A few years ago businessmen established a lot of companies in offshore zones. The British Virgin Islands, Belize, Panama, etc. were particularly popular. Non-resident accounts for such companies were opened by banks all over the world without any problem, but these days have gone. Traditional offshore jurisdictions are less popular; today entrepreneurs prefer to open companies in Hong Kong and Singapore.
When business is more or less developed almost every owner wishes to transfer a part of the assets to another country. The reasons may vary: the fear of being raided, the desire to protect assets in case of divorce, to gain protection against adverse changes in the political situation in the country of residence, to explore new markets, and, of course, the desire to minimize tax burden. Offshore companies are in demand, but it has become immeasurably more difficult to open a non-resident bank account. In some jurisdictions this is practically impossible, while in others, under certain circumstances, opening an account is difficult, but possible. Each bank has its own "Know your client" (KYC) procedure, but there are a number of common requirements to offshore companies. Some of them are publicly announced, some are informal.
Let's study them.
1. Citizenship and the country of residence of the beneficiary owner
Banking compliance is getting tighter. The UN sanctions imposed against certain countries and organizations are an absolute must for all banks. It is no secret that banks almost all over the world take into account the sanctions imposed by the United States on Russian entrepreneurs. Opening an account for an offshore company is quite difficult, and a beneficiary owner from the sanction list makes the mission impossible.
In addition banks have their own lists of "undesirable" jurisdictions. This list is usually made by banks themselves, but they take into account the requirements of the local regulatory body. It is a common knowledge that Hong Kong banks are very reluctant to open accounts for companies owned by beneficiaries from Russia and neighboring countries.
2. Beneficiary owner's personality and biography
When one collects supporting documents for account opening, the beneficiary's CV should be the first document to draft.
As a rule, banks refuse to open an account if the beneficiary is a politically exposed person (PEP). A politically exposed person is defined by the Financial Action Task Force on Money Laundering (FATF) as an individual who is entrusted or was entrusted with an important public function. Their position and influence potentially facilitate the commitment of money laundering crimes and related crimes, such as corruption and bribery.
It is not always easy to understand whether a particular businessman is politically exposed person or not. Many entrepreneurs participate in elections, sponsor political parties, are members of advisory councils of state bodies, etc.
Banks prefer not to run risks and believe that "once a PEP is always a PEP", so in some cases it is better not to inform the bank about the fact that the beneficiary owner occupied position in state bodies, especially if it was a long time ago.
The good command of business English is also very important. Communication with a help of an interpreter is certainly not prohibited, but the client's ability to negotiate independently produces a good impression on the employees of any credit institution.
It is better to state all the facts, that prove the beneficiary owner's competence in the chosen field: academic degree, participation in well-known conferences and exhibitions and etc. If a client starts business from scratch the bank will definitely pay attention to whether he has experience in the chosen field. For example, if a client decided to sell refrigerators on his own, but has worked in the field of refrigerator production for many years, a bank will regard this as considerable plus.
A bank may also ask how often the client can come to the country where he does business and intends to open a corporate account. In this case it is very good to have a long-term business visa which allows to stay in the country for a significant part of the year (say, one month out of three).
3. Management structure of the offshore company
Nominal service is still popular within owners of Hong Kong and Singapore companies. But banks prefer companies with simple management structure, when beneficiary, shareholder and director are one and the same person. If a beneficiary uses nominal service, then the director should not be so-called "mass director". It means, that he/she should not act as a nominal director in many companies.
4. The amount of share capital
Even if legislation allows registration of companies with very small share capital, it is not recommended. The best variant is when the share capital is several thousand US dollars or more.
5. Business history
Banks are interested in customers who have business experience. Therefore, one of the possible strategies for opening a bank account is as follows: register a company, open an account in a payment system (which is much easier than in a bank), work for six months, and then apply for opening a bank account. It often happens that an entrepreneur already has a company, but wants to establish a new one and to open an account for this new company. In this case it is recommended to describe the business of long-existing company and explain why it was necessary to start a new one.
6. The reason for opening an account not in the country of residence of the beneficiary owner
If the owner does not live in the country where he wants to open an account, he must clearly explain why he needs to do it in this particular jurisdiction.
Arguments like "I want it that way", "there is an unfavorable political situation in my country", "my business partner advised me so" and even "I have a company in Hong Kong and I want to open an account in Hong Kong" are not taken into consideration.
A bank can open a non-resident account if the business of a prospective client is directly connected or at least will be connected with the country of the bank. The suppliers or customers based in this country, warehouses, real estate - all these reasons will drift the bank in the direction of opening of the account.
