Final answer:
Offshore banking involves setting up financial accounts in countries with favorable tax laws and regulations to take advantage of tax benefits and privacy. Caribbean islands like the Cayman Islands and the Bahamas are known for their offshore banking services. However, it's important to comply with tax laws and reporting requirements.
Step-by-step explanation:
Offshore banking refers to the practice of setting up financial accounts in countries with favorable tax laws and regulations to take advantage of tax benefits and privacy. Offshore accounts are typically used by individuals or businesses to reduce tax liabilities, protect assets, and maintain financial privacy.
Many Caribbean islands, such as the Cayman Islands, the Bahamas, and the Turks and Caicos, have established themselves as offshore banking centers. These countries provide tax advantages and confidentiality for individuals and corporations.
However, it's important to note that while offshore banking can provide certain advantages, it's crucial to comply with the tax laws and reporting requirements of your home country. Engaging in illegal activities, such as tax evasion or money laundering, through offshore accounts can have severe legal and financial consequences.