At VivaTropical, we’ve talked a lot about the benefits of owning an offshore bank account. Moving at least a portion of your portfolio overseas can help protect your assets from threats of litigation and the whims of the U.S. government.

Diversifying into international markets can also open wide the doors for a whole host of non-traditional investments that might not otherwise be available to you with a domestic bank or brokerage firm.

But with a whole world of options out there (literally), how do you choose which bank, or even which jurisdiction, to trust with your savings?  And by what criteria should you judge the candidates you’re considering?

Well, that depends largely on your particular needs and investment goals.  To some (even those doing business honestly), privacy is of the utmost necessity.  To others who might be looking for income-earning opportunities overseas, favorable tax laws may be the most important factor.

Below, in no particular order, are what are considered to be some of the best overall offshore banking jurisdictions. We can’t say which characteristics might be most beneficial to you and your financial situation, but this list should give you a good idea of where to start your search.

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Panama

Panama has long been a key player in the international banking industry, and the country’s recent economic growth has further solidified its place as a financial leader.  With over 80 international banks, it has one of the world’s largest banking sectors.

The country has a good balance of stringent privacy guidelines combined with adequate controls to prevent money laundering.  As a result, the industry is highly competitive, yet better monitored than many more peripheral jurisdictions.

Panama enjoys favorable tax laws, such as exemptions for foreign income, so you won’t be double-taxed.  It’s also a great place to do business, invest in the growing tourism industry, or take advantage of great deals on Panama real estate.  Many tax advantages exist for each of these types of investment.

Additional benefits to opening an offshore bank account in Panama are its close proximity to the U.S. if travel is needed to set up or maintain the account.  English is widely spoken there.  Plus, the dollarized economy eliminates any foreign exchange risks.

Seychelles

A rising star on the international scene, Seychelles scores big points for its high level of bank secrecy.  Its long-standing privacy policy protects the identity of the beneficial owners of companies and corporations.  As a result, it’s one of the world’s best places to set up a closely-held offshore corporation.

The nation is a bit lax about reporting interest income to foreign tax authorities, although it does maintain tax treaties with 46 countries, in compliance with the Organisation for Economic Co-operation and Development.

Interestingly, much of the local population of Seychelles has no access to banking services, and most of its businesses have virtually no way of borrowing capital.  However, the country has been rapidly building its banking sector and has one of the fastest improving economies in the world.

Hong Kong

A number of key factors are working together to make Hong Kong one of the fastest growing offshore havens in the world today.  It’s located near a rapidly-growing China, not to mention the rest of Asia.  It’s also become the chosen destination of those who’ve moved their European and North American accounts due to the privacy crackdowns in those jurisdictions of late.

A perk to banking in Hong Kong is the ability to hold funds in a wide range of currencies and even change currency with the flip of a switch. Savings accounts can even be held in gold.

Interest rates are impressive, and tax laws are favorable for foreigners.  There are no taxes on capital gains, inheritances, dividends, or deposit interest.  Only local income is taxable. Even profits from overseas trades that pay to Hong Kong-managed accounts are usually exempt.

Singapore

Although Singapore regrettably earned its place as a top financial center by turning a blind eye to illegal foreign activity, it certainly hasn’t hurt this offshore haven.  It’s currently one of the world’s fastest growing wealth management industries, expected to rival Switzerland by 2020.

It benefits greatly from its location as a hub for southeast Asia, and has a major advantage over rival Hong Kong whom many view as being too heavily influenced by China. Singapore’s tax rates are among, if not the lowest in Asia.  A wide range of currencies, including gold, are available to account holders.  

Today Singapore’s banking sector is much more compliant with banking regulations. However, due to the industry’s size, it exerts a high level of influence over the government, resulting in very little political opposition to its privacy practices.

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Switzerland

It’s hard to think of offshore banking without Switzerland coming immediately to mind. While it’s far from the picture most people have of James Bond making a withdrawal from an anonymous numbered bank account, Switzerland still offers some of the world’s strictest confidentiality.

The country is stable and politically neutral.  The financial services industry is also protected by a strong consensus against any political changes that might affect the all-important offshore sector. As a result, Swiss banks offer a reliable, secure offshore banking environment.

Because of these benefits, Switzerland holds banking assets estimated to be roughly 820 percent of the country’s GDP.  Switzerland has also been a leader in technology, with secure encryption, internet banking, electronic funds transfers, and electronic signatures.

