I get a lot of questions about starting various types of financial services businesses. In this article I will go through the basics and – for most of you – shatter your dreams.

What is a Financial Service?

A financial service is an activity where funds are being handled on behalf of another party.

Companies used for personal gain, such as personal investment companies or companies set up to manage one’s own wealth otherwise, are not technically financial service providers since the funds belong to the owners.

Now, this doesn’t mean you can form a company and hand out ownership left and right to skirt financial services regulations. There are controls in place for how ownership can be assigned and intentionally abusive or evasive behaviour is regulated.

To keep things simple for this article, I will assume that financial services refer to money-related services rendered to third-parties.

Different Activities, Different Regulations

Although many have realized that the activity they have in mind will require a license, a common confusion I come across is that these would-be financial service providers fail to realize that different activities have different regulations.

Investment services are different from foreign exchange services which are different from deposit taking services which are different from credit services which are different from remittance services which are different from prepaid card services, and so on and so forth.

Insurance is also a type of financial service, often covered by its very own act of law – as opposed to just being a chapter in an act.

Investment Services

This is a service where customers deposit money into your company, which you then take and invest on behalf of the customer. Profits are shared between you and the customer.

It can also be investment advisory.

This activity requires a high degree of skill but a license is not always required, for example if the amounts or number of customers are very low.

Licensing requirements vary between jurisdictions but are generally easy to obtain if you have the credentials and can show at least 100,000 USD in share capital.

Foreign Exchange

This can be a type of investment, where you invest in currencies and currency-pairs on behalf of clients.

It most often refers to the selling and buying of currencies. Customers who deposit USD to buy GBP are given GBP at an exchange rate you determine based on how much GBP other customers have deposited.

To make this work, you need a lot of initial capital and good banking connections.

License is usually required for any meaningful size of operation.

Deposit Taking

This is probably the easiest service to offer. There are a number of entities suitable for deposit taking, from various bank-like entities such as the north European sparkasse/sparkassa (savings treasury), New Zealand FSP, Panama, Costa Rica, or specially-licensed IBCs.

License is not always required but, again, for any meaningful size of operation, a license may become necessary. For one, to satisfy banking partners.

Issuing of Credit

Banks are often called credit institutions because that is what separates them from purely deposit taking institutions.

Issuing credit to individuals will often require a license but smaller operations may not always need one. Lending to businesses can be done under the guise of investment and may as well not always require a license.

Remittance

So you want to compete with Western Union, Xoom, Ria, Transferwise, and Transfast?

Get a license or become an agent of them.

Unlicensed money remittance businesses are punished severely.

Prepaid Cards

If you want to offer prepaid cards, you have three options:

1. Partner with a licensed issuer.
2. Partner with a partner of a licensed issuer.
3. Become a licensed issuer.

Number 1 does not necessarily require a financial services license but the licensed issuer will prefer that you hold some form of accreditation. Being an experienced business professional can suffice.

Tonnes of service providers have partnered with a couple of Polish and Belizean banks that act on the very limit of the law. The Polish ones have ramped up their due diligence process as of late, though.

Number 2 is the easiest and is how nearly all these “anonymous prepaid card no ID free IBAN” operators operate, or used to operate. The entry requirements are almost nonexistent. These schemes used to get shut down a lot but things seem to have improved somewhat in recent times; either because I don’t keep enough of a close eye on that sector nowadays or because compliance has actually finally tightened.

Number 3 requires a license; often a full, unrestricted banking license.

Why Offshore License?

Why even a license?

Because one is needed – quite simply.

An offshore license is – or was – perceived as a way to satisfy the need to be licensed with tax advantages and relaxed license requirements.

Reality

Times have changed. Enforcement of laws is getting better, interpretations stronger, and

For reasons relating mostly to taxation but also to accountability and customer protection, having an offshore license to conduct financial services won’t be enough unless you are also operating in that jurisdiction. Even so, there may be constraints that prevent certain activities to be conducted or offered remotely or outside of economic trading zones such as the EU.

Offshore financial service licensees are or were often used to dodge tax and obfuscate ownership. This left customers with little to no recourse and security in case of bankruptcy or failure.

Similar to how gambling was once a free-for-all online, it has since shifted to regional licenses , and – in recent years – to per-jurisdiction licensing. Although not as strict, this has been happening in financial services, too.

So before you pay thousands upon thousands for a license, make sure the license is actually useful and that your structure is compliant. It would be unfortunate if your partner banks and brokers closed your accounts for fear of regulatory reprisal.

At long last, it is finally the Seychelles’ turn to be dissected and examined.

Its reputation is among the worst in the industry. Few surpass it: Nauru, Comoros, Liberia, and maybe Vanuatu.

What may superficially look like just another IBC jurisdiction with an international banking act actually has some interesting solutions to offer.

But it’s not all bad.

Overview

Similar to Belize, Seychelles has major problems and shortcomings when it comes to anti-money laundering and the efforts to combat tax evasion are very barebones.

Belize and Seychelles are some of the cheapest jurisdictions to incorporate in and IBCs in these jurisdictions are pushed heavily by marketers on online communities.

Because these jurisdictions are so popular and because it is relatively easy to become a licensed registered agent there, competition has grown fierce, costs have gone down, and it’s easy to start a reselling business and still offer attractive pricing while raking in a nice margin. See Things You May Not Know About Your OSP.