7. Accounting records, audit report, payment of taxes
Now it is hardly possible to find a state which does not impose obligations to draft financial statements. However, some states (for example, the Seychelles) still do not require submitting the statements to tax authorities. A number of companies (primarily companies with a small turnover) are not required to audit financial statements. In many countries (Hong Kong, Singapore, BVI and others), income received outside the country is still not subject to corporate tax. This is very attractive for businessmen, but reduces the chances of opening a non-resident bank account.
The following is recommended to increase the chances:
to audit the financial statements, even if it is not necessary;
if the financial year has already passed, but the reporting deadlines have not expired, it is better to prepare and submit reports ahead of schedule.
In some cases paying taxes voluntarily will produce good impression. This is especially important if a company wants to open an account in the country of its registration (for example, a Hong Kong company wants to open an account in Hong Kong).
8. Sphere of business interests and business model of a client
Banks usually do not open accounts to customers who are engaged in the following activities:
crypto currency trade,
certain types of financial activities (financial pyramids, collection activities, etc.)
gambling,
trade or manufacture of goods for adults.
Some banks prefer not to open accounts for the following companies:
law firms,
IT companies, etc.
This list of non-desirable businesses for every bank is known, so a client conducting a "prohibited" type of activity is advised not to waste time and money and contact another bank or payment system.
In any case, the client's business model needs to be explained and confirmed by supporting documents. When a customer is engaged in the resale of goods, everything is usually more or less clear and understandable. One can show contracts, invoices and transport documents.
If the business is related to the provision of services, banks usually demand more details. It is necessary to give full picture of what services the company provides, where it finds customers, etc. IT sector companies are not always welcome because it is difficult for bank employees to understand the business model of such clients. If a client starts a business from scratch, then the business plan is a mandatory document.
A bank will pay special attention to the client's previous transactions, so it will thoroughly examine the statements on existing accounts. The company's turnover, the number of incoming and outgoing payments, the purpose of payments - everything will be carefully checked by a bank.
Banks also examine counterparts the company works with or plans to work. A bank will always check what the counterparts deal with, whether they have a website, production bases, warehouses, etc. If the majority of counterparts are offshore companies, then the chances of opening an account are very low. If large factories, marketplaces, transport giants are among the company's clients and suppliers, then the prospective client is regarded as solid. In addition, partners must match the profile of the company's activities. If a company ascertains to sell food, and the main buyer is a clothing factory, it will lead to extra questions. In such case it is recommended to give explanations without request from the bank.
Banks are not ready to open accounts for companies which do not have license for the type of activity they want to engage in, even if this license is in the process of obtaining. Therefore, it is necessary to inform the bank about the availability of such a license.
9. Economic presence in the country of registration (so-called "substance")
During the last two or three years, banks have tightened the requirements regarding the company's economic presence in the country of registration. Economic presence is usually understood as an office and employees. Despite the fact that the OECD recommends that the number of employees should be correlated with the company's profit, banks are not yet digging so deeply. Most often, a small office and one employee are enough.
A Bank will definitely ask you to provide the following supporting documents:
lease agreement,
employment contract.
A bank will also check the following issues:
if the employee works full-time,
if he is paid a salary,
if his salary corresponds to the average salary in the region,
whether the company pays rent.
A bank might want to visit the office and communicate with the hired employee if it is possible. The requirement to have an office applies even to those companies which do not need an office at all, for example, Internet marketing companies.
Therefore, when opening a company on the British Virgin Islands or Curacao, one should take into consideration that it is more difficult to create substance on these islands than in Hong Kong or Singapore. The reason is that the population and available offices for rent are limited.
10. Recommendations
Recommendation letter is very important. If an existing bank client recommends a new company, it is a perfect, but not always possible situation. The beneficiary owner should turn to his current bank for recommendation letters both for himself and for his company. One can also ask partners to provide recommendation letters, especially if these partners are well-known and whose reputation is beyond doubt.
11. Adviser's (legal introducer's) assistance
Who is a legal introducer? This is a law firm which helps clients to open accounts. The adviser is well aware of the bank's requirements both to clients and to supporting documents. The introducer can point out that some issues need additional explanation.
The adviser also conducts an initial "screening" of prospective clients. If the chances to open an account in particular bank are small, the introducer directly informs the client about it. Together they look for another option. If the adviser agrees to help the client to open an account, then the bank will consider this client with benevolence in comparison to a client "from outside". Personal connections with the bank employees are also very important. Many advisers have information which is not publicly available, but can greatly facilitate the opening of an account. Sometimes it is practically impossible to open an account independently, and only an introducer can "drag" a company into the bank.