United Arab Emirates

The UAE city of Dubai first emerged as an important financial center when it found itself lacking in some of the oil and gas reserves that some of its neighbors possessed.  As a result, it shifted its focus to the flow of massive amounts of money circulating among its oil-rich neighbors and beyond.

It serves as a politically and financially stable banking option, amid a region plagued with turmoil.  It’s also situated strategically along an all-important East to West trade route.

Benefits to banking in the UAE include low taxes, a number of tax-free zones, and a level of privacy that rivals that of Swiss banks.  Due to its ask-no-questions philosophy, it’s home to considerable illegal activity.  Much of the industry’s incoming funds are in the form of cash or gold.

H. Michael Miley

Cayman Islands

The offshore choice of political candidate Mitt Romney, the Cayman Islands benefit from the added support of being a territory of the United Kingdom.  So, while still essentially autonomous politically and economically, it has a safer feel for those who are skeptical of international markets.

Like many of its competitors, the Caymans offer a number of tax-free incentives and little financial regulation and oversight.  The nation has long held the opinion that savvy investors are perfectly capable of taking responsibility for their own compliance and that the markets always know best.

Today the country is the world’s fifth largest financial services center, taking on business from the world’s biggest banks and corporations.  It plays host to over 10,000 mutual funds (only Luxembourg has more), over 200 banks, over 90,000 companies, and 140 trust companies.  It’s the world’s top home for hedge funds and captive health insurance companies.

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Lebanon

Lebanon is often hailed as the “Switzerland of the Middle East” for its tight bank secrecy laws.  Banking privacy in Lebanon is “absolute” and guaranteed by law, with violations being subject to criminal prosecution.

It’s also a tax haven, much like most of its competitors.  Foreigners pay no local income tax on interest and revenues earned in Lebanese banks.  Likewise there are no inheritance taxes, stamp duties on contracts, corporate income taxes, or taxes on dividend distributions or capital gains.

The country has a stable banking system, as well as measures in place to prevent money laundering.

Luxembourg

With over 12 percent of the world’s market for offshore banking, Luxembourg is a major player in the global financial sector.  Like other banking secrecy jurisdictions, it’s full of tax loopholes and loose financial regulations.

It’s also extremely stable due to it political neutrality and the strong influence its financial sector holds over the nation’s political leanings.  It’s central (both politically and geographically) to the heart of Europe and was a founding member of the European Union, giving it better access to European and international markets.

Its tight banking secrecy policies are based more on the principle behind professional lawyer-client relationships, with even more privacy laws in the works.  The country is also reportedly setting up a high-security storage facility where clients can keep assets like paintings and gold with no fear of having these possessions reported to tax authorities in their home countries.

Whether you’re looking for a place to stow a Picasso or simply wanting to transfer your self-directed IRA where you’ll have a better variety of investment options, offshore bank accounts can open up a whole new world of possibilities.

Belize

Although only in its 3rd decade of international banking, Belize has been steadily growing its financial services industry since it first emerged on the scene in the early 1990s.  Today it offers a myriad of products and services to international investors from all over the world.

It’s a popular choice among North Americans, due largely in part to its proximity and the fact that it’s an English-speaking nation.  It’s also modeled after British (rather than Spanish) law, making a lot of legal processes much more familiar.

Belize is in close runnings with its international competitors in terms of the variety of its offerings.  Clients can easily set up a corporation, trust, or limited liability partnership.

Before you choose a jurisdiction, do some additional research to determine the requirements for opening an account and to make sure the particular country or bank offers the best incentives to help you achieve your financial goals.

And, whatever you do, don’t forget to follow through with all of the latest forms the U.S. requires for offshore account holders.  It doesn’t matter if your jurisdiction doesn’t report you.  The IRS can and will find you.

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Like many U.S. citizens, you may consider offshore bank accounts to be tools best reserved for those who have something to hide.  From the Internal Revenue Service, from the Drug Enforcement Administration, from their unsuspecting soon-to-be ex-spouse.

And, unfortunately, there are a few folks out there stashing cash overseas for some of those very reasons.  But they’re far from the majority.

The people who make up the largest segment of offshore account holders are wealthy individuals who recognize the value and security of diversifying their portfolios to include overseas investments.

Also making an appearance are regular guys like you and me who have seen the light and realized that maybe–just maybe–all of these billionaires, their accountants, and their financial and legal advisors could actually be onto something.  

Here are a few of the legitimate, if not compelling, reasons to get some of your money offshore sooner rather than later.

You could be the next defendant in a case that tops the “Stella” awards.

Named for the 79-year-old New Mexico woman who sued McDonald’s over a hot cup of coffee, the Stella awards list the most frivolous lawsuits filed in a given year.  And they’re not all against multi-billion dollar corporations.