ESAAMLG

Seychelles is a member of ESAAMLG – Eastern and Southern Africa Anti-Money Laundering Group. So far, only one mutual evaluation has been performed on the Seychelles. It faced significant resistance from Seychellois authorities and market operators, which were very reluctant to share information.

In this report, which relied on data from 2005 and 2006, there were over 30,000 IBCs incorporated in the Seychelles and the offshore industry generated more than 25 million USD in revenue per year. For a country with a GDP of around 2 billion USD, that is a significant source of income.

The Seychellois authorities claimed that the island nation is at little risk of money laundering since it’s so remote and its banking sector not particularly large.

ESAAMLG points out in its report that corporate service providers (CSPs), despite legally required to, often do not know the beneficial owner of IBCs, especially for IBCs sold through overseas resellers/intermediaries. The report also states that there is very poor definition of what constitutes a beneficial owner.

In general, significant gaps were identified concerning due diligence.

OECD

In its 2013 peer review, the OECD has classified the Seychelles as non-compliant.

In this report, over 120,000 IBCs were reportedly incorporated in the Seychelles; 90,000 more than in ESAAMLG’s 2005/2006 report.

The OECD peer review reports echoes most of ESAAMLG’s concerns, showing that the Seychelles have taken little action to reach higher levels of compliance with international standards.

A sign of steadfast, unrelenting independence and defiance in true David-and-Goliath fashion where the Seychelles is David flinging rocks at the Goliaths of OECD and EAAMLG and, by extension, FATF? No, not really. There is simply more money to be made by remaining on the outskirts of compliance. Criminals need safe havens, too.

OECD stats that only a single request for information had been received as of writing. It is unclear if the Seychelles can and do share information.

Al-Jazeera – How to Rob Africa

In 2012, as OECD was wrapping up its peer review, Qatar-based news agency Al-Jazeera published a 25-minute documentary and article called How to Rob Africa. This article shone a light on what many already either knew or suspected was happening in the Seychelles: facilitation of various crimes in Africa such as transport blood diamonds and the usage of Seychellois companies to funnel money overseas.

In the Seychelles, we found how easy it is to rob Africa. We learned about the clever but brazen tricks and scams that can be used (for a fee) to disguise the origins of money and the identities of those who are moving it around.

The article was so damaging to the Seychelles that FSA Seychelles (at the time called SIBA – Seychelles International Business Authority) issued a press release promising to take action. Zen Offshore lost their license, which sent many resellers into turmoil.

The documentary has been viewed over 112,000 times on YouTube, which notably does not include views on the Al-Jazeera website.

Could the documentary have focused on other jurisdictions? Yes and no. Although I often talk about IBC jurisdiction as one cohesive, homogeneous collection of jurisdictions, each is unique when you break it down to the finer details.

While for example Liberia may on surface appear worse than Seychelles, its war-torn past and rampant corruption combined with a government-run registered agent system makes it less attractive for those seeking stability. Mauritius on the othr hand has far more stringent AML laws and actual controls than Seychelles, making it more of a tax haven than a money-laundering haven that the Seychelles is.

The practices shown in How to Rob Africa have not ended in the Seychelles, nor are they unique to this jurisdiction.

Geography and Demography

Map from Wikipedia.

Incorporation and Business

Reputation

We have already established that the Seychelles has a terrible reputation and it is one the jurisdiction has earned.

Out of the major, mainstream offshore jurisdictions, Seychelles has the worst reputation.

General Information

When it comes to company formation regulations and procedures, Seychelles is pretty much a standard IBC jurisdiction.

Regulator

Oversight of the offshore sector falls on the FSA Seychelles (formerly SIBA) as well as the FIU.

International Business Company (IBC)

Requirements are typical:

• One director required. Corporate directors permitted.
• One shareholder required. Corporate shareholders permitted.
• No paid up share capital required (usually 100,000 USD authorized).
• Registered address in Seychelles required.

The Seychelles enacted its IBC act in 1994. It is one of the most popular IBC jurisdictions today due to low cost, quick set-up times, and strict secrecy. It is the bread and butter of the large-scale offshore incorporation sector.

Some 20,000 IBCs were formed each year 2014 and 2013. Despite the jurisdiction’s poor reputation, there are no signs of a slowdown. The FSA states in its 2014 annual report that the jurisdiction’s Non-Compliant rating may cause a decrease in companies set up by Eurozone investors but that they are seeing an increase what looks like Chinese companies (presumably based on the company name, which is the only detail automatically known to the FSA).

From FSA Seychelles annual report 2014.

Taxation

None.

Record Keeping

Required but need not be submitted.

Companies Special License (CSL)

In 2003, Seychelles enacted a new law providing for companies to be formed with a special license to conduct restricted activities. A license can be issued for any activity.

• Investment management and advice
• Offshore banking (may require additional licensing)
• Offshore insurance (may require additional licensing)
• Reinsurance (may require additional licensing)
• Investment company
• Holding company
• Marketing company
• Intellectual property holding company
• Headquarters company
• Human resources (staffing) company
• Franchise company
• Business under an ITZ license (International Trade Zone)

Now, you might ask yourself if all Seychelles companies that act as for example investment or holding companies require a license. The answer is that no, they do not. However, for certain forms of tax planning, it might make sense to have a taxable entity. It is beyond the scope of this article to explain why but it has to do with being able to claim tax status in one jurisdiction to avoid it in another, under a double taxation treaty.

A Seychellois CSL is a double edged sword in that it can on the one hand provide for an arguably legitimate-looking taxable entity to be set up with some of the ease and advantages the Seychelles IBCs enjoy and on the other hand it can be used to conduct financial services or other licensed activities.

