Moscow State

University of Culture

Topic: Offshore Banks

– what they are

and how they can be used

2nd year students of group 215

Millerman N.Yu.

1999

1. Introduction

2) Why do you need an offshore bank?

3) Taxation

4) Control over currency exchange

5) Reserve requirements and bank control

6) Effective currency management

7) Business opportunities

8) Licensing requirements

9) Interest rates

10) Confidentiality

11)Capital

12) Conditions for the formation of offshore banks

13) Legislation

14) Formation of offshore banks

15)Banking activities

16) Management in offshore banks

Offshore Banks operate on an offshore (tax-free and strictly confidential) basis. Offshore Banks offer services only to non-residents of the countries where these banks are based. For example, an offshore bank registered in Belize can serve clients from any country, with the exception of permanent residents of Belize. This is the main formal difference between offshore banks and ordinary banks. .

What is more important is the environment in which the offshore bank operates. Offshore Banks conduct financial and banking activities in an environment free from tax and foreign exchange controls, that is, in tax-free and low-tax zones, usually called offshore financial centers, these conditions often also include favorable banking legislation, noticeably less stringent, than in most ordinary states.

In most offshore countries, offshore banks can be controlled by residents of any country. In an offshore country, obtaining a banking license is much easier than in ordinary countries with their strict controls. By establishing an offshore bank, you can improve the structure of your business and gain advantages over your competitors.

Why do you need an offshore bank?

Offshore banks are used in many typical situations. Offshore banks are often established by existing conventional banks or financial institutions for the following purposes:

To access the international credit market;

To access international networks of correspondent accounts;

To provide clients with loans on tax-efficient terms;

To ensure the secrecy of clients' banking transactions;

However, offshore banks can also be established to meet the needs of small groups or even one person. Offshore banks traditionally focus on meeting the needs of very wealthy people. The benefits of offshore banking are two-dimensional. Both the banking institution itself and its clients benefit from the bank's offshore status.

Taxation

Offshore banks are either exempt from taxes or taxes are reduced to a few percent of profits, this allows the offshore bank not only to generate large net profits, but also ensures its stability by eliminating the possibility of unpredictable effects of tax policies of ordinary countries. There are no taxes on the source of profit, bank interest, dividends and other similar payments. Costs are limited to administrative costs and annual offshore status renewal fees. An offshore bank's income from foreign exchange transactions, from participation in syndicate loans and the money market, from transactions with securities and deposits can be protected from the high tax rates applied to conventional banks and financial institutions. The latter may also be subject to tax on interest received. In the case of offshore banks, there are no taxes on source profits, bank interest, dividends and other similar payments, and costs are limited to administrative expenses and annual fees for maintaining offshore status.

Currency exchange control

The absence of foreign exchange controls naturally allows an offshore bank to move funds with greater freedom and flexibility than from an area where these controls are in place. An offshore bank will be able to take advantage of this increased flexibility by being able to make payments immediately, especially in constantly changing market conditions.

To provide clients with other services that are impossible in ordinary countries with their strict regulation;

To provide clients with letters of guarantee;

To accept contributions from uncontrolled sources;

To avoid restrictions on debt-to-asset ratios and lending typical in more regulated countries;

To avoid the huge minimum capital requirements imposed by more regulated countries;

To operate without restrictions on the securities market;

To bypass intermediaries in some financial transactions;

To minimize political risk (which can be high in some Eastern European countries, for example);

To improve the image of your group;

Offshore banks can be established not only by banks or financial institutions, but also by corporate groups to carry out external borrowings or to consolidate the financial and banking activities of the group. For example, if your company is involved in international trade and the handling of financial resources is carried out with the help of an external bank, it is quite reasonable to establish your own offshore bank. You may also wish to use an offshore bank as a center for managing one or more foreign currencies. Often large, and even more often, medium-sized companies have their own offshore banks that handle their cash and current accounts of their divisions. Thus, if a group of your companies needs banking services, it makes sense to establish your own offshore bank so that you can make transfers to regular customers and suppliers, draw up loan documents, etc. through your personal bank. The activities of international financial companies may also include offshore banking activities, such as obtaining external loans, providing financial support to clients and groups, reducing or factoring group and other debts and providing loans to corporations on terms. beneficial from a tax point of view. Leasing equipment through an offshore finance company is another useful concept. These activities can be carried out either to provide the seller with funds for leasing to customers, or to finance valuable acquisitions of the group.