Average Joes get dragged into court every day over the most ridiculous of circumstances.  Take the Massachusetts woman who was rescued from a near-drowning after her son-in-law crashed their car into the Connecticut River.  She suffered some brain damage and sued the driver for damages.  Also named in the suit? The rescue divers who risked their lives to save her.

And don’t forget the Alabama woman who accidentally got locked in the storage unit she had rented to store her belongings following the foreclosure of her home.  She was inside late one night “looking for some papers” when the facility’s manager discovered her unit ajar–and locked it for her.

Despite being found 100% responsible for her own predicament, the jury awarded her $100,000 of the $10 million she sought for her distress, which included a total of 63 days locked inside and a grand total weight loss of almost 70 pounds.  (Conveniently, she had some food stored inside the unit she claimed NOT to be living in.)

Then there was the D.C. man–an administrative law judge, mind you–who sued a mom-and-pop dry cleaners for $65,462,500 for losing a beloved pair of pants.  While his case was thrown out (he’s appealing), there are many Americans each year who are forced to pay similarly ridiculous settlements that make tort reform look like a grass roots effort.  

What does this have to do with offshore banking?

U.S. courts have no jurisdiction outside of the country.  So, while you can’t protect yourself from being sued by your mailman when he trips over the package he just left on your doorstep, you can at least protect some of your assets by holding them overseas and away from the whims of the U.S. court system.

Bocas del Toro via Celine

Offshore funds are much more difficult to redistribute.

In addition to the litigation exposure, another common reason people seek places to house their money overseas is the perceived political risk.  Common fears include the current administration’s socialistic undertones, increasing capital controls, threats of the redistribution of wealth, and other government rhetoric.

As a result, many U.S. citizens have never felt less confident in the intentions of their government or less secure within the confines of their country’s financial system.  They have legitimate concerns about where the U.S. is headed.

What’s the solution for minimizing a non-systematic risk in your portfolio?

The answer is simple.  Diversification.  In this case it’s not only a matter of balancing out underperforming investments with more successful ones (although there are certainly many high-performing investment options overseas).

Here it’s more about jurisdictional diversification.  Moving funds away from the reckless, unstable banking systems of the U.S. and securing them in a safer global environment.  

Couldn’t the government just as well come after my funds in an offshore bank account in Panama or Belize, you ask?  Well, sure.  They could.  And who’s to say they won’t? But it won’t likely be their first stop.  Hopefully by the time they get around to going after money in the offshore accounts of its residents you’ll have time to apply for citizenship and meet up with your savings somewhere in a much more favorable climate.

The U.S. is having a hard time keeping pace with its competitors in an increasingly global marketplace.

In many cases, individuals’ decisions to hold capital in offshore accounts has less to do with any legal or political agendas and more to do with the fact that it just makes good financial sense.  Our world is becoming increasingly flatter, and your options are no longer limited to only the financial instruments and institutions in your home country.  

Similar to how large multi-national companies search the globe for the best places to house their communications centers or manufacturing operations, many individuals are now following suit when it comes to their own personal finances.  And, not surprisingly, all of the popular offshore financial centers are outperforming U.S. banks in a number of ways.

One of the most obvious differences between domestic vs. global financial institutions is in the privacy they offer. The U.S. banking system is plagued with level after level of bureaucracy and government regulation, thus increasing banks’ cost of operation.

Some argue that this high overhead is in itself a sort of tax levied on domestic banking operations, resulting in higher fees, lower interest rates on deposits, and other unfavorable effects on customers’ bottom lines.  

Speaking of taxes, that’s another benefit of owning an offshore bank account.  Not in the sense that you’re exempt from paying taxes entirely, as U.S. citizens are taxed on their worldwide income.  However, offshore accounts do afford you the ability to do business through an offshore corporation, trust, or other entity which may offer some specific tax advantages.

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So what’s the bottom line?

If you were about to buy a new luxury automobile, I doubt you’d just drive to the closest dealership to your house, choose the model you want from a list of options, agree without hesitation to the price and all the terms, sign on the dotted line, and call it a day.

Of course not.  You’d probably research the different models and their features, take a few out for a test drive, call or visit a few dealerships to see where you could get the best deal, and drive away knowing you made the best possible decision in buying your new vehicle.

And that’s just a car.  Why make such un-researched, limited, one-size-fits-all decisions when it comes to your entire life’s savings?  

There are more and better options out there.  Don’t you at least owe yourself a little time to look into them?