It is a country or state where taxes are levied at a low rate or none at all. Examples of these countries are Luxembourg and Cayman Islands. Generally, interest from your saving accounts will not be fully credited in your savings because a final tax of about 20% will be deducted from it. Example, if your money in the bank gained an interest of 100$, less 20% of the final tax, then only 80$ will be added to your account as an interest. However, tax haven countries offer a lower rate for the final tax. Like in Luxembourg, the country offers about only 6% final tax on the interest of the savings account. Cayman Islands policy does not allow direct taxation, so no final tax will be deducted from the interests of the savings accounts.
Going back to offshore savings account, why is it that offshore savings affect your taxes? Again, offshore savings are accounts opened and maintained by an individual in a bank outside of his country of residence. If you open an account in one off the tax haven countries, then you are levied in a lower rate than usual. Example, you live in Ireland, but you maintained your account in Cayman Islands; then the interests from your savings account will not be deducted any final tariff. This scheme allows you to evade the 20% income tax that should have been deducted from the interest of your savings account.
Efforts from the United Kingdom Governments were made to inhibit this kind of tax evasion schemes by forming an alliance between the different countries. This alliance requires the banks from the different countries to report the amount of the savings account of the foreign individuals to the Government of their home country. The banks are also required to declare the amount of interest earned and the amount levied from it. However, such effort is useless because most of the tax haven countries are not signatories to such agreement. So individuals may still open offshore accounts in the countries who are not members of the agreement.
Instead of going through the risk of maintaining an offshore account to evade you duty, it is better to lessen your taxes in a more legal way. One of the legal ways of evading you tariff is availing of the working tax credit contact. This will benefit both the employees and the employer because employees will not be liable to pay income tax and at the same time, it reduces the business income tax of the hiring company. Work Opportunity Tax Credit may apply if the company hires an individual who had difficulty finding employment, like the veterans, supplemental social security recipients and the ex-felons. There are other legal and easier ways of lessening your tariff dues. One just need to know the laws of their countries to know how to apply it.

Author Bio:

Amy Lawson is a blogger and a financial consultant. He loves travelling with his family. He researched on various financial sites, some being PPI Claims, Tax Credits Guide, etc. You can contact the Tax Credits Office on the working tax credits contact displayed on their

 

About Sophie S.

About the Author: Sophie Samuel is blogger ,who loves sharing her knowledge. Follow her on Google+.