The Role of Offshore Accounts in Business Profitability
The main reason for a business's existence is to raise its profit margin, which supports its expansion and development. But any company's earnings is eaten away by losses and taxes. Most businesses find it burdensome that the government primarily levies taxes. Investors may use offshore banking in order to reduce taxes in some countries where the tax burden is excessive.
Advantages of Offshore Accounts for Businesses
A business with an offshore account is one that maintains a bank account outside of its country of residence. In addition to reducing risk in the new country from inflation or possibly a coup, industry has offshore accounts for a variety of reasons. It becomes an advantage since the company can bank in different or multi-currencies. They offer maximum flexibility to the customers regarding account usage and any interest earned is usually paid free from the deduction of taxation. In case a firm wants to have privacy, offshore accounts are the best in maintaining the confidentiality of the customer. Businesses aim at reducing costs of their operations, and this makes offshore accounts the best as they charge less and pay more interests than the onshore banks in most cases. Government interference in the foreign accounts is less thus providing an excellent opportunity to the firm to execute its services with ease (Grinberg, 2012, p. 304).
Managing Risks and Minimizing Tax Expenses
Some of the banks help reduction of risks associated with currency fluctuations by offering foreign exchange services which may enable the investor to wait for a specific rate before making the transfer of their funds. The firm may also enjoy services of a relationship or private bank manager if it chooses a premier or private offshore bank account. Therefore, it is a good thing for a firm to have a foreign account as it works to its advantage of increasing its profit margin. In this case, the amount used in taxation which is mandatory is reduced for the firm.
Considering the Drawbacks and Ethical Dilemmas
Nevertheless, the offshore account is prone to some demerits which include they may be used to carry out illegal and immoral money laundering and tax evasion activities (Masciandaro, 2017). The accounts despite the benefits have more risks to the investors of loss of their money as compared to the onshore accounts. Stability of the offshore accounts is low, and an investor must choose the offshore jurisdiction carefully to avoid problems with the rules and regulations of the foreign nation. Offshore accounts may charge high fees if one fails to maintain the set minimum balance hence it is imperative for an investor to check the terms and conditions of the offshore bank before using it. Since the account holder cannot visit a branch to speak to speak to a person regarding issues with an offshore account, it becomes hard to be able to solve problems arising from the offshore account. In some cases, the investor may lose money and time when dealing with offshore accounts issues.
Conclusion and Recommendation
The intention of having an offshore account, therefore, presents the chief financial officer with an ethical dilemma as to have the account or avoid it when dealing with the firm's finances. Microsoft Company, for example, reduces the taxation cost of about 90 million in federal income taxes each year. These make the company have many offshore accounts to store cash. The move is beneficial to the company is beneficial, and as the CFO I would like to ensure its continuity by having contacts with the relationship manager of the offshore account. These will provide am updated when important changes are made in the account.
Offshore accounts are legal globally, and there is a way of minimizing tax expenses to a firm. To have a satisfactory foreign account, there is need to research the terms and conditions of the account. Through this, one can choose the account with the favorable terms to save firms cash. The merits with the account are many, but the demerits can lead to complete loss of the company money. Therefore, it is good for businesses to have an offshore account as it will have tax benefits for the firm. The account will reduce the tax the firm pays thus ensuring the firm maintains a high-profit margin which is essential for success. As a CFO, it is good to offer guidance to the company on the merits and demerits of the offshore account and give my opinion. Any firm ought to have an overseas account to minimize taxes, but it should be keen to avoid risks associated with the loss of money in the accounts.
References
Grinberg, I. (2012). The battle over taxing offshore accounts. UCLA L. Rev., 60, 304.
Masciandaro, D. (Ed.). (2017). Global financial crime: terrorism, money laundering and offshore centres. Taylor & Francis.