Reserve requirements and bank control

Requirements for reserves, capital structure, fund liquidity and mandatory deposit insurance are minimal or non-existent. Control by auditors and local agencies is very moderate. Operations of offshore banks are carried out through management companies and other banks on the basis of special agreements.

Effective currency management.

Using an offshore bank as a foreign exchange management center for a corporate group allows you to control the disclosure of exchange transactions flexibly and efficiently (from a tax point of view). The group's gains and losses from the exchange, both realized and unrealized, can be consolidated, resulting in gains in both cost and administration. The total risk of exchange transactions can be reduced, and the costs of insurance and loans can be minimized. Exchange income, contributions, discounts and interest on loans can be treated on a group basis and in the most tax efficient manner. Centralization of foreign exchange management provides more direct involvement and greater flexibility for the group treasurer.

Business Opportunities

Transactions in Eurobonds (US bonds for the European market) and loans in foreign currencies are often carried out through an offshore bank in order to maximize the overall tax effect by optimally allocating funds within the group. The group's free profits from financing activities, discounts from debt factoring, and interest derived from leasing or similar transactions can be protected from the high tax rates applicable in conventional countries. By conducting banking activities through an offshore bank, a corporate group will be able to carry out these transactions with absolutely no regulatory interference from local authorities.
In general, a corporate group may intend to maximize its cost-to-income ratio in high-tax areas while protecting.

Licensing requirements

Licensing requirements for offshore banks have been significantly simplified. These licenses are available to a wide range of applicants. Unlike most countries in the world, offshore countries do not require a foreign applicant for a license to be a “World Class Bank”. Such a license can be issued to a small bank, financial institution, trading company or even an individual.

Interest rates

An offshore bank is able to grow its deposit base at a faster pace than its “traditional” competitors. Clients benefit from tax relief on interest earned, and lower income tax rates allow the offshore bank to offer more competitive interest rates. If the client is also able to restructure his assets through an offshore trust or investment holding company, his profits will not be taxed in his place of residence and his deposits will not be subject to foreign exchange controls.

Registered in an offshore zone (for example, in Luxembourg, the Channel Islands or the Bahamas, the island of Cyprus, etc.), which has the following characteristic differences:

Does not have the right to work with residents of the country of registration of the bank (this is the main distinguishing feature of all offshore zones);

The required amount of paid-up authorized capital is less than in developed Western countries, as well as in most other countries;

The bank can receive complete tax exemption;

Typically, reserve requirements, lending and investment laws are less stringent than in developed countries;

Relatively short time required to create an offshore bank;

When establishing a bank, the use of nominee directors and shareholders is allowed (however, the true owners must be known to local authorities, otherwise the bank will not be issued a license);

There is almost always no foreign exchange control for transactions outside the country of registration of the bank.

According to existing analytical information, offshore banks are created with the following purposes:

Gaining access to the international network of correspondent relations;

Ensuring foreign trade operations of the parent company and affiliated financial and commercial structures;

Expanding the range of banking services of a credit institution;

Lending to commercial and financial structures;

Access to international financial institutions;

Issues of financial products;

Optimization of financial flows within an existing company.

As a rule, offshore banks are created by residents of countries with a high level of taxation, as well as countries in which effective exchange control systems have been created and are successfully functioning. It is necessary to understand that an offshore bank is only a link in a chain of financial structures designed to carry out various types of financial transactions in the interests of their clients. Often, such a chain of financial structures includes an offshore bank itself, as well as an investment company, an insurance company, a trust company and a foreign trade company, which ultimately unite into a holding or financial-industrial group. The tasks of an offshore bank that is part of such a holding or financial-industrial group include financial support and banking services for these entities.

The term “offshore bank” can mean a credit institution or an offshore bank with a limited banking license, as well as an offshore bank with a general banking license. General banking licenses (type "A" licenses) for conducting financial transactions in the most prestigious offshore jurisdictions can be issued only to large and fairly well-known banks. Small banks that have been operating in the banking business for a short time and do not yet have the accumulated “capital” of trust on the part of their clients or business partners may be issued licenses of the “B1” and “B2” types. an offshore bank may have an office and staff to carry out the necessary procedures. The owners of offshore banks can only be individuals and legal entities foreign to the jurisdiction in which the offshore bank is located. An offshore bank can be registered if it has an offshore banking license.