Requirements to apply for a CSL:

• Minimum two directors and due diligence documents on these directors.
• All directors must be natural persons.
• Corporate secretary required, which must be a licensed International Corporate Service Provider (ICSP).
• Business plan and detailed description of activities.
• Otherwise, same as IBC.

Record Keeping

Required and must be submitted.

Taxation

Global income is taxed at 1.5%.

Public Records

For IBCs, only company name is disclosed to the government.

For CSLs, company name and director details are disclosed to the government.

None of this information goes on public records.

Other

There are two other types of entities in the Seychelles: Limited Partnership (LP) and Protected Cell Companies (PCC). I don’t find either interesting enough to discuss in this article, though.

Seychelles International Trusts

Trust laws were enacted in 1994 (International Trusts Act, 1994) and are as rigid and secretive as one would expect. Disclosure is strictly regulated and forbidden in all situations except for specific Seychellois court proceedings.

With lower costs, it is trying to be an attractive alternative to more expensive jurisdictions. As of 2014, little more than 600 trusts had been declared.

International trusts may not be settled by residents of the Seychelles or have beneficiaries resident in the Seychelles. However, IBCs (and CSLs) can settle and benefit from trusts. The trustee must be resident and duly authorised by the Seychelles government to act as a trustee.

Fraudulent conveyance is limited to two years. Prevention of forced heirship is in place.

International trusts are exempt from taxation in the Seychelles.

Seychelles Foundations

Since 2009, the Seychellois arsenal of financial services also includes a Foundations Act. As of 2014, there are 421 foundations registered and active in the Seychelles.

It is one of the most affordable ways to form a foundation. Although the charter must be approved by the FSA, foundations are often formed with a pre-approved, generic charter and foundations can be established same or next day in many cases.

Contrary to Panaman where a foundation must have assets of at least 10,000 USD, the limit in the Seychelles is a mere 1 USD. Combined with low government fees, this can make Seychelles an attractive jurisdiction to establish a foundation.

Foundations are required to keep records but need not submit them. There is tax levied on foundations in the Seychelles.

Service Providers

As always, this is not a recommendation.

• Appleby (L)
• Icaza Law (L)
• Fidelity (L)
• Jordans Trust Company (L)
• Mossack & Fonseca (L)
• OCRA (L)
• OIL, Offshore Incorporations Limited (L)
• Sovereign Group (L)
• Sterling Offshore (L)
• Trident Trust (L)

Banking

Offshore banking in the Seychelles is generally poor and underdeveloped. It has the same problems as the Caribbean, with high fees, slow customer service, and lack of sophistication in services.

Barclays was for long the default bank for offshore companies in the Seychelles but after raising the minimum deposit from 5,000 to 100,000 USD and subsequently throwing out lower-value clients, attention turned to Bahraini-owned BMI Offshore. Barclays has since decided to completely leave the Seychelles offshore banking sector.

HoweveIn October, the Central Bank of Seychelles (CBS) issued a statement (Outward Transfer by BMI Offshore Bank (BMIO)) regarding BMI Offshore having problems with outgoing wire transfers. A few days prior, the bank had lost its foreign-currency correspondent accounts and, being an international bank, it would any way not be allowed to transact in the local currency.

Although the CBS assured the public that the bank was liquid, it and the FIU together started an investigation into the bank to help find a solution. In November, the CBS took control over of BMI Offshore after the bank had failed to establish new correspondent accounts.

In actions that put the Seychelles ahead of some dubious Caribbean counterparts (which we will discuss in a few weeks), the CBS was able to in by December 12th establish new correspondent accounts. However, doing so required the CBS to reorganize the bank. While this may be seen as a threat to sovereignty, the alternative would have left depositors stranded indefinitely. The bank did not yet resume normal operations but were able to process some transactions.

In February of 2015, it was announced that a representative of KPMG Mauritius – thereby no doubt leaning on the better reputation of Mauritius while still keeping it within Africa – would oversee the reorganization.

In August, the CBS announced that the reorganization plan had been approved as of June and the reorganization had resumed. Representatives of Al Salam Bank, which owns BMI Bahrain which is the parent of BMI Seychelles, visited the island and met with government officials.

As of writing, BMI Offshore is still not fully operational but seemingly will be in a matter of months.

So what other banks are there?

With the two mainstay banks being unavailable, Pakistani-owned Habib and the Seychelles branch of the Mauritian bank MCB are seeing an increase in applications.

Banking Secrecy

The Seychellois international banking act contains very strict secrecy clauses. Although OECD indicates that Seychellois authorities are empowered to force banks to disclose information, having seen first hand how things are run in the Seychelles, I would not be surprised if this turned out to be false when and if it is actually tested (beyond the very few requests received so far).

Banks in Seychelles

There are nine banks in the Seychelles:

• Bank AL Habib Limited
• Bank of Baroda
• Bank of Ceylon
• Barclays Bank (shutting down)
• BMI Offshore
• Habib Bank
• MCB
• Nouvobanq
• Seychelles Commercial Bank

Living in Seychelles

Under the Income and Non-Monetary Benefits Act, taxation on residents is relatively low, with personal income tax standing at 15% on income derived from local sources. Foreign income is usually not taxed.

It is costly but relatively easy to obtain permanent residence permit in Seychelles. A contribution of 1 million USD is required, plus an additional few thousand for administrative and application fees. This does not allow you to work for a Seychellois company but you can control a remote business.

