In most cases, an offshore company without a bank account is useless. Yet with the increased amount of rules the banks have to enforce, opening offshore bank accounts has become more cumbersome in the last couple of years.
In this article we will explain some of the requirements and offshore bank account opening processes so that you or your client will have less issues opening one in the future.
In some cases clients have difficulties presenting up to date utility bills in their personal name, which leads to a frustrated process and client. But for the bank, this is the only proof of where you actually live. And why is that important?
It is an indication to see if you intend to use the account for tax planning. It is also important for the bank to know that they send your login details to the right location and it might be indicating for the bank if you from a high taxed jurisdiction and they are at risk of receiving requests for Exchange Of Information (Freemont article June 2014).
Both registrars and corporate services providers and in some case banks ask for resumes. This is not because they are interested in where you went to the high school or whether you understand HTML. It is to match your professional history with your current financial situation.
When an anthropology student who worked at the local library for ten years wishes to transfer millions of dollars from an unclear source, this might indicate a malicious origin of the funds.
Source Of Funds
Banks have to understand what your business is. With an existing account they can easily figure this out by the amounts and descriptions of your transactions. But when you are opening an account, they are in the dark. That is why they always ask their clients what the initial source of funds is and what is the expected frequency and volume of transactions of the first suppliers and future customers.
The initial source of funds can again be an indication of potential tax issues. As an example we can take the general assumption that funds coming from a private account have already been taxed.
The amounts that will go and come from potential customers and suppliers will give the bank a good indication as to the size and nature of your business.
often try to dash this off or present vague information because “it is a new business”. But that is like making a reservation at a restaurant without knowing the date and time and the size of the party you are entertaining. You have to give the other party something to work with.
When you are dealing with a sales representative of a bank you are dealing with the front office. This is not the person who gives the final approval on the opening of your account. The easier it is for the representative to understand your case, the easier it will be for him to present it to the decision makers.
Use this as an exercise at the beginning of the process. Write down what your business looks like. Make a business plan. A drawing. Write a letter for all we care. Try to realise that there is a man behind the curtains who should be able to understand your business model in 5 seconds. The better the information, the bigger the chances that you will glide through the compliance approval without the process being disturbed by additional questions.
Also know that compliance approves a case as it is presented. When your case changes (you wish to add a different currency, add an additional signatory or the transacted volumes are much higher than originally thought) it might trigger the necessity of an additional approval. Your case has to be as complete as possible from the start.
A major source of frustration is updating of the records. This is usually enforced by blocking incoming or outgoing funds until you provide the bankers with what they need. Unfortunately, the desperate need to comply with regulations outweighs your relationship with the bank.
The only way to prevent this from happening is to be proactive with updating your details yourself. Because when your passport expires, someone might ask for a new scan. If you move, someone will want to see a new utility bill. If your company has a corporate shareholder, you might be asked if it is still in good standing and who is the shareholder.
Opening Offshore Bank Account – Conclusion
Although banks become more regulated by the day, when you apply the logic and the steps outlined in this article, you should be able to avoid most problems with the opening of your bank account.