What is Offshore Banking?
Offshore banking refers to holding a bank account in a jurisdiction outside your country of residence. These accounts are often used for international business transactions, asset protection, and accessing global financial markets. Hong Kong in particular is an ideal location for western entrepreneurs looking to expand into the Asian market.
It should be noted that offshore banking is legal, but cannot be used to avoid taxes, particularly for Americans that have to pay taxes on their foreign-sourced income to the IRS. Otherwise, there are a great many benefits to offshore banking for US-based entrepreneurs looking to move some of their assets abroad, and also some risks applicants should be mindful of.
Benefits for US Entrepreneurs
Tax Benefits
Hong Kong is renowned for its favorable tax regime, featuring no capital gains tax and no taxes on foreign-sourced income. Profits tax on profits sourced in Hong Kong are also appreciably low, sitting at 8.25% for the first HK$2 million and 16.5% for remaining amounts above HK$2 million, which American entrepreneurs can take advantage of when they expand to Asian markets.
Security
Hong Kong’s banking sector is highly regulated and benefits from political and economic stability under its independent judiciary and the common law system inherited from its colonial days. This environment provides a secure setting for safeguarding assets, with strong legal protections and adherence to international banking standards. As one of Asia’s premier financial hubs, Hong Kong strives to remain as a bedrock financial hub even in times of uncertainty.
Currency Stability
Hong Kong’s currency is pegged to the US dollar within a narrow range, offering relative stability of exchange compared to other offshore jurisdictions. This peg reduces currency risk for US entrepreneurs holding Hong Kong Dollars without worrying about currency fluctuations.
Privacy
Offshore accounts in Hong Kong provide enhanced confidentiality, protecting them under tight security with anti-money laundering and KYC standards. While it is necessary to disclose offshore accounts to tax authorities like the IRS, these accounts will otherwise be shielded from public exposure.
Multiple Currency Accounts
Diversifying in multiple currencies helps hedge against dramatic fluctuations due to external factors, and can often make transacting with foreign businesses easier. Most major banks in Hong Kong have a large pool of currency accounts to choose from, allowing business owners to better prepare the necessary currencies in advance.
Remote Opening
A growing number of banks in Hong Kong offer remote account opening services for Hong Kong companies, allowing business owners to efficiently
Risks
Increased Compliance
Entrepreneurs from the US must undergo a series of compliance checks when creating offshore accounts. This includes filing reports such as the Foreign Bank Account Report (FBAR) if the aggregate value of their foreign financial accounts exceeds $10,000 at any time during the calendar year, and complying with the Foreign Account Tax Compliance Act (FATCA) by filling out Form 8938.
Transfers of values exceeding $10,000 must also be reported to the IRS by the bank.
Non-compliance can lead to severe penalties, so it is critical to stay on top of all the necessary paperwork to maintain an offshore bank account.
Delayed Access
Due to stringent anti-money laundering (AML) and know-your-customer (KYC) procedures, account opening and transaction processing can take longer than with domestic banks. Time differences between Hong Kong and the United States can also slow down communication time. Expect up to two weeks to open a bank account remotely.
| Offshore Banking in Hong Kong | Description |
| Benefits | |
| Tax Benefits | Low, 2-tiered tax regime |
| Security | Stable environment under the Common Law |
| Currency Stability | HKD is pegged to USD |
| Privacy | Accounts are shielded from non-tax authorities |
| Multiple Currency Accounts | Many currency accounts available |
| Remote Opening | Open your bank account completely remotely |
| Risks | |
| Increased Compliance | Reporting to FBAR and FATCA is required |
| Delayed Access | Security protocol may slow down opening process, exasperated by time differences |
How to set up an offshore bank account in Hong Kong
Digital banks have gained popularity in recent years for their quicker opening procedures and remote management features. Our article on digital bank comparisons will help find the right bank for you to create an offshore account with, or if you prefer a traditional bank, check out our guide on opening company bank accounts for foreign directors and shareholders.
If you can’t decide or have any further questions, we’d be happy to answer your inquiries!
