Banking Options for Offshore Companies
Companies with Offshore Accounts
Businesses incorporated offshore could be Limited Liability Companies; International Business Companies or companies limited by shares (LTD). In finance and business “offshore” is generally defined as a jurisdiction that offers non-residents a range of financial services on a much larger scale than the financing of the domestic economy. Typically, an offshore jurisdiction offers incorporation to foreign companies under favorable conditions including low or no corporate tax; no need to declare assets to a regulator and a straightforward incorporation process.
Banking Options for Offshore Companies
Not long ago it was possible for offshore banks to open a bank account anywhere in the world. However, today companies incorporated offshore find it increasingly difficult to find a bank in Europe or the US that will offer them a business account. With traditional banks it is almost impossible for offshore businesses to open a corporate account – no matter what the business deals with; who the shareholders are or if the company’s paperwork is in order.
One of the main reasons offshore companies are rejected by financial institutions in places like the Eurozone is the new AML regulations. New AML regulations require complete transparency on all aspects of the company including ultimate beneficial owners; main clients; main suppliers and taxation. The new AML regulations make it too difficult for banks to take on offshore companies as new corporate account holders.
The issue that concerns banks the most is taxation. Taxation of companies incorporated offshore is complex – they must abide by the taxation regulations in the offshore jurisdiction as well as the laws of the country where the beneficial owners are located. The company needs to be audited; full financial reports must be examined; criminal activity must be checked and many more issues which make offshore companies difficult customers for Eurozone financial institutions. Above all is the issue of money laundering.
Money Laundering and Offshore Companies
Banks in Europe and other developed regions are hesitant in dealing with offshore companies that could be involved in money laundering. These banks do not want to be used by offshore companies to transfer illegal funds for the purpose of fraud, terror activities, illegal transactions like narcotics or human trafficking. Unfortunately, offshore businesses are often associated with illicit activities. If the company is dealing with something illegal they prefer to incorporate offshore far from the eyes of authorities and regulators in their home country.
Banks that Accept Offshore Companies as Clients
Despite all of these obstacles there are banks that are willing to take on offshore clients but they put the new client through intense due diligence and make an in-depth risk assessment during the onboarding process. If the client is accepted and the corporate account is approved the company account will constantly be monitored by the bank for any suspicious behavior. In order to accept an offshore company as a new client banks will insist on knowing exactly what activities the business is involved in; who are the company shareholders; beneficial owners and other critical aspects of the company.
As it is so difficult to find a bank willing to open a corporate account for an offshore company most experts suggest incorporating in a European jurisdiction where there are favorable corporate tax laws.
With millions of companies being incorporated offshore each year some fail and vanish very quickly while others go from strength to strength and endure the test of time. These offshore companies, as well as any other business across the globe requires banking services and a bank account. This is a basic requirement for business; for receiving payments and for paying suppliers. A company must have an account with a financial institution no matter if it is with a conventional bank or an EMI.