Any business person who has gone through the process of establishing an offshore company and opening an account with a foreign bank will have many questions regarding managing an offshore company and interacting with banks and regulators.
This article will discuss the FAQ that arise after buying or establishing an offshore company and registering an account.
In real terms, it is important to deal with selecting the jurisdictions for establishing an offshore company and opening an account with an offshore bank at the same time. Quite often these are in two or more different countries.
You certainly would prefer to avoid getting yourself into a lot of trouble! Don’t hesitate, consult the offshore experts of International Wealth. Grab the opportunity for free advice on selecting an offshore or international bank account. Contact us today!
1. Does an offshore company need to file financial statements and be audited?
In most jurisdictions these days, businesses are required to file financial statements. Audit requirements depend on the company’s size and its turnover.
“Classic” offshore jurisdictions do not require filing of books and accounting records as well as filing financial statements right after an offshore company was established. But that doesn’t mean you are not required to keep accounting records.
As for low-tax havens such as Cyprus, Hong Kong and Singapore, filing financial statements is also a requirement for doing business.
Setting up a company in a classic offshore jurisdiction is a guarantee of no audit requirement, but many entrepreneurs end up choosing to have their accounts audited for reputational or banking reasons. However, countries offering low tax rates have certain requirements to businesses in terms of audit. For example, this applies to all Cypriot companies. And audfits can be done only by licensed auditors.
Please check with the experts of International Wealth to find out which jurisdictions require you to file financial statements and be audited. You can find our contact details at the bottom of this article.
2. When should I start keeping books and records of an offshore company?
It is definitely better to begin bookkeeping when setting up an offshore company starting from the date of the first purchase or sale transactions. If a business person bought an offshore company, or has an existing offshore business for which no bookkeeping has been done before, then start bookkeeping immediately you finish reading this article!.
In the case of establishing a new offshore company, the first accounting records will be the participants’ contributions to the share capital and the cost of the registration procedure. With that you can prepare the opening balance sheet reflecting the composition and sources of assets.
Should you wish to start bookkeeping using an existing firm, an inventory of all assets will be required in order to calculate the liabilities and the capital, the availability of funds in the accounts. The data obtained will become the basis for drawing up the opening balance sheet. After that, daily entries can be made in the accounting records, according to the business operations carried out.
Don’t worry as accounting need not be complicated! Popular cloud-based accounting packages like Xero or Quickbooks are ideal for this purpose and are easy to use even for beginners.
3. Why would we need a double taxation agreement?
If the offshore company incorporation takes place in a low-tax jurisdiction, it is necessary to check in advance whether they have signed a double taxation agreement (DTA) with the countries where your business will be operating.
Foreign companies often operate over the internet into the territory of other countries. Their income may be taxed in the territory of a specific country to which they are non-residents. In this case, the offshore company must pay taxes in its own jurisdiction. So, double taxation agreements are drawn up and signed between the two states in order to avoid double taxation.
These agreements apply to passive income such as dividends, interest and royalties. Their main purpose is to make it easier for business entities to tax their profits from passive income so they don’t pay taxes twice.
The countries usually benefit from the DTAs. They help support mutually beneficial investments and private business development, easing the tax regime in each particular country.
Learn more from the experts of International Wealth on the jurisdictions your country of residence has entered into DTAs with to build a successful holding company. Please do not hesitate to contact us at the phone numbers in the site header.
4. When will the bank activate the company account?
Your newly opened account with a foreign bank will not be immediately available. Each individual banking institution regulates the terms and conditions for activating a business account on the individual basis. Here are several common rules for activating current accounts applied by most banks:
- The banking institution insists on a proper business plan and appointment of auditors.
- A foreign bank account is activated as soon as the minimum required amount is deposited.
If you overrun a time limit set for the account activation by a foreign bank, you can expect to have your account blocked and closed at a later date.
Here is a list of reasons due to which your offshore corporate bank account may get blocked:
- The offshore company indicated on the application a type of business it is not actually doing.
- The foreign bank account is used for unverifiable operations.
- The client does not respond to the banking institution in a timely manner.
If your account is blocked, it is better to contact the bank officers immediately in order to clarify the reason for the blocking. Only the account holder (the resident director or beneficial owner or authorized signatory) has the right to contact the bank in such a situation. It may well prove impossible to get your foreign bank account unblocked on your own. This is a complicated procedure requiring involvement of qualified experts.
