Offshore Banking for U.S. Citizens
Offshore bank accounts are legal for U.S. citizens when reported. FBAR and Form 8938 rules, how to open one, and why ownership decides protection.
Attorney Blake Harris· Florida Bar #86486, Colorado Bar #45942
It is legal for a U.S. citizen to open an offshore bank account, as long as the account is reported. You typically file an FBAR when your foreign accounts total more than $10,000 at any time in the year, and you may also need to file Form 8938. An account in your own name does not protect your money from a lawsuit. An account held by an offshore trust can.
What is an offshore bank account?
An offshore bank account is an account held at a bank outside your country of residence. For a U.S. citizen, that means any account at a foreign bank, whether in Switzerland, Singapore, Panama, Liechtenstein, the Cook Islands or elsewhere.
Offshore accounts come in many forms: personal checking and savings, multi-currency accounts, investment and private banking accounts, and accounts owned by a company or trust. The main difference from a U.S. account is that it operates under another country's laws.
Is it legal for a U.S. citizen to have an offshore bank account?
Yes. Offshore banking is legal for U.S. citizens. The legal problems come from not reporting the account or not paying tax on its income, not from having it.
Three sets of rules make offshore accounts visible to the U.S. government:
- FATCA: many foreign banks report accounts held by Americans directly to the IRS.
- The FBAR: you report your foreign accounts to the Treasury Department every year.
- Form 8938: you report specified foreign financial assets with your tax return.
Physicians, attorneys, business owners, real estate investors and retirees living abroad commonly hold offshore accounts.
How do you open an offshore bank account?
The process is similar at most banks that accept U.S. clients:
- Choose the bank and the account owner. Decide whether the account will be in your own name or held by a trust or company. This decision drives everything that follows.
- Gather documents. Banks typically ask for a passport, proof of address, a U.S. tax ID, bank references, source-of-wealth documents, and recent financial statements or tax returns.
- Pass the bank's compliance review. The bank runs know-your-customer and anti-money-laundering checks. Because of FATCA, many banks apply extra review to Americans, and this can take several weeks.
- Fund the account. Most accounts are funded by international wire. Minimum deposits vary widely, from modest amounts to $250,000, $500,000 or $1 million and up at private banks.
- Manage it remotely. Many banks offer online access, multi-currency balances and international transfers, so many clients never visit the country.
For a step-by-step guide to one popular jurisdiction, see how to open a Swiss bank account as a U.S. citizen.
Reporting requirements: the FBAR and Form 8938
Having an offshore account is legal. Failing to report it is where the trouble starts. Most U.S. account holders deal with two separate filings, and filing one does not satisfy the other.
| FBAR (FinCEN Form 114) | Form 8938 | |
|---|---|---|
| Who files | U.S. persons with a financial interest in, or signature authority over, foreign accounts | U.S. taxpayers with specified foreign financial assets above the threshold |
| Threshold | Combined foreign accounts over $10,000 at any time in the calendar year | For U.S. residents: over $50,000 at year-end or $75,000 at any time (single); over $100,000 at year-end or $150,000 at any time (married filing jointly). Higher for people living abroad. |
| Where it's filed | Electronically with FinCEN through the BSA E-Filing System, not with your tax return | Attached to your federal income tax return |
| Due date | April 15, with an automatic extension to October 15 | With your tax return, including extensions |
| Penalties | Civil penalties adjusted each year for inflation, with much higher penalties for willful violations | Up to $10,000, plus up to $50,000 more for continued failure after IRS notice |
Sources: FinCEN, IRS FBAR page, IRS, About Form 8938, IRS comparison of Form 8938 and FBAR, and the FBAR regulation, 31 C.F.R. § 1010.350.
Income from an offshore account, such as interest, dividends and capital gains, is taxable in the United States just like income from a U.S. account. For trust-owned accounts, see our guide to Cook Islands trust reporting requirements.
Why do people open offshore bank accounts?
- Asset protection. Money held abroad, through the right structure, can be harder for a future creditor to reach. (More on this below.)