A non-permanent residence permit can be obtained for circa 10,000 USD plus additional costs.

Costs of living are quite low but being a small island nation, imported items can get quite expensive.

The Seychelles is ones of the wealthiest nations in Africa. Despite a somewhat tumultuous history since gaining independence in 1976 (including a one-party socialist rule until 1991), the Seychelles is also one of the more politically and socially stable countries in Africa.

Weather conditions can get severe and it is one of the most remote locations with a sizable population.

Final words

The Seychelles is a highly secretive jurisdiction with a well-developed financial services sector, except for an underwhelming banking industry.

This secrecy comes at a reputational price, which – as circumstances dictate – may be worth it.

See also

• OECD Peer Review of Seychelles (also has a list of TIEA and DTA)
• Financial Secrecy Index Seychelles
• FATF documents on Seychelles

Time for another one of these. Same format as last time:

1. First impressions
2. Fees
3. Opening An Account
4. Internet Banking
5. Card Products
6. Customer Service
7. Account Management
8. Other Services
9. Final Notes

Again: Take particular note to that I will not be discussing the financial health of the bank. This is not a bank recommendation post. It’s a retelling of my experiences with a bank.

Today we will be talking about UBS in Switzerland. They provide excellent wealth management and private banking elsewhere, particularly Singapore, but since this series is focusing on hands-on banking, the scope of this post is narrowed to only Switzerland.

First impressions

UBS is one of the finest banks in the world. The bank has been around since the mid-1800s and is today one of the largest banks in the world (ranking somewhere in the top-30) with assets of circa 2 trillion CHF.

To a resident of Switzerland, it is one of the big two banks where most Swiss bank. (The other being Credit Suisse.) Dealing with UBS as a Swiss resident is a delight. The bank is everywhere, even in the smallest villages, and the staff is – in my experience – always helpful and friendly.

Things are different as a non-resident. The bank can seem stand-off-ish and snooty. It is very difficult to approach UBS directly if you do not live in Switzerland or other country where they have a significant presence and/or have a lot of money.

Fees

Fees depend on what type of client you are but generally speaking, the fees are low. In many cases, the bank is willing to waive fees or offer personalized packages.

It’s worth noting that fees are often charged in CHF which may incur a foreign exchange fee on non-CHF products.

For private banking, the bank offers both flat rate and performance based (percentage) depending on your needs.

Opening An Account

As a Swiss resident, it is very easy to open an account. Just show up with your Swiss ID card or passport if you are a national, or your passport and residence permit if you are a non-citizen. It helps to bring some sort of proof of income, especially if you are a foreigner.

Corporate accounts for Swiss companies are equally easy to open for a resident. A non-resident-controlled Swiss company can usually open an account with UBS with ease using a nominee, resident director known to the bank.

For non-residents, it’s much more difficult. Persons with very high incomes are occasionally accepted for normal personal banking. Otherwise, the bank will insist on a minimum deposit of one or two million CHF/EUR/USD, although exceptions are made from time to time for people who can deposit 250,000 CHF/EUR/USD.

Card Products

The bank is able to issue credit and prepaid cards denominated in CHF, EUR, and USD. There have been a few times where I have wished they had other currencies (GBP mostly) but EUR and USD in addition to CHF provide strong coverage anyway.

The cards have EMV chips and support 3D Secure (Verified by Visa and MasterCard SecureCode) for online shopping.

The standard Maestro debit card you get does not work online, though.

Internet Banking

While I don’t on a day-to-day basis use that many banks’ internet banking services, UBS is nonetheless one I would call one of if not the best in the world.

The interface is very easy to work with and practically all functionality one could want is in there. It’s very easy to keep track of your finances with UBS.

The mobile app could do with some improvements. It often crashes or can’t be exited by normal means, which can be very annoying.

Customer Service

Again one of if not the best of any bank in the world.

Most accounts are given a named contact for most issues and you rarely need to contact normal customer service. When you do, it’s usually fairly easy to get a hold of someone. Customer service works around the clock and you can always find someone who speaks English, in addition to German, French, Italian, and sometimes even other languages.

Account Management

Unsurprisingly, my experiences have been great here, too.

Account management for corporate accounts as well as private banking accounts is stellar. This is a bank which keeps winning awards and receiving acclaim for its quality of services.

Final notes

For residents of Switzerland, wealthy non-residents, and (sometimes) non-resident controlled Swiss companies, UBS belongs to a very small group of banks worth using the word best to describe.

I have never had a client want to move away from UBS after being placed there.

Today we will be looking at Saint Luc- err… Sorry, Saint Vincent and the Grenadines.

Mostly known for the shoe-box banks Loyal Bank and the aptly named Euro Pacific Bank, being neither in Europe nor the Pacific.

While the official ISO-3166 alpha-3 shorthand is VCT, the long Saint Vincent and the Grenadines is often shortened to SVG.

Overview

In the article about Saint Lucia, I mentioned that these IBC jurisdictions are almost indistinguishable. SVG is no different in that regard.

This is another barely distinguishable, poor Caribbean island nation trying to pad its diminishing government coffers by establishing a bare-minimum-regulations financial services sector.

Fortunately for SVG, its sector has not grown anywhere near it’s hoped size. Why? Because the authorities, spearheaded by the SVGFSA, are woefully unprepared, understaffed, and incompetent. The amount of money laundering that could take place in SVG is tremendous. This is in spite of its rather prestigious Largely Compliant rating from OECD.

