Offshore Bank License
 

Basic Types of Offshore Bank Licenses

In general terms it is possible to divide offshore bank licenses into two basic types of license's which can have a number of further subtypes.

General bank license is understood in a majority of jurisdictions as a license for the providing of bank services at the place of registration and internationally direct to the general public. The bank acts as any other bank entity, it can accept deposits from the public and perform common bank services with residents or non-residents. In an overwhelming majority of countries, however, the activity is limited to providing services to non-residents, i.e. offshore banking services only. This type of offshore bank is established in view of providing commercial bank services in an offshore regime.

Restrictive bank license (often referred to as the "internal" license) is a license which limits territorial activities of the bank or the possibility of providing services in foreign currencies or even just to certain persons. In a majority of cases, the bank cannot accept deposits from the public and it can provide its services only to those entities which are provided for in the bank license. This bank is used as a so called corporate bank for active Cash Flow management.

The offshore bank company established that way can become a high-quality tool for:

•Tax planning
•Increase in image of the financial group or holding
•Active cash flow management
•Issuing bonds and guarantees for tender proceeding purposes
•Easier access to bank information about business partners and competitors
•Easier access to financial markets
•More progressive financing of business activities of a holding or financial group
•Establishment of confidential and flexible bank accounts
•Providing loans and credit facilities

Most offshore banks are not subject to taxation, withholding taxes, stamp duties, fees and taxes for checks issued or accepted or to other forms of direct and indirect taxes. Another significant factor for offshore banking is the strict anonymity and confidentiality, which many potential depositors look for. These offshore banks are also fully respected entities in the wider international community, which is also displayed by the fact that a vast majority of them are domiciled in one of the tax havens, such as Bahamas, Cayman Islands, Jersey, Guernsey, Labuan, Isle of Man or Hong Kong.
 

Leading bank centers with very low or no taxes and a slightly more liberal environment are concentrated to a significant extent into three geographic areas-Caribbean, Europe and Pacific. The truth is that the laws of these different foreign jurisdictions differ very much and that one jurisdiction may be at a certain moment far more attractive than another jurisdiction, and therefore it is necessary to perform an analysis before selection of a location. The advantages which are available to proprietors of private international banks significantly prevail over the advantages offered by a majority of other investment or financial related entities, such as investment funds, mutual investment co-operatives, credit and loan co-operatives, investment societies, etc. Financial activities exclusive to banks only, as tools for direct access to international capital markets or inter-bank advantages in the form of wholesale borrowing and reduction of foreign exchange fees are suddenly available to natural persons as an offshore bank owner.

The information and backgrounds required in an overwhelming majority of countries of the world from the bank license applicant are as follows:


•Bank name and its legal form
•Applicant status (whether the matter concerns establishment of a branch office of a foreign bank or a new company)
•Names and curricula vitae of the bank directors
•Certificates of police clearance of applicants and directors
•Bank and business references
•Submission of information about economic management of the firms of the applicant(s)
•Identification of the bank shareholders
•Identification of the type of issued shares of the bank (registered shares, priority shares, shares without voting rights, etc.)
•Denomination of the issued shares of the bank and type of currency used
•Capital structure of the bank and capital security
•Capital reserves of the bank
•Information stating from what resources the bank will be invested
•Document of certifying that the registered capital has been paid up (if registered in the host country)
•Document certifying that all taxes, stamp duties and royalties have been settled
•Identification of the registered office in the host country
•Identification data of the registered agent or representative (if required)
•Identification data of the auditor and lawyer with a registered office in the host country
•Type of intended services which are to be provided
•Territorial operational range of the bank
•How the company will protect itself from fraudulent or criminal conduct
•Business plan of the bank (the authorities generally require a balance sheet from 3 to 10 years)
•Benefits for the host country resulting from the bank operation
•Signed and presented applications for the issue of the bank license

All these jurisdictions will require a proper front office and at least two employees locally where the bank is licensed. Most offshore jurisdictions today are favoring a more restrictive approach that favors only existing banks or at least substantial financial companies, such as Swiss Trust Companies that can prove they have been in existence for awhile and have favorable balance sheets to back that up. Legislation is constantly being revised and so it is impossible to keep up with all the information to date.

Most of the available jurisdictions that are shown below in the table with their fees have increased the amount of paid-in capital requirement for an unrestricted or Class A license to at least $500,000 and require a minimum balance sheet of at least $1M, which more often then not must be deposited with the Central or Government Bank, by way of a security deposit in the event the bank is wound-up. In most cases now at least $3M or more is the more preferable minimum amount to show for an assured approval along with a strong business team with relevant experience. Also as mentioned above there is the requirement to set up a physical operation in the jurisdiction granting the license with at least two local people employed, one of whom must be of a managerial caliber who will need to have hands-on detailed knowledge of the bank’s operations.

 

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