What to Consider When Opening an Account with a Foreign Bank
Opening a foreign bank account is an important step for international businesses and individuals. It gives access to new opportunities, improves financial management, and simplifies transactions on a global level.
However, don’t be in a hurry to launch the process of registration with a foreign institution. There are a number of key factors that will influence your prospects and the benefits of using the account, and these surely have to be taken into consideration. In fact, each detail is important! Let’s take a look at the nuances to be taken into account that will help you avoid common mistakes and successfully open an account abroad.
What Is a Foreign Bank Account?
A foreign bank account is a personal or corporate account opened in a financial institution in a country other than the one where you reside or have citizenship. It may be called an offshore account to emphasize that it is located outside your homeland.
Accounts with Foreign Banks: Methods of Operation
Foreign bank accounts are useful in different situations:
- They help to manage finances in a new country if you relocate and become a temporary or a permanent resident.
- They simplify keeping foreign currency or its investment.
- They streamline operations in different currencies (including everyday expenses using a debit card).
Kinds of Foreign Accounts
Accounts in foreign banks differ by kind depending on the customer’s needs:
- Resident accounts. If you legally reside abroad, have a valid visa, and have a local address, you can open an account under the same conditions as any local resident.
- Non-resident accounts. A non-resident account, also known as an offshore account, usually differs as you must comply with the minimum balance requirements and pay additional commissions and levies. This is an interesting option for travelers, wealthy people who wish to keep their funds abroad to diversify investments, entrepreneurs who work in offshore jurisdictions, as well as employees of foreign companies.
Facts You Need to Know to Open a Foreign Account
Let’s consider a number of key factors that you should consider before deciding to transfer and keep your funds abroad.
Tax Consequences and Reporting Requirements
Opening an account abroad entails tax consequences in the country of your citizenship and in the jurisdiction you have selected for keeping your funds. For example, US citizens have to submit reports to FBAR if the amount maintained in the foreign account exceeds USD 10,000. Failure to comply with this requirement may result in fines. This nuance should be taken into account if you are going to place and keep a large amount of money or carry out regular transactions via foreign financial institutions.
Legal Risks
Though keeping money outside the country of your residence is legal, you should understand that not all foreign jurisdictions protect your interests on an equal level. In some countries, financial and banking laws may change quickly due to political instability, which may result in limited access to your funds. For example, a sudden change in power in Venezuela resulted in the mass nationalization of banks. As a result, private companies lost their assets.
Financial Safety and Deposit Insurance
Not all foreign financial institutions provide deposit protection services, like the FDIC (Federal Deposit Insurance Corporation) system in the USA. The corporation insures customers’ deposits in commercial banks for up to USD 250,000 per depositor in case of bankruptcy. In EU countries, the Guarantee Fund protection covers deposits amounting to up to 100,000 euros. We can also consider a negative example: the financial crisis in Cyprus in 2013 when many depositors faced fund withdrawal limitations.
Commissions and Currency Risks
Foreign currency operations may include hidden commissions and result in expenses due to currency rate fluctuations. For example, if you keep your funds in euros and then exchange them into US dollars, the unfavorable rate change may cause losses. Currency risks are relevant problems for international businesses and individuals who plan to convert currency frequently.
Things You Need to Know to Open a Bank Account Abroad
Opening a bank account abroad may be a complicated task due to a lack of knowledge and understanding of financial system peculiarities in the selected country. Here are the factors to be taken into account:
- Local bank regulations. Each country has its unique banking system and laws. For example, the banking regulations in the European Union are more unified, while other regions have significantly different provisions that regulate banking activities.
- Specialized institutions. Some banks in your homeland have subsidiaries or partner relations with foreign banks. Such financial institutions often provide special services for ex-pats, such as multicurrency accounts or favorable conditions for international transfers.
- Document requirements. Each bank has its own requirements for documents you must submit to open an account. It is important to consider nuances when collecting and preparing the supporting package.
- There is a possibility of streamlining commission fees. You will need to carry out preliminary calculations and evaluate the expected profit. For example, if we take the SEPA system, transfers within the European Union cost as much as internal transactions. You can use the services of a forex broker or select a bank that charges low commission fees to minimize costs.
- Tax consequences of the status. For example, some countries may forbid non-residents to open certain kinds of accounts.
It is evident that opening an account abroad is a stressful and painstaking process, and we are ready to simplify the task. Our services extend beyond account registration as we control the process at every step. Contact us to be on the safe side.