Banking and Offshore Companies – end of the story

/Banking and Offshore Companies – end of the story

Banking and Offshore Companies – End of the story

Almost without exception all businesses need banking services of some kind; after all the main purpose of a business is to make money. An active company requires an account with a financial institution, whether it is a bank account; e-wallet like PayPal or EMI account (electronic money institution account) like Valyuz. The business needs a financial account in order to receive payments from clients and pay suppliers.

Offshore Companies and banking in Europe

Over the years millions of offshore companies have been incorporated; many have closed and been forgotten but a good number of offshore companies prosper and are in good standing. A company in good standing is defined as one which complies with all its obligations and therefore can go about its business activities freely.

The three most common types of companies are Limited Liability Companies (LLC); International Business Companies (IBC) and Companies limited by shares (LTD). These types of companies can be found in their home countries as well as in offshore jurisdictions. An offshore jurisdiction is a country other than your own where financial services and incorporation is offered to nonresidents. The scale of these services is usually disproportionate to the offshore jurisdiction’s domestic economy. In addition offshore jurisdictions usually offer nonresident companies financial advantages such as low or zero corporate tax and minimum regulation.

Why do Traditional Banks Avoid Opening Accounts for Offshore Companies

In the past it was possible for offshore companies to open a bank account in Europe. Today you’d have a hard time finding an international bank in a respected jurisdiction like the Eurozone that is willing to open a business bank account for an offshore company. With traditional banks it is now almost impossible to open a business account for an offshore company no matter what the business is or who the shareholders are. Traditional banks find it difficult to deal with offshore companies for several reasons including the latest Anti-Money Laundering regulations and the need for total business transparency. The banks need to know who the ultimate beneficial owners are; the main clients and suppliers; all tax information and more information which is just too difficult to carry out when the company is offshore.

Banks are wary of taxation issues when it comes to offshore companies – is the offshore company paying its taxes to the correct authorities, both offshore and in the residential country of the company’s beneficial owners and is the company abiding by the tax regulations of the offshore jurisdiction. Banks many need a full audit; financial reports and proof of a clean criminal record from the offshore company. The biggest issue for banks when dealing with offshore companies is insuring that the company is not involved in money laundering. Banks want to avoid illegitimate companies using their financial institution to facilitate illegal transactions, scams, fraud and criminal activities like drug trafficking. These fraudulent companies tend to base themselves offshore away from regulation and their domestic authorities. Banks are always cautious when dealing with offshore enterprises just in case they are involved in illegal activity.

That said there are also plenty of legitimate offshore companies that require financial services from a reputable financial institution. When a bank takes on an offshore company as a client they make a thorough risk assessment; conduct enhanced due diligence; take every precaution with the on boarding process and monitor the offshore companies daily account activities. So long as the bank has reassured itself that the offshore company is legitimate and they have a clear picture of the company’s activities, beneficial owners, shareholders and other business parameters they will accept the offshore company as a new client.

A Preferred Alternative to Offshore Incorporation

With the complications involved in finding good financial services as an offshore company as well as other issues you may encounter it is highly recommended by corporate experts to think twice about opening an offshore company. Rather opt for incorporation in a respected, tried-and-tested jurisdiction in Europe – GET here all jurisdictions for company formation. There are European jurisdictions where the corporate taxation is reasonable and of course finding financial services will be easier as well as general business operations for the long term.