- Currency diversification. Holding Swiss francs, euros, British pounds or Singapore dollars alongside U.S. dollars reduces reliance on a single currency.
- International investing. Some offshore banks offer access to foreign stocks, bonds, funds, precious metals and private investments.
- International business. Companies that trade abroad can pay and get paid in local currencies more easily.
- Geographic diversification. Spreading assets across countries reduces exposure to any one country's political, banking or economic problems.
Does an offshore bank account protect your assets?
Not on its own. What protects an account is who owns and controls it, not where it is.
| Account in your own name | Account held by an offshore trust | |
|---|---|---|
| Who controls it | You | An independent, licensed foreign trustee |
| If a U.S. court orders the money returned | You must comply, or risk contempt of court | You ask the trustee in good faith; the trustee decides, and must refuse requests made under court order or duress |
| Whose law governs the money | The court has power over you, so effectively U.S. law | The law of the trust's jurisdiction |
| Reported to the IRS | Yes | Yes |
| Protection from a future lawsuit | Little | Can be substantial, if set up before any claim |
An account in your own name can offer diversification and convenience, but a U.S. judge can simply order you to bring the money home. When an offshore trust, such as a Cook Islands trust, owns the account, the trustee answers to foreign law, and the trust's terms typically direct it to refuse requests made under court order or duress. The trust must be in place before a claim arises, or the transfer may be voided under voidable-transfer law (often called fraudulent-transfer law).
The same logic applies to gold and other precious metals: owning them does not protect them, but holding them through an offshore trust, and storing them outside the United States, can.
How to choose an offshore bank
Not every foreign bank accepts Americans, and not every bank that does is a good fit. Before opening an account, look at:
- Willingness to work with U.S. clients and registration under FATCA
- Experience with trusts and trustees, if a trust will own the account
- The regulator and the bank's financial strength, including audited financial statements
- Minimum deposit and fees
- Services you need: multi-currency accounts, investment management, online access, international wires
- Track record on withdrawals: a bank that delays or refuses transfers is a warning sign, since offshore deposits are generally not insured the way U.S. deposits are
We compare specific banks in Offshore Bank Accounts for Asset Protection. For Switzerland in particular, including Swiss gold storage, see Swiss Banking for U.S. Citizens.
Conclusion
Offshore banking is legal and widely used by U.S. citizens for diversification, international investing and asset protection, as long as every account is reported. But an account alone is rarely the whole answer. For protection from lawsuits, what matters is who owns the account, and that typically means pairing the account with an offshore trust set up well before any claim.
If you're considering an offshore account, plan the structure before you move any money. Call Blake Harris Law at (786) 692-6397 or contact us for a confidential consultation.
Related reading
- What Is an Offshore Trust?
- Swiss Banking for U.S. Citizens
- How to Open a Swiss Bank Account as a U.S. Citizen
- Offshore Bank Accounts for Asset Protection
This article is for general information only and is not legal or tax advice. Results depend on the facts of each case.
Frequently asked
Frequently asked questions
Yes, if they meet the bank's requirements and comply with U.S. reporting and tax rules. Some foreign banks no longer accept U.S. clients because of FATCA, but many still do.
Many do. Under FATCA, participating foreign banks report accounts held by U.S. persons to the IRS. An offshore account is not a way to hide money from the IRS.
You typically do if the combined value of your foreign accounts was over $10,000 at any time during the calendar year, even for a single day.
Often, yes. They are separate requirements with different thresholds, filed with different agencies. Filing one does not satisfy the other.
Yes. U.S. citizens are taxed on worldwide income, so interest, dividends and gains in an offshore account are reported on your U.S. return.
Often, yes. Many banks open accounts remotely, though some require extra verification.
It varies. Some banks accept modest deposits, while private banks may require $250,000 to $1 million or more.
Not by itself. If the account is in your name, a U.S. court can order you to bring the money back. An account owned by an offshore trust, set up before any claim, can offer stronger protection.
Yes, either directly or through a company the trust owns. For protection, the metals are typically stored outside the United States as well.
An offshore bank account is where money is kept. An offshore trust is a legal structure that owns and manages assets, and it often owns the bank account.
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