“And the bank needs to have all the currencies in the world, issue prepaid cards, debit cards, credit cards, and virtual cards. Fees should be very low, if any at all. The bank must be financially stable and in a jurisdiction with a deposit insurance.”
If this sounds like you – and it probably does, – you are going to be disappointed.
Let me explain why and help you set your expectations more realistically.
Why You Are Wrong
I often come in contact with people who want to trade stocks for a few thousand EUR/USD a month, sell e-books, sell software, or other small-scale operation behind the veil of an offshore company. So far so good. Forming an offshore company can be a great way to simplify running an online business or consolidate your investments.
Unfortunately, due to myths perpetuated by sales pitches by shady offshore service providers, pop culture, and misunderstanding of often already misunderstood articles in mainstream media about the offshore financial services sector, the desired specifications quickly go overboard. I’m often told how the person expects the company to be fully anonymous (sometimes not even disclosing their name to the registered agent or OSP), have mobilized bearer shares, and pay zero tax. They must also be able to use profits from the company tax free in their country of residence.
Additionally, they want an anonymous bank account (not possible) with a bank that offers complete banking secrecy. It’s important that the bank has an enormous liquidity or reserve ratio. Ideally, the bank shouldn’t be issuing loans. Despite this, the bank must somehow still charge extremely low fees and ask for no minimum deposit or some low amount under 100,000. As if that wasn’t enough, the bank must also be in a jurisdiction that insures deposits, even deposits of non-resident companies.
Why It’s Not Possible
Your identity must be known when forming a company because that is what the law says. The law says so because companies are legal entities, which can be parts of legal contracts, legal disputes, criminal investigations, own property, control assets, and so on. It must be possible to identify the person or persons behind a company.
Yes, there are ways around this, through using convoluted structures and/or nominees. But, let’s be honest, chances are you don’t need that level of secrecy.
Bearer shares are available but increasingly must be with custodians (demobilized). This is because bearer shares are a large money laundering concern. Ownership of funds can shift very quickly between several parties, with the ultimate recipient potentially being a known criminal or a terrorist organization.
Offshore companies aren’t a vehicle to easily and automatically reduce your tax burden. In some very specific cases – which depend on where you live – there may be laws and loopholes you can use to minimize your tax burden (what’s called tax minimization or tax avoidance), but in most cases, you are left with two choices: evade or pay taxes. Offshore companies are still useful because they are easy to run and offer a degree of legal protection.
Then we get to banking.
Anonymous bank accounts do not exist. Some blame 9/11 for them disappearing, but the uprooting of total banking secrecy was ending before then. 9/11 was a catalyst, though. These days, you will always be identified with the bank. Even if you use nominee bank account signatories, they will be required to declare you as the ultimate beneficial owner (UBO) of the company, whether you know it or not. Again, there are ways around this but you probably don’t qualify for it.
I will return to banking secrecy next week.
Banks are companies and companies have to make a profit. Offshore banks do not operate in some alternate universe where this doesn’t apply.
Banks have two sources of income: interest on loans and banking services fees. Now picture a bank that doesn’t issue loans. How do they make money? That’s right. By charging you fees. (Yes, banks also make money on their own investments but that does not affect my point here.)
It is true that banking fees vary regionally. Caribbean banks for some reason think they can get away with charging very high fees to non-residents, whereas European and Asian banks generally have lower fees. The lowest fees are found in the poorest countries, where banks simply can’t charge more because customers just wouldn’t bank then. These are the parts of the world where mobile operators handle more money transactions than banks.
However, you should also consider that comparing fees between banks isn’t always a very precise matter. It depends on what type of banking services you use. Banks are generally required to post their fees on their websites or in some cases – such as Andorra – post the fees on the central bank website. Just take a few minutes to read through the schedules of fees and make your own assessment of which has the lowest fees for the services you need.
But keep in mind that the old saying that, you get what you pay for, holds true even for banking. In some cases — Caribbean being a notable exception. A bank with a low profit margin cannot afford high enough salaries to hire and keep the best employees, which in turn affects your experience with the bank.
Deposit insurance has become the latest trend. What’s far more important than deposit insurance is the financial stability of the bank and of the country. Would you rather place your money in a financially unstable country that insures deposits or a financially rock-solid country that doesn’t? What’s your course of action if the country refuses to pay out insurance? Are you going to sue them? Litigate? Good luck.
Reading financial statements might sound boring but if you can’t do it, what are you doing forming an offshore company? After having a read a couple, you will get used to the language and know which figures to look for. I will go into this more in-depth in a few months.
More on both deposit insurance and reading financial statements in coming months.
I hope this has helped set your expectations to a more realistic goal.