A painful example, which I will get back to later, is the regulatory fiasco surrounding Loyal Bank. The SVGFSA proved completely unable to communicate on the matter in an appropriate manner.

The jurisdiction conveniently passes financial regulation around like an Olympic torch between SVGFSA, its ministry of finance, its barely held together FIU (SVGFIU), and its multi-jurisdictional central bank, the East Caribbean Central Bank (ECCB).

Geography and Demography

Map from Wikipedia.

Incorporation and Business

Reputation

SVG is a very small and little-known jurisdiction for incorporation and businesses. It is neither as bad for example Belize or Seychelles nor as good as Hong Kong – it’s simply unknown.

At the end of the day, an IBC is an IBC. It’s still a problematic company type in and of itself due to the strict secrecy and lax standards of compliance.

As mentioned in the overview, the SVG authorities are not prepared for a rapid increase in incorporation which likely puts the jurisdiction at risk of money laundering. This could damage the jurisdiction’s reputation, but is strictly hypothetical at this point.

There are no signs of SVG’s offshore sector seeing any noteworthy growth, though.

General Information

As mentioned, it’s a traditional IBC jurisdiction. It enacted its first IBC legislation in 1996 but replaced that law with a new one in 2008. The new version borrows heavily from BVI. It also included an LLC legislation.

Costs of incorporation are mid-range but there is a rather limited supply of registered agents, which hasn’t created a particularly healthy competition.

Regulator

Ultimate responsibility falls on the Ministry of Finance with oversight and some enforcement provided by SVGFSA and the SVGFIU.

International Business Company (IBC)

• One director required. Corporate directors permitted.
• One shareholder required. Corporate shareholders permitted.
• No paid up share capital required (usually 50,000 USD authorized).
• Registered address in SVG required.
• No audit or filing required unless the company opts for it or opts for taxation.
• Bearer shares are not permitted but must be deposited with a custodian (the registered agent).

Taxation

IBCs can opt in for a tax rate of 1%. Otherwise, IBCs are assigned an automatic 25 years long exemption from taxation.

Limited Liability Company (LLC)

• One member required. Corporate directors permitted.
• No paid up capital required (usually 50,000 USD authorized).
• Registered address in SVG required.
• No audit or filing required unless the company opts for it or opts for taxation.

Series LLCs are permitted.

Taxation

Unless opting for 1% corporate tax, LLCs are pass-through entities with no taxation applicable (for 25 years from incorporation). Members are only taxed on personal income, which means zero taxation in SVG for non-residents. However, the members should confirm whether their jurisdiction of residence consider the LLC a resident, taxable entity.

Public Records

Company name only. Directors, shareholders, and members are not known to the company registry.

Saint Vincent and the Grenadines Trust

Run-of-the-mill trust jurisdiction. Sometimes used in conjunction with IBCs to form what’s sometimes called a hybrid trust, whereby a trust (which isn’t an entity) takes on an entity-like shape to obtain personhood in jurisdictions that do not recognize trusts. It’s not unique to SVG but it’s worth mentioning here because some of the most aggressive service providers are marketing it heavily.

Fraudulent conveyance has a limitation of two years and any claims against fraudulent conveyance are subject to a 25,000 USD deposit with the SVG courts before being investigated.

Costs are generally low, but would-be settlors may be wise to question the actual need for a trust if trust formation costs are a major factor.

Service Providers

There are 16 service providers in SVG. The SVGFSA has a list of them all.

Banking

Generally unimpressive if not downright bad. I am continuously puzzled by why people choose to bank in SVG.

Loyal Bank

This bank helped cement SVG as a poorly regulated jurisdiction when it lost correspondent accounts for several months, leaving clients stranded. The bank tried and failed over and over to establish means to enable international wire transfers but no one wanted to work with this sketchy shell bank for fear of regulatory complications.

What happened with Loyal Bank?

Let me take you on a journey, which starts in the summer of 2013. For reasons that would take too long to explain in-depth here, a number of large banks were scrutinizing offshore banks for which they were offering correspondent banks. In short and greatly simplified, if you aren’t licensed by a central bank or similar in a jurisdiction, you need to rely on a third party to hold that jurisdiction’s currency – for example USD, GBP, EUR, CHF, AUD, CAD, NZD, and so on.

Loyal Bank is only licensed in SVG, whose currency it is not permitted to hold. This means they are 100% reliant on other banks in order to actually function like a bank. This is not unique to Loyal Bank. This is the case with all of these little offshore banks.

What sets Loyal Bank aside from many others is their complete disregard for international standards of compliance. As long as you could spell your name correctly, they would open an account for you. Unless you specifically told them that you were involved in criminal activities, they would let anyone in.

Summer 2013 the ripples of the regulatory and investigative repercussions to large-scale money laundering scandals across major banks reached correspondent banking. Banks such as Commerzbank, Deutsche Bank, Bank of America, JPMorgan Chase, and BNP Paribas started looking banks in high-risk jurisdictions for which they provide correspondent accounts.

Loyal Bank was eventually investigated and and the bank’s name became toxic. The aforementioned disregard for compliance meant the bank had several surreptitious characters on its client roster, and many companies for which it did not know the UBO. And starting in the winter of 2013, everyone kicked out Loyal Bank.

Another big factor was that banks simply weren’t making enough money on correspondent accounts like Loyal Bank’s, relative to the risk posed.

