Investing overseas diversifies your assets, so here’s how you can find the right foreign bank for your financial needs.
If you’ve got a sum of money to invest, there are plenty of benefits to be had by investing it overseas. Not only can you access different financial products, interest rates, fee structures and the like, but branching out into overseas investments also allows you to diversify your portfolio.
But do foreign banks want Australian customers? Is it easy to set up a bank account with an overseas bank and how would you go about doing so?
Let’s take a closer look in the table below
Why invest overseas?
The old saying about not putting all your eggs in one basket best sums up the main benefit of investing overseas. If all your money is tied up in investments in Australia – whether in shares, property, cash or a combination of the three – you’re highly exposed if the local economy hits the skids.
Putting money into overseas investments allows you to diversify your portfolio, providing protection against any dips in the Australian economy. Spreading your risk across a range of markets could be a wise move in these uncertain financial times.
Investing overseas also lets you access different accounts, services and benefits that might not be available in Australia. For example, you can take advantage of better interest rates elsewhere, or get in at the ground floor of a foreign economy that’s set for rapid growth in the near future.
Do banks want foreign customers?
In a word, yes. It’s in any bank’s best interests to attract money from wealthy customers all over the world, regardless of whether those customers are located in Australia or Zimbabwe. If you’ve figured out that there’s an attractive opportunity for foreign investors in another country, chances are there’s a bank that’s figured out the same thing and is keen for your business.
Many global banks operate specialised international banking units to help make it as simple and stress-free as possible to open an overseas account. For example, with a global presence in 82 countries and territories, HSBC’s international banking service can help customers with cross-border banking, overseas banking, overseas investment opportunities and buying property outside Australia.
Similarly, other banks with a global reach, such as Citibank, offer services to help you open a foreign account. There are also thousands of other local banks in countries all over the world looking to attract overseas investors, and the laws and regulations concerning foreign bank accounts can vary wildly from one jurisdiction to the next.
Even in Australia, the major banks all have teams dedicated to handling funds from overseas. CommBank’s Offshore Banking Unit, for example, provides tailored banking solutions to offshore business clients. Thanks to tax concessions from the Federal Government, it can attract business to Australia that would otherwise go overseas.
Undisclosed foreign bank accounts
In recent years, there’s been a determined focus by the Australian Tax Office (ATO) and other revenue offices in countries around the world on tracking down undisclosed foreign bank accounts. As the 2016 Panama Papers data leak showed, offshore bank accounts can be used to manage and conceal all manner of dodgy dealings, so it’s perhaps unsurprising that they come in for so much attention from the authorities.
The most important thing to point out is that it’s not illegal for Australian citizens to open a foreign bank account. Only if you fail to declare that account and the income it produces to Australian authorities will you find yourself on the wrong side of the law.
All income you earn from foreign sources needs to be reported to the ATO. Failing to report foreign income puts you at risk of hefty financial penalties and also leaves you open to criminal prosecution and even gaol time.
Recent times have seen initiatives encouraging Australian residents to report their undisclosed foreign accounts and receive immunity from prosecution, but those initiatives have come to an end. After the worldwide outrage caused by the Panama Papers Scandal, offshore bank accounts are firmly in the sights of the ATO and other national tax offices. So if you have undeclared income in a foreign account, there’s no time like the present to come clean.
How do I compare and choose foreign bank accounts?
Despite the world of offshore banking coming in for increased attention from taxation authorities, it’s still quite easy to open an account with an overseas bank. However, there are several factors you need to consider before opening a foreign bank account, including:
The regulations in the country
- The regulations that national governments impose on foreign investors differ greatly from one country to the next, so you’ll need to research a country’s regulatory structure before deciding if it’s the right destination for your money. Is it easy for foreign citizens to open an account? How will the account be treated by local tax authorities? Is the banking industry in the country stable, secure and well regulated?
Political or environmental risk
- Political instability can spell disaster for a country’s foreign investors, so make sure you choose a country with minimal upheaval or risk of civil unrest. A stable economy is also important and can help provide peace of mind and reduce the risk of losing your money.
The language barrier
- Although it’s sometimes said that money is the universal language, don’t underestimate the difficulties that the language barrier may pose when establishing and maintaining an overseas account. Look for a bank that is capable of producing account statements, overviews and tax reports in English.
The safety of the bank
- Once you’ve chosen a country you can start looking at the products and services offered by individual banks. How long has the bank been operating? Is it properly regulated by the relevant authority? Does it specialise in managing accounts for foreign investors?
The type of account you want
- Next, consider the type of account you want, such as a transaction account, savings account or home loan. Your investment goals will obviously impact upon the type of account you want. For example, a savings account will let you take advantage of a country’s high interest rates, while a fee-free transaction account will help you manage your ongoing financial needs.
- Look at account interest rates, fees and benefits to see which one stands out from the rest. Also remember to examine how easy a financial institution’s Internet banking portal is to use as it will be crucial to how you manage your money.
Account access and management
- Finally, compare the ways in which you can access the money in your account. Is the account accessible via phone and online banking? Does the bank in question have any branches in Australia? How easy will it be to withdraw funds and close your account if necessary?
Tips for offshore banking
Ask for advice
Ask your financial adviser or accountant for advice on choosing a country and a foreign bank account. Their specialist knowledge will help you avoid potential pitfalls and make an informed choice.
Consider a local expert
If you’ve decided to pursue investment opportunities in a particular country, you may want to enlist a financial planner or investment adviser with local knowledge in that country. He or she will be able to talk you through the regulatory requirements, opportunities and risks of the local investment market.
There are banks in all four corners of the globe that are willing to accept money from Australian customers. Make sure to research your options and the pros and cons of banking overseas before you decide whether an offshore account is right for you.