Offshore versus Onshore

Weighing the best options when it comes to where to stash your cash

The first thing most people do when moving into a new country is to look for a bank account that suits them and offers the services they require. For some, that requirement can be tricky to navigate.

At the beginning of July, several big changes were applied to expats looking to bank in Vietnam. Some have reported it as a relaxation of banking regulations while others have reported it as a tightening of banking rules. It is most definitely the latter, not the former. But it also heavily depends on your perspective.

Here are the main points that have come out of the new banking directive and need to be considered if you plan to move to Vietnam or are already a resident here:

– You will need to provide certain documentation as would be expected to open an account in Vietnam and to use bankcards.

– Expats will need to provide documents confirming their residential status in Vietnam for at least 12 months and only then will you be eligible to open a bank account. The basics are required, such as a valid passport for identification, but you will need a valid visa for 1 year or longer and has been issued in the last 12 months. Or one of the following valid documents with a validity of 1 year or longer, issued in the last 12 months: a temporary residence confirmation issued by the police, a temporary resident card, a permanent residency card or a work permit.

The State Bank of Vietnam also recently modified the conditions for expats to hold savings and deposits with banks in Vietnam, which does make it accessible but not to all.

For term deposits from July 5, 2019, expats with a valid document proving residential status in Vietnam with at least 6 months validity will be eligible to open Term Deposit Accounts with a term not greater than the remaining of its validity. Any existing Term Deposits opened before July 5, 2019 can and will be continued until their maturity.

However, there are and always have been offshore savings solutions and in many ways these might be beneficial for tax purposes. Many offshore accounts are not subject to taxes depending on the individual’s nationality. Private banking offshore has become more and more difficult with restrictions on antimony laundering rules adopted around the world. But for regular monthly savings structures it is still quite simple to open and manage an account in a well-regulated jurisdiction such as the Isle of Man, Luxembourg and Singapore. Since the recent changes, I have been inundated with calls asking for clarification and how to take advantage of offshore structures. Many may find it surprising that you don’t have to be a millionaire to open an offshore savings structure. An offshore account can be opened with as little as USD250 per month as a regular monthly premium.

But once you have met all of the above and opened your bank account, how will you bank? The world is changing to an ever-increasing digital world. According to PWC’s 2018 Global Digital Banking Survey, there has been a 5% increase in online banking transactions made from mobile devices, 15% in total of users. That can be further substantiated by the State Bank of Vietnam who concluded in an additional survey that mobile users increased by 81% when making financial transactions in 2017. The trend is continuing as people become more comfortable with mobile security measures.

But, what about the actual security of your money? In Vietnam there exists a deposit insurance protection scheme but it is very limited in size. Currently, if a bank or credit institution goes into default and bankruptcy, the DIV (Deposit Insurance of Vietnam) will cover VND75 million as protected. To put that into perspective at today’s exchange rate that is around USD3,264. Whereas in the UK (even if they leave Europe) it is currently and will remain GBP85,000 (about VND2.5 billion so a bit of a difference) protected. Europe has a currency equivalent of EUR100,000. The US has USD250,000 in FDIC insured banks. Substantially offering more peace of mind.

It has been known for banks to go into default in Vietnam in recent years. However, that has changed in 2017 with a bill passing that allows for any insolvent bank to now go fully bust. In other countries, there has been support through bailouts, rightly or wrongly, when banks get into trouble but that will not be the case going forward for the Vietnam banking sector.

The big questions are: What jurisdiction do you trust the most? What banking system can you rely on and what protection are you afforded? I know where my money goes but to find out you will have to contact me directly. The risk against reward suggests that offshore banking and savings structures are absolutely the better option for short, medium and longer term investment savings strategies, as the same level of returns and better can be achieved, but with a much higher level of protection afforded to you. Vietnam banks for everyday banking are satisfactory for paying bills but again, Vietnam is in its early stages of growth and reform.

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