Clients were stranded. The SVGFSA did absolutely nothing to help. Frustrated investors who reached out to SVGFSA were fed empty promises, vague responses, or silence. The SVGFSA was not prepared for this. Suddenly – for the first time in their careers – they had to do more than sit around and collect license fees.

The bank tried to establish new correspondent accounts but being an offshore bank operating out of a bad part of Budapest, Hungary, this was very difficult. They resorted to using non-bank financial institutions such as Earthport to process funds.

Wire transfers take weeks to effectuate and require manual submission of a PDF.

Euro Pacific Bank

And now for one of the most popular banks with low-networth offshore investors.

Euro Pacific Bank (or EPB) bank is formed and ultimately controlled by Peter Schiff, whose career spans stock-brokerage, financial analysis, and banking. He is also a politician and loves being in the media spotlight

Upon launch, the bank was vulnerable to an extremely simple form of hacking where any user with an approved account could view the transactions, balances, and customer information of all Euro Pacific Bank customers by simply modifying the URL of the online banking website. To the bank’s credit, the issue was resolved quickly. To the bank’s discredit, they let something as simple as this pass.

To be fair, banks get hacked. For example, JPMorgan Chase was hacked in 2014 and over 80 million account records were compromised. It happens. Just not as easily as EPB.

As if that wasn’t bad enough, Euro Pacific Bank for some unthinkable reason shows client’s application documents upon logging in to the bank, which requires only a username, password, and a bare-bones captcha. There is no password retention policy and passwords are constrained.

Once logged in, you can download the notarized passport copy, utility bill, and company documents you uploaded to the bank when applying for the account. Identify theft is a brute-force attack or credentials leak away. Again, this isn’t conceptually unique to EPB but the ease and massive vulnerability vector are unique to EPB. No currently operating bank of comparable size and customer reach does this worse.

This combined disregard for security and privacy is almost unfathomable.

Every Other Bank in SVG

Not even worth talking about.

Banking Secrecy

It’s the same as all other IBA jurisdictions:

In theory, the secrecy is rigorous.
In reality, SVG lacks any tradition of secrecy and privacy.

Vincentian authorities are empowered to compel banks to disclose information without a court order, and share this information with foreign authorities.

Living in Saint Vincent and the Grenadines

Similar to Saint Lucia, SVG offers no particular tax benefits beyond an absence of capital gains tax.

Life in SVG can be very comfortable. It is socially and politically mostly stable. Infrastructure is poor, though, but that might be a worthwhile trade-off to live in a place like this.

Final words

Just another IBC/IBA jurisdiction.

No major reputational disadvantages that would set it aside from its peers, except it’s relatively unknown.

The SVGFSA is probably one of the most useless regulators in the industry. It has failed to offer any sense of trust and security to any investors.

See also

• OECD Peer Review (also has a list of TIEA and DTA)
• Financial Secrecy Index
• FATF documents
• CFATF documents

Click here to see all Jurisdiction Spotlight articles.

Once an online gambling affiliate starts taking off and the tax man comes to collect their lawful amount, many turn to the offshore sector for refuge.

In this article, I will go through some common solutions used by large gambling affiliates and pros and cons.

Incorporation

As a gambling affiliate, you usually only enter into agreements with gambling companies, your bank, a web hosting company, and potentially a handful other online services.

Choice of jurisdiction therefore is of relatively low importance here. Many opt for Seychelles, The Bahamas, Costa Rica, Panama, Cyprus, and Malta. In reality, nearly any jurisdiction can suffice.

Gambling-hostile jurisdictions such as Hong Kong and the US are often avoided. For incorporation, this is typically not necessary and is a by-product of over-compliance.

It is arguable whether incorporation is even necessary. Many do it just to keep their names away from the websites while still being able to show the name of a company.

Forming a company has the advantage of creating a separate entity under which the affiliate business takes place. While this is unlikely to have any tax advantages, it can make a legal difference or provide a strong enough privacy shield in certain situations – especially for residents in gambling-hostile jurisdictions.

Banking

A gambling affiliate doesn’t offer gambling services so you might think a bank would be open to an affiliate even if they are not open to gambling operators. That is unfortunately not the case.

First of all, banks in gambling-hostile jurisdictions are and should generally be avoided – for example Hong Kong and Turkey. I have seen banks in Hong Kong throw out affiliates, but I have also seen affiliates thrive. These banks often have a zero-tolerance policy to anything related to gambling.

A bank account separate from your personal is really only necessary if you separate your affiliate income under a company or if you want to keep your affiliate earnings separate from your other funds. It can be a costly and time-consuming to open an offshore bank account.

Having an offshore company and bank account can be problematic if your affiliate earnings are paid out to an e-wallet such as Neteller and Skrill, since they often insist on only paying out to bank accounts where you are resident. In many cases, it’s enough to make one or two withdrawals to an account where you are resident. After that, adding a foreign bank account is often not problematic.

Operating under a company can be both a blessing and a curse in this regard. It can be advantageous if you bank in the same jurisdiction as you incorporate. However, many don’t, and in that case, you end up having three jurisdictions (your residence, your company’s, and your bank’s). This can confuse the often inexperienced compliance offers working at payment service providers.

Consider also that if your affiliate is paid our via for example Trustly or other Euro-centric payment methods, having an IBAN is essentially required if you don’t want to wait for lengthy manual processes.

As far as possible, it is wise to be paid out via bank. However, high bank fees (as are common with offshore banks) can really start chipping away at small payments.

