When you think of offshore bank accounts do you see shady characters carrying around bags full of money? Today's modern bank legislation does not allow banks to accept cash deposits or transfers of US$ 10.000 and up without presenting proof of the source of funds.

All serious establishments will ask you to fill out forms known as KYC or know your customer. Find out more about KYC: Know Your Customer This is not only to be able to give you better service but to protect themselves in case you are accused of money laundering. These forms also allow the bank to know your sources of income. Knowing your cash flow the bank will not ask you to prove the origin of the funds every time you make a transfer.

Even though you have filled out a KYC form the bank may or may not at its discretion allow you to start a relationship with them.

What's the difference between your local bank and an offshore bank? Basically any service you will get locally will be available offshore. Then why open an offshore account.

Offshore banking is no longer a handy way to conceal income from illegal activities or unreported business profits.

There are many justifiable monetary reasons to open an offshore bank account. As a resident in a country with an unstable political and economic history, you want your money in a safe place. The government could impose foreign exchange restrictions or there may be a bank run. A coup d'etat may make your money inaccessible.

Non-residents usually pay minimal or no taxes on interest or profits from investments. Depending on your citizenship, country of residence and if you use an offshore company as the account holder you may still have to pay taxes.

Many large international banks have branches or are incorporated in tax havens. To be on the safe side, you would probably be better off not using a bank that has branches or is incorporated in your country of residence.

American citizens must file an annual tax return no matter where they live and include offshore holdings. Starting July 1st, 2005, tax havens which are British 'dependant territories', will apply the European Union's Saving Tax Directive of 2005. Initially this is 15% on returns of savings paid to nationals of EU Member States. Corporations are exempt from this withholding tax.

Always consult a tax specialist who has experience with the jurisdictions involved before starting your offshore tax journey. You do not want any costly surprises after you open offshore company and bank account.