An article I wrote awhile ago on offshore banking was recently featured on popular site for the expat community. I’ve previously posted the article on my blog, but I thought it was nice of them to use it as their feature piece for the week.
Oct
21
Basic Types of Offshore Bank Licenses
In general terms it is possible to divide offshore bank licenses into two basic types of license’s which can have a number of further subtypes.
General bank license is understood in a majority of jurisdictions as a license for the providing of bank services at the place of registration and internationally direct to the general public. The bank acts as any other bank entity, it can accept deposits from the public and perform common bank services with residents or non-residents. In an overwhelming majority of countries, however, the activity is limited to providing services to non-residents, i.e. offshore banking services only. This type of offshore bank is established in view of providing commercial bank services in an offshore regime.
Restrictive bank license (often referred to as the “internal” license) is a license which limits territorial activities of the bank or the possibility of providing services in foreign currencies or even just to certain persons. In a majority of cases, the bank cannot accept deposits from the public and it can provide its services only to those entities which are provided for in the bank license. This bank is used as a so called corporate bank for active Cash Flow management.
The offshore banking company established that way can become a high-quality tool for:
Tax planning
- Increase in image of the financial group or holding
- Active cash flow management
- Issuing bonds and guarantees for tender proceeding purposes
- Easier access to bank information about business partners and competitors
- Easier access to financial markets
- More progressive financing of business activities of a holding or financial group
- Establishment of confidential and flexible bank accounts
- Providing loans and credit facilities
Most offshore banks are not subject to taxation, withholding taxes, stamp duties, fees and taxes for checks issued or accepted or to other forms of direct and indirect taxes. Another significant factor for offshore banking is the strict anonymity and confidentiality, which many potential depositors look for. These offshore banks are also fully respected entities in the wider international community, which is also displayed by the fact that a vast majority of them are domiciled in one of the tax havens, such as Bahamas, Cayman Islands, Jersey, Guernsey, Labuan, Isle of Man or Hong Kong.
Leading bank centers with very low or no taxes and a slightly more liberal environment are concentrated to a significant extent into three geographic areas-Caribbean, Europe and Pacific. The truth is that the laws of these different foreign jurisdictions differ very much and that one jurisdiction may be at a certain moment far more attractive than another jurisdiction, and therefore it is necessary to perform an analysis before selection of a location. The advantages which are available to proprietors of private international banks significantly prevail over the advantages offered by a majority of other investment or financial related entities, such as investment funds, mutual investment co-operatives, credit and loan co-operatives, investment societies, etc. Financial activities exclusive to banks only, as tools for direct access to international capital markets or inter-bank advantages in the form of wholesale borrowing and reduction of foreign exchange fees are suddenly available to natural persons as an offshore banking owner.
The information and backgrounds required in an overwhelming majority of countries of the world from the bank license applicant are as follows:
Bank name and its legal form Applicant status (whether the matter concerns establishment of a branch office of a foreign bank or a new company) Names and curricula vitae of the bank directors Certificates of police clearance of applicants and directors Bank and business references Submission of information about economic management of the firms of the applicant(s) Identification of the bank shareholders Identification of the type of issued shares of the bank (registered shares, priority shares, shares without voting rights, etc.) Denomination of the issued shares of the bank and type of currency used Capital structure of the bank and capital security Capital reserves of the bank Information stating from what resources the bank will be invested Document of certifying that the registered capital has been paid up (if registered in the host country) Document certifying that all taxes, stamp duties and royalties have been settled Identification of the registered office in the host country Identification data of the registered agent or representative (if required) Identification data of the auditor and lawyer with a registered office in the host country Type of intended services which are to be provided Territorial operational range of the bank How the company will protect itself from fraudulent or criminal conduct Business plan of the bank (the authorities generally require a balance sheet from 3 to 10 years) Benefits for the host country resulting from the bank operation Signed and presented applications for the issue of the bank license