Banks

So what banks do igaming affiliates usually bank with? From experience, the offshore banks below cover well over 90% of all gambling affiliates:

• Alpha Bank – Cyprus
• Antigua Overseas Bank – Antigua and Barbuda
• Bank of Valletta – Malta
• British Caribbean Bank – Belize, Turks and Caicos Islands
• Choice Bank – Belize
• First Caribbean – Bahamas, Curaçao
• Global Bank of Commerce – Antigua and Barbuda
• Hellenic Bank – Cyprus
• Heritage Bank – Belize
• LHV – Estonia
• Loyal Bank – Saint Vincent and the Grenadines
• Mediterranean Bank – Malta
• MCB Bank – Curaçao
• Multibank – Panama
• Norvik Banka – Latvia
• Piraeus Bank – Cyprus

Opening An Account

As many affiliates can attest to, it can be very difficult to open a bank account (whether onshore or offshore). Many banks will balk when approached by a gambling affiliate. This is because the word gambling is highly stigmatised in the financial services sector. It is associated with money laundering, despite today being heavily controlled and regulated.

To get around this, many approach banks and present their business as online marketing, online media advertising, and so on.

If asked about the connection to gambling, you chances may not be immediately ruined. Explain that you do not offer gambling services, take bets, or offer any rewards, and banks might listen to you again.

It helps to go through an intermediary, especially one which has experience working with gambling affiliates since they hopefully have connections at banks that understand what affiliate marketing is. If you contact the banks above directly, odds are that you will end up speaking to someone who has no experience with offshore gambling affiliates and only know that gambling means an instant no.

Residence

Have you ever wondered by lots of tax havens are only ever pictured as sandy beaches and palm trees? That’s because you wouldn’t want to know what it looks like elsewhere. Many of these island nations are poor and reliant on foreign aid to stay afloat.

I’m not saying you should stay away. I’m saying that it probably isn’t what you imagine it to be. It doesn’t matter if you spent two weeks snorkling in Aruba a summer a few years ago. That doesn’t prepare you for living in Rossaeu, Dominica or Belize City, Belize.

By far, most gambling affiliates who choose not to stay put end up in Malta. It is a tax friendly and gambling friendly jurisdiction where EU and EEA nationals can settle without any special permits. Other nationals are welcome under special programmes depending on wealth or professional skills.

A large number also go to Thailand, Indonesia, or other low-income jurisdictions in Asia with lenient immigration and taxation laws or, at least, lax enforcement of such laws against wealthy foreigners.

But uprooting isn’t for everyone and with uncertain tax benefits, it’s not always advantageous to move just to save some money on taxation compared to continue living near old friends and family.

Taxation

Income is income and profit is profit. You are taxed based on your tax residence, which in most cases is where you live (see also The Permanent Traveller).

Forming an offshore company and or opening an offshore bank account does not under most circumstances in any way reduce your tax liability. (It can in fact make it worse in some circumstances.) Stashing the money offshore doesn’t matter – unless you live in a tax haven, or a jurisdiction with particularly favourable tax laws.

Tax evasion is rampant among gambling affiliates, to the point of being the norm. The income is usually so low it doesn’t register with tax authorities but many have been caught and prosecuted.

Conclusion

Setting up an offshore presence for a gambling affiliate does not offer any legal means to reduce you tax situation but can render high privacy in an industry where the reputability of your company and bank matters a lot less than in for example ecommerce or freelancing.

Bank account opening is often difficult. This can be made easier by using an intermediary and by presenting your company (in a non-deceptive way) as an online marketing business.

It’s been a long time since we looked at a jurisdiction in Europe. To make up for this, I will be covering two European jurisdictions in a row.

This week, it’s Cyprus and the week after next, it’s Northern Cyprus.

Cyprus is often compared to the other EU member tax havens: Malta and Gibraltar.

Cyprus has suffered major reputational backlash in recent years, with the temporary (still going) capital controls and the FBME débâcle.

And yes, we will talk in-depth about FBME. Click here to skip right to it (you impatient oaf).

Let me all state upfront that I will not go into detail on the financial turmoil in Cyprus. I trust you as a reader are already familiar with what has happened. There is nothing I can write here that you couldn’t find elsewhere and I have nothing to add on the subject.

Overview

Cyprus has historically strong ties to the United Kingdom, having been a British territory from 1914 until 1960, the Crown Colony of Cyprus or British Cyprus.

Cyprus gained independence after many years of political instability which culminated in a strong anti-British movement by a Greek Cypriot nationalist guerilla. English is still fairly widely spoken, especially in business. The former currency of the island was the Cypriot Pound which until 1972 was tied to the British pound.

It’s all very convoluted but it ended with Cyprus ceding from the United Kingdom under circumstances that cannot be described as amicable. The conditions under which Cyprus was made independent did not adequately satisfy hostilities between the Greek Cypriots and the Turkish Cypriots.

On the 15th of July 1974, Greece – then ruled by a military junta – invaded Cyprus to make it a part of Greece. Turkey saw this as a threat to the Turkish Cypriots and responded by launching an invasion of Cyprus, easily driving out the Greeks in a manner so heavy-handed that it is one of the main catalysts to the Greek military junta collapsing entirely.

The Turks then set up the Turkish Republic of Northern Cyprus, which continues to divide Cyprus. The Turkish invasion is generally seen as legitimate but failure to resolve the dispute has strained Turkey’s relations with the European Union.

