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How to Choose the Right Jurisdiction for Offshore Bank Licensing

Around the world, many countries offer various financial preferences and investment advantages to attract foreign capital. Low-tax jurisdictions are willing to do this, reducing the fiscal burden and reporting requirements. The legislation of different countries regulates the procedure for licensing offshore banks to conduct banking activities differently. Below we’ll consider main points of the existence and choice of an offshore zone for banking-activities.

Our company is ready to provide you with comprehensive professional assistance in offshore banking licensing for commercial structures around the world. We also have ready-made offshore banking licenses in the Bahamas (click here), Antigua and other countries.

Introduction to Offshore Banking Regulations and Peculiarities

Entrepreneurs often turn to a firm opened in offshore banking jurisdiction where a soft tax-regime is combined with preferential corporate legislation. Attractive business conditions are usually created with the aim of attracting foreign investors to the country. In frames of offshore bank comparison, all states convenient for registering an offshore business are divided into 3 groups.

  1. Onshores are European countries with an absolutely impeccable business reputation, where laws, however, allow for legal reduction of tax payments of international companies.
  2. Midshores are states in Southeast Asia and the Middle East with even more liberal corporate legislation and tax incentives for international companies.
  3. Offshores or tax havens are small states, usually with a colonial past, whose budget largely depends on the annual payments of offshore companies. As a result, in these jurisdictions foreign investors are provided with maximum protection and tax benefits.

You need to understand that neither onshore nor midshore can be called classic offshore zones, since they do not provide foreign entrepreneurs with all the opportunities of a typical tax haven.

The classic definition of an offshore is that it is a jurisdiction whose tax and corporate laws allow companies of foreign origin:

  • significantly reduce or reduce to zero corporate income tax, especially for those transactions that were carried out outside the “home port”;
  • simplify financial and tax reporting;
  • hide the names and personal information of business owners and beneficiaries.

Such companies are used in business to solve several typical problems.

  1. Reducing the tax burden.
  2. Doing business in the global market.
  3. Management of foreign assets.
  4. Cooperation with international partners.
  5. Access to foreign resources, etc.

Thus, in order to open an offshore company, we urge you to take a serious look at the issue of choosing a jurisdiction and analyzing the consequences of the start of automatic exchange. The reputation of the jurisdiction cannot be ignored either. Depending on this, you may encounter difficulties when conducting business or opening bank accounts.

It is clear that the world is moving increasingly towards tax transparency and that foreign entities can now offer less and less protection for financial information. It is very important to be aware of the possible risks associated with opening an offshore company.

Factors Influencing Choosing Offshore: Regulatory Considerations 

Like any legal entity, registration and use of an offshore company can be used both in legal tax planning schemes and in illegal ones, including for the purpose of criminal tax evasion or laundering of criminal capital. The legality of a specific transaction through an offshore is determined both in accordance with the legislation of the country of its registration, and with the applicable legislation of other countries, as well as the provisions of international treaties. 

In frames of offshore bank criteria, many developed countries apply certain restrictions on transactions with offshore companies to their residents, but there is no complete ban on transactions almost everywhere. Offshore bank share capital directly depends on the chosen jurisdiction and can range from $500,000 to $1,500,000.

Offshore bank licensing process for conducting banking activities includes the following steps.

  1. Selection of jurisdiction for banking business. At this stage, you make a choice of country, focusing on your financial capabilities, goals, as well as the market for further cooperation. Below you can read in more detail about the jurisdictions available for obtaining banking licenses.
  2. Preliminary work stage. Since in most states, bank registration is carried out by a registered agent, you need to start by finding an agent. He/she will provide a list of documents to apply for a license. He/she will formulate any questions that arise to the regulator or banking specialists, and, if necessary, organize meetings with representatives of business and government authorities.
  3. Preparation of an application for registration. In accordance with the list provided by the registration agent, prepare documents, fill out an application, and submit to the registrar.
  4. Document verification stage. The state-authorized body responsible for the activities of banks, together with the agent, checks the submitted documents. The timing of such verification varies from country to country. They also depend on whether you have provided all the documents and whether they are completed correctly. If, during verification, errors are identified in the documents or it is determined that not all documents have been provided, it will be necessary to transfer the missing materials to the inspection body and eliminate the errors in the specified way.

After meeting all offshore bank requirements, regulator makes a decision regarding the issuance of a license or refusal to issue it. The final stage at which the regulator or the minister responsible for these issues, based on the documents you provide, makes a decision regarding the issuance of a license or refusal to issue it.

Best Practices in Choosing a jurisdiction for the Offshore Bank Licensing

In everyday speech, offshore is any company whose place of registration is another country, even if it has nothing to do with typical offshore companies. Therefore, in our review we will consider not only obvious tax havens, but also absolutely white jurisdictions, where, nevertheless, there is an opportunity to absolutely legally reduce the tax burden on business.

The correct choice of an offshore state for banking business is the key to the success of both planned and developing businesses. It is important to understand that this choice is often practically independent of the geographical location of the state. The main attention should be paid to its tax system and the specific requirements for registering companies. It is also important to take into account the specifics of the business, the purposes for which the future company will be used, and in which countries the partner companies are registered. Separately, it is worth noting the importance of having double tax treaties and other economically important agreements in the countries in which companies are registered or will be registered. The fundamental factors should be next-mentioned.

  1. Tax legislation and benefits provided to offshore companies.
  2. Stability of economic, political, legal systems.
  3. The complexity of the registration procedure.
  4. Cost of company administration.
  5. Image and popularity of the jurisdiction.
  6. Availability of infrastructure that would allow organizing an effective company management scheme.

The key task that entrepreneurs are trying to solve when moving their business abroad is to reduce tax costs. Accordingly, it is this factor that has the greatest influence on the choice of offshore. The legal system differs significantly in different countries, so it is necessary to carefully study all the laws relating to offshore companies before submitting documents for registration.

The stability of the economic, state, and legal systems are also very important factors. When thinking about which country to open a company in, assess the risks that the government will change tax laws and you will have to urgently stop working. Unfortunately, there are quite a few cases of changes in legislation that radically changed the positioning of the country from a tax point of view.

Cost and ease of company administration

The cost of company administration is also important. You need to take into account not only the costs of government contributions, but also office rent, nominal service, if you plan to use it, and audits. Offshore companies that perform the same function and are registered in different jurisdictions may differ several times in maintenance costs. Thus, the wrong choice of jurisdiction will cost an impressive amount: from several to tens of thousands of dollars per year.

Image and popularity of the jurisdiction

If one of the goals of opening an offshore company is to conclude transactions with foreign partners, then the image of the jurisdiction becomes a very important factor. It is no secret that each state has its own “black” list of countries with which they do not recommend their citizens to do business. An entrepreneur may also encounter biased attitudes from financial institutions.

Accordingly, the choice of an offshore jurisdiction (low-tax zone) will largely be determined based on the purpose of creating a foreign structural unit. The main conditions for choosing an offshore zone, which are analyzed when choosing, are usually the following:

  • features of taxation in a given economic zone, offshore benefits;
  • political, economic stability, legal protection of business interests;
  • ease and speed of registration actions in an offshore zone;
  • the amount of registration fees, the cost of annual maintenance of an offshore company in the selected zone;
  • popularity and reputation of the jurisdiction, presence on the FATF and OECD sanctions lists;
  • development of infrastructure in the offshore zone.

Our experts will help you choose the most effective and profitable jurisdiction for establishing a banking business. We will fully accompany you and help you to obtain offshore bank license and purchase it.

Article’s author is Denys Chernyshov – founder and CEO of globally-famous organization Eternity Law International.

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