Experts of International Wealth inform their customers in advance on what they should do in order not to have their account blocked. If the worst has happened and your account is already blocked, pick up the phone and call us immrediately.
5. How do I get access to online banking?
When opening an account with a foreign bank after setting up an offshore company, the owner receives a guideline from the bank officers on how to use online banking. If the customer has received a Digipass or code generator app, but has not received the instructions by email, they can often be found in the public domain on the official website of the banking institution.
There are cases when the customer cannot log in to the online banking system using the access procedure that previously worked without any issues. Most likely, a technical error has occurred. The solution is to contact technical support or your personal manager at the offshore bank and report this problem immediately.
If there is no access via Digipass, the possible solutions will be as follows:
- The Digipass internal clock needs to be synchronized with the bank clock.
- The Digipass is broken and needs to be replaced.
6. Does the Director have access to the account?
According to any Professional Director service agreement, the director cannot have access to the offshore company’s account with a foreign bank.
The director has no such right for the following reasons:
- The account is controlled by the authorized signatory who is a signatory to it. This can be a beneficial owner or a manager.
- A bank officer may contact the account signatory only. The account signatory information is specified in the bank form.
Anyone except for the account signatory is the third party to the bank.
7. What are the legal requirements for running an offshore company?
Each individual jurisdiction has its own requirements for running an offshore company. Once an offshore company is incorporated, the following basic requirements must be enforced:
- Holding meetings of directors and annual meetings of shareholders. Most often they are allowed to be held anywhere in the world or online. It is important to keep minutes of these meetings in a minute book.
- Keeping books and records, the balance sheet and the profit and loss statement must be drawn in accordance with the standards that have been adopted at the legislative level in the particular jurisdiction.
- Submission of annual financial statement to the authorities of the country where the offshore company is incorporated.
- Certain jurisdictions require the financial statement prepared by a local accountant to be audited by independent auditors.
8. Once an offshore company is incorporated, why does it have to be renewed every year?
Most offshore jurisdictions have established a government fee for the renewal of offshore companies. However, once the offshore company is incorporated, its owner will be liable for annual costs:
- A fixed government fee.
- Registered agent services.
- Rental payments for the registered office and legal address.
A Certificate of Good Standing can and should be obtained each year on renewal since it will be nigh on impossible to open a business bank account without it.
Annual renewals include compliance checks that are required in order to enhance the reputation of the offshore company and to succeed in business. If a company fails to pass the annual renewal, it will be penalized or even removed from the jurisdiction’s register of companies for ill reputation.
Usually the renewal deadline is precisely 12 months after the company incorporation.
9. Is it an issue to transfer money from a current account to the card and then withdraw it at an ATM?
After setting up an offshore company and opening an account with a foreign bank, the beneficial owner has the right to independently transfer their funds from the company account via the Internet banking system to a bank card and then withdraw it from an ATM. Please take into account the fees set for cash withdrawals at a particular banking institution. If an ATM of a partner network is used, additional fees may be charged.
Owners of offshore companies should remember that any cash withdrawal is necessarily controlled by the financial monitoring service of the banking institution. The bank has the right to demand seeing receipts of where the withdrawn cash was spent. If the customer refuses to provide this information upon request, the bank will have the right to block their card or close their account and terminate the contract.
10. What are bearer shares?
After the offshore company incorporation, certain jurisdictions used to allow the issuance of bearer shares. The certificate of bearer shares does not specify the owner’s name. The actual owner is considered to be the person who physically held the certificate. Previously such shares were formally transferred by handing over the certificate to the bearer.
Nowadays bearer shares are deposited with licensed custodians such as our firm and the information about the owner is written down. If the owner’s information is not registered, the right to such shares is null and void. Exact procedures and legal requirements vary.
We hope that our brief section of frequently asked questions will help you find the answers to some of the questions you’ve been asking. Remember that it is important to deal with selecting the jurisdiction for establishing an offshore company and opening an account with a foreign bank at the same time. It is the banks that now choose their clients!
If you are only planning to set up an offshore company and open an account with a foreign bank, please feel free to use the services of the experts of International Wealth.
We offer a free consultation on selecting an account with a foreign banking institution.