In documents issued by many international organizations, Cyprus is always referred to with a footnote. The OECD for example uses this wording a lot:

*1. Footnote by Turkey: The information in this document with reference to “Cyprus” relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Turkey recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Turkey shall preserve its position concerning the “Cyprus issue”.

*2. Footnote by all the European Union Member States of the OECD and the European Union: The Republic of Cyprus is recognised by all members of the United Nations with the exception of Turkey. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus.

While I will save discussing Northern Cyprus for the next Jurisdiction Spotlight post, it is worth mentioning that a large part of Cyprus is de facto not under Cypriot or EU control. But for all intents and purposes, unless specifically mentioned, I will use the term Cyprus to refer to the Republic of Cyprus and territories it effectively controls.

Owing to a very interesting past, the island as a whole under strong Turkish, Russian, Middle Eastern, and British influence – in addition of course to Greek.

Geography and Demography

Incorporation and Business

Reputation

Bad.

While Cyprus doesn’t have any egregious secrecy laws surrounding companies, it is an eyesore to many European tax authorities which for long have seen Cypriot companies used for tax evasion. The problem here isn’t so much Cyprus as it is the people using Cypriot companies but the negative connotation is there.

Cyprus is also seen as a bit of an any-thing goes type of jurisdiction. To some, this means business friendly. To others, this means Cypriot companies are less regulated and more likely be up to no good. There is a perceived blind eye being turned to sketchy business activities by companies in Cyprus, especially non-resident companies.

General Information

Company formation in Cyprus is generally speaking very easy and costs are comparable to those of Gibraltar and generally a lot less than the more complex Malta.

Running a Cypriot business from abroad can be attractive in that it is probably the easiest way to form a tax-free corporation in the EU. UK LLP is easier and cheaper but they are not corporations limited by shares and taxable entities, which for some contexts can be an important distinction.

Regulator

Cyprus company formations take place in the same legal space as all Cypriot companies. There is as such no separate regulator for offshore companies.

Cyprus Private Company Limited by Shares (Ltd.)

There is no IBC legislation in Cyprus. Companies are companies, and although other types do exist, it is the private company limited by shares – very similar to the UK company of same name – which completely dominates the market.

• One director required. Corporate directors permitted.
• One shareholder required (maximum 50). Corporate shareholders permitted.
• No minimum share capital.

Taxation

A resident company in Cyprus pays 12.5% tax on profits whereas a non-resident pays 0%.

Cyprus uses a fairly common method to determine corporate tax residency. If a company is controlled and managed from Cyprus, it is tax resident there. Otherwise, it does not owe tax in Cyprus and becomes a tax free company. This, however, is not the full story as I will get to in a few weeks when we dig deep into tax residence.

So why do so many corporate service providers in Cyprus sell a tax residency service? The idea is to make use of one of Cyprus’ many tax treaties. This is often sold with vague promises of reduced tax. This is almost never the case, though, unless a more complex structure is arranged.

VAT registration is mandatory.

Record Keeping

Cypriot companies must keep due records and file annual financial returns.

Small companies are exempt from audits provided that they do not exceed two of the following conditions:

• Net turnover of 7 million EUR
• Total assets of 3.4 million EUR
• 50 employees (average during a year)

Public Records

Cyprus has public records of companies. The following details can be found in these records:

• Company name and address
• Memorandum and articles of incorporation
• Issued and authorised share capital
• Registered shares
• Board of directors
• Charges
• Financial statements

In the case of nominees, the corporate service provider which provides the nominees must know the UBO.

Trusts in Cyprus

In place since 1992, the Cyprus international trust (CIT) law is older than that of a lot of islands but does not quite compete with the old English laws, on which it is modelled.

A Cyprus international trust must have settlors and beneficiaries which are not tax resident in Cyprus at the time of settlement. Beneficiaries may relocate to Cyprus after one year of the trust being formed, in which case income from the trust would be taxable in Cyprus. Otherwise, there is normally no Cypriot tax on a CIT.

CITs can be perpetual. Registration is only required if the trust owns property in Cyprus. Fraudulent conveyance rules are limited to two years.

Confidentiality is strict, but can be pierced with a court order.

Banking

Cyprus has a good banking sector, although it is showing signs of stagnation. Innovation has come to a halt and sophistication of products and internet banking has not improved significantly in recent years. The Cypriot banking sector is currently riding in the coattails of its former glory, and the pace is subsiding.

Opening a Bank Account in Cyprus

You generally need not visit Cyprus but an intermediary is practically always required. On occasion, banks such as Hellenic Bank and Piraeus Bank will accept clients remotely without an intermediary — usually only personal accounts.

There is no shortage of intermediaries in Cyprus. Some banks are even happy to refer you to one.

Cypriot Banks

There are in total 56 banks licensed in Cyprus under various forms of licenses, and two representative offices of foreign banks.

There are seven banks licensed under a local Cypriot banking license. Of these banks, Hellenic Bank and RCB Bank are popular with international clients. Bank of Cyprus and Cyprus Popular Bank (Laiki) used to be, prior to the financial meltdown.

1. Ancoria Bank
2. Bank of Cyprus
3. Cyprus Development Bank
4. Cyprus Popular Bank (being wound down)
5. Hellenic Bank
6. Housing Finance Corporation
7. RCB Bank

Then we have 18 credit institutions. These are usually not relevant in this context.

Next on the list are four banks which are subsidiaries of EU banks. Alpha Bank and Piraeus Bank are very open to international clients, with Eurobank being a bit more cautious.

1. Alpha