Note. The term "offshore" first appeared in a newspaper on the east coast of the United States in the late 50s. XX century It was about a financial organization that moved its activities, which the US government wanted to control and regulate, to a territory with a favorable tax climate.

The most common offshore banks are “without staff”. They are divided into two categories: in-house and managed.

In terms of registration and management, intra-company banks are the most accessible for both individuals and financial companies. They operate on the basis of special agreements with the patronized bank that provides the business of the offshore bank. A restrictive license provides the right to serve a narrow circle of clients, usually its shareholders or persons specified in the license. Such offshore banks with a limited license do not have a functioning office and personnel in the jurisdiction of their official registration. Intra-offshore banks may enter into correspondent relationships with other banks and carry out certain types of banking operations.

Note. Over the past two years, Europeans have withdrawn more than $500 billion from offshore zones, writes Market Watch, citing a Financial News study. The withdrawal of funds was facilitated by both difficult economic conditions and tax amnesties in a number of European countries (Finance. 02.15.2010).

Managed banks operate on the basis of a resident bank with a general license and on the basis of a special agreement between the parties. A resident bank may be vested with certain functions (specified in a special agreement):

Administrative (accounting and register of shareholders, contacts with local authorities, auditors, etc.);

Execution of incoming and outgoing transactions;

Issue of certificates of deposit;

Issue of financial instruments serving foreign trade activities (letters of credit, collection, guarantees, etc.);

Conducting credit and other banking operations in accordance with an offshore bank license.

In many jurisdictions, offshore "non-staff" banks can perform the same banking activities as regular resident banks.

The share capital of banks of this type can vary from 0.5 to 1.5 million US dollars depending on the jurisdiction.

Managed banks without personnel occupy a place in the hierarchy of banking structures between prestigious resident banks and offshore banks with a limited banking license.

Being quite an attractive instrument for carrying out financial transactions aimed at legalizing (laundering) criminal proceeds and financing terrorism, offshore banks are also quite accessible in terms of their creation (registration) in a particular offshore zone (in addition, the process of their functioning requires a small staff). Thus, to register an offshore bank, it is necessary to submit documents indicating the main provisions on the activities of the created bank, information about its shareholders:

Application for registration;

The constituent agreement (or a document replacing it) and an extract from the minutes of the meeting of the founders;

Information (in the form of questionnaires) about the persons who founded it, and in some cases - about the management of the offshore bank being created.

After reviewing the documents by the central banks of the relevant states or state registration companies, a decision on registration is made (additional documents may be requested when reviewing the documents).

Note. In accordance with Order of the Federal Financial Markets Service of Russia dated May 8, 2009 N 103, the list of main signs of unusual transactions has been expanded from 25 to 60 items. Additional signs have appeared, in particular, to determine the quality of transactions on the securities market, in leasing transactions and real estate transactions, payment of prizes, purchase of jewelry, bullion, stones, as well as in postal transfers.

With regard to personnel and other means of ensuring the activities of an offshore bank, it should be said that in most offshore zones, banks with any type of license must have a registered office (legal address), a registered agent (i.e. a legal or natural person representing their interests in the country of registration ) and the registered secretary of the bank. These persons are responsible for annually submitting to the country's central bank copies of financial statements, as well as profit and loss balance sheets, making annual license fees and certain other responsibilities.

All correspondence is stored in the archives of secretarial companies. In offshore companies it is not necessary to keep accounting records. An offshore company may not have full-time employees at the place of registration, while using the services of secretarial companies.

An offshore bank is a financial institution registered in a country or territory that has laws that completely or partially eliminate the taxation of companies created by non-residents. That is, their clients can only be legal entities or citizens of other countries. Another feature of this financial institution is that it is prohibited from carrying out transactions within the jurisdiction where it is registered.

Types of financial institutions

In territories with preferential taxation it is allowed to create the following:

Fully licensed. These financial institutions have a license that allows them to engage in all types of banking activities outside the host country.
With limited license. Banks have the right to conduct financial transactions only with those corporations, persons, countries that are specified in their license.
Managed or unstaffed banks. They are created and operate on the basis of an institution with a full license on the basis of a cooperation agreement.
Representative. They are characterized by having a license not only from the country where they operate, but also from other states where their representative offices are open.

