This is going to be a short one, but a topic I find needs to be addressed.
I am often asked about whether an offshore company can open an onshore company, and — vice versa — whether an onshore company can open an offshore bank account.
The question I always ask is — why?
Offshore Company — Onshore Bank Account
Offshore companies seeking onshore bank accounts may be doing so in hope of making their company appear more legitimate.
The situation
Suppose you have a Belize IBC and you are worried about how it will be perceived if wire funds to or from Belize when dealing with business partners or customers in onshore jurisdictions.
The solution
Yes, you can open an onshore bank account for your offshore company. If you can find a bank willing to take you on.
It may be significantly easier to form an onshore subsidiary, which opens a bank account, and shifts all profits unto your offshore company.
Onshore Company — Offshore Bank Account
An onshore company may be concerned about the stability of its banks or simply benefit from banking services available in a foreign (offshore) bank.
The situation
You are running a steadily growing company in one of the unstable Eurozone countries. In order to protect your company’s assets, you want to open a foreign bank account for your company.
The solution
This can be done, a lot more easily than the already discussed reverse. Opening an offshore bank account for your onshore company is typically quite easy.
However, it may again be beneficial to consider a separate legal entity. Whether this is a holding company, a subsidiary, or a standalone company will depend on your exact situation.
You would then transfer funds you want to protect — after declaring and paying tax — from your onshore company to your offshore company’s bank account in a preferred jurisdiction.
Interesting discussion.
I can think of a variety of reasons for either scenario, the later is most useful from an asset protection standpoint where bank freezes are an issue or alternatively where you’re doing business in the other jurisdiction and want to make payments and settlements easier and more affordable (something as simple as avoiding a 2.5% cross border fee on foreign credit card transactions can add up if you’re doing a sufficient volume of transactions). In both cases you could set up foreign entities but the inconvenience of constantly making transfers as well as the potential for additional reporting requirements often undermine the advantages.
Going the other way the reasons are more compelling, typically if you establish a local entity now you’re bringing in questions of local tax and if you’re structured in a tax efficient manner who wants such hassles? This often typically also brings with it withholding taxes, potential concerns of transfer pricing, CFC rules, etc., which could all be avoided if the company was just able to open an onshore bank account for the offshore company (I’m really speaking more in terms of setting up a bank account in a high tax jurisdiction for a low tax company obviously the tax specifics will vary).