Purpose of creation

An offshore bank is not only an effective tool for saving business money, but also real access to international financial flows. Having created it, the client:

gains access to international banks;
has backing in any currency for all external operations carried out by the parent company or its affiliates;
expands the range of banking services for its companies;
opens access to the international lending market.

Features of offshore banks

Offshore banks have certain privileges in comparison with other financial institutions in their countries.

Firstly, their level of taxation is low or non-existent; secondly, their minimum level of paid-up authorized capital is lower than that of classical banks that operate in zones with favorable taxation.

Thirdly, to create a credit institution offshore, you do not need to spend a lot of time - everything is done quickly and without much bureaucratic delays; fourthly, almost complete freedom of lending and investment operations due to the lack of financial control and mandatory reserve standards.

Benefits of accounts

Today they attract many people, because with their help you can not only optimize your expenses associated with paying payments to the state treasury, but also:

Criterias of choice

Money does not like to be rushed, so all financial transactions need to be carefully considered and the reputation of future counterparties must be constantly checked. When searching for a financial institution registered in an offshore zone, you need to pay attention to absolutely every little detail, any negative reviews that come up while researching the reputation of your future partner.

First, it would be good to analyze its financial statements; they are usually freely available on the bank’s website. Next, you definitely need to familiarize yourself with the composition of the beneficiaries of the financial institution and check it with the lists of Interpol, as well as other international organizations that look for fraudsters around the world. If the list of shareholders is closed or incomplete, this should raise red flags - it may be better to look for a more open bank.

Also, a future client of a financial institution should pay attention to its scale, the number of representative offices in different countries, volumes of transactions, etc.: large banks are more difficult to close than small ones.

A conservative approach to credit, deposit, investment and other operations also has a great influence on the stability of the bank. Financial institutions that practice traditional, time-tested methods of operation do not offer their clients huge profits, but at the same time they do not risk their funds.

List of the most popular offshore banks

The list of financial institutions in zones with favorable taxation is huge and it is very difficult to single out the most rated banks there. Below is a simple list of the most popular offshore banks among CIS citizens:

ANDBANK is under the jurisdiction of the Principality of Monaco. This institution belongs to two Andorran families. To use its services, you must have at least 500 thousand euros. In this regard, the bank's clients are only rich and successful companies with a minimum annual income of about 7 million euros. ANDBANK also provides free services for obtaining a residence permit for its clients.
APANLAGEs Privatbank AG - a Swiss institution created by Latvians, is very attractive to companies and citizens from the Baltic states and the CIS, since they understand their problems very well and can help carry out all the necessary operations. Clients with a minimum deposit of 100 thousand euros will be welcome here.
BANCO Espirito Santo has . The bank itself is part of the most famous Spanish financial group, which has been providing its clients with high-quality financial services for 140 years.

What are offshore companies and how to work with them: Video

Registration of a company in any classic offshore jurisdiction does not provide for the obligation to open an account in the same state, however, in some cases it is required to open an account in an offshore bank.

Offshore bank is a bank registered and operating in a state classified as offshore (). The activities of such banks can be regulated both by the usual legislation of the country and by a special law on offshore banks. In the latter case, we are often talking about banks that provide banking services to non-residents.

The choice of an offshore bank for opening an account must be approached carefully, since these are usually small banks and often not focused on Russian clients. An offshore bank account can be opened for a legal entity or an individual. You can check with the specialists of our company for information about the necessary documents for opening various types of accounts.

On practice opening an account in an offshore bank necessary in two main cases:

to build a “single structure” when an account is opened in the same offshore zone where the company is registered. You can find out more about the advantages of such “unified structures” from the specialists of our company.
to service a bank account in a state that has a minimum number of cooperation agreements with other countries of the world and does not have any intergovernmental agreements with the CIS countries. In this case, the country of registration of the company does not matter.

To build these “unified structures”, Tax House is ready to assist in opening accounts in offshore banks in Belize, Mauritius, Panama, Seychelles, Saint Vincent and the Grenadines. So the most famous of these banks is Barclays Bank, which has branches in Mauritius and Seychelles. In Belize, our company offers opening accounts with Atlantic International Bank, Heritage International Bank and other local banks.

Among the offshore banks for opening accounts for companies registered in any offshore jurisdiction, we can highlight Loyal Bank, which has Russian-speaking support, convenient Internet banking and convenient banking services. A special advantage is that we have a partnership agreement with this bank, which allows us to carry out all actions related to opening a bank account in our office, and provides additional support for servicing already opened accounts.

A list of banks (including offshore banks) in which our company can provide services to support the account opening procedure is presented in our. However, this list of banks is not exhaustive, since our company has partners in various countries around the world who can assist in opening accounts in other offshore banks.

If the offshore zone you are interested in or a specific bank for opening an account is not in the list of banks we offer, please contact Tax House specialists to clarify the possibility of opening an account in the bank (country) you are interested in.

The offshore category includes banking institutions whose activities are concentrated in one of the offshore zones. Their work is accompanied by some peculiarities; the main difference is the ability to provide services exclusively to non-residents of a given jurisdiction. Clients can be citizens of any country except the one where the offshore bank is registered. They are not authorized to carry out any banking operations within the jurisdiction; their job is to act in the interests of clients, incl. from Ukraine.

Simply put, an offshore bank is a banking institution registered in one jurisdiction, but providing services to citizens of other countries or representatives of other jurisdictions. Often such banks are located on the territory of states that, even at the request of judicial authorities, will not provide information about the owner and status of the account if tax agreements with the client’s country of residence have not been concluded. Offshore banks are considered classic, registered in countries where you can open an offshore company and conduct international business activities, significantly reducing tax pressure.

Why offshore banks are so attractive

Opening an account in one of the offshore banks is in demand today due to many advantages. In particular, the account holder can count on:

a wide range of tax benefits;
absence of restrictions on currency control and banking regulation at the local level;
low administrative and constituent costs;
confidentiality guarantee;
multi-currency flexibility of deposits;
professional capital management.

In addition, offshore bank clients gain access to the international credit market, as well as a network of correspondent bank accounts.

More about the benefits

Wide range of tax benefits. Customers are only required to pay a one-time registration fee and a license (annual) fee. Income tax is provided only in some jurisdictions and in a small amount.
Absence of restrictions on currency control and banking regulation at the local level. This advantage makes it possible to maintain foreign currency accounts both abroad and in the country of registration. As for banking regulations, they do not apply to the offshore sector; accordingly, there are no requirements regarding reserves, liquidity levels, or other restrictions on banking practice. Offshore banks do not buy treasury bonds of the government or the state's central bank and do not follow its discount rate.
Low costs for banking services. Obviously, reducing such costs when opening an account in an offshore bank allows you to conduct business more efficiently. When servicing a company in a regular foreign bank, account administration costs are usually much higher. Often, an offshore bank is a foreign settlement account and payment center for a financial-industrial group or holding company. You can open deposits and current accounts.
Confidentiality guaranteed. Offshore banks allow the legal use of nominee services. In addition, the issue of bearer shares is permitted. Clients are guaranteed bank account secrecy. Another important advantage is the ability to open an anonymous account. True, there are situations when an offshore bank is obliged to provide the requested information to law enforcement agencies. This is regulated by a number of international agreements regarding interaction in the field of taxation, signed recently. But agreements apply to a limited number of participating countries and are possible in exceptional cases, for example, when legal proceedings are ongoing.
The multi-currency flexibility of deposits is due to the global nature of offshore banks. Investors' funds are protected due to the ability to disperse assets within various stable offshore zones with the most favorable conditions. Thus, capital will be safe from all kinds of risks, including depreciation.
Professional wealth management consists of the bank’s offer to undertake not only the provision of a traditional package of services, but also trust asset management.

Why create an offshore bank account?

In addition to the usual operations available in a traditional bank, an offshore account allows you to:

it is comfortable to carry out foreign trade activities, the supplier will not have to convert hryvnia, since payment for import supplies is possible using funds in hryvnia in a correspondent bank account, and without currency control;
use multi-currency accounts to work with currencies of Eastern Europe and the CIS countries.

The services of an offshore bank will help eliminate the use of intermediaries when carrying out some operations (for financial companies) and reduce costs. When converting hryvnia, banks will charge a 0.5-1% commission, and an offshore account will allow you to carry out the transaction for a 0.25% commission. According to experts, in just a week you can recoup the costs of an offshore account, even with an average level of activity of such operations.

Where is the best place to open an offshore account?

The choice of jurisdiction directly depends on the goals of your business. In any case, the safety of funds and confidentiality will be ensured, but additional tax advantages may be obtained.

For detailed consultations, we suggest contacting the specialists of “Finance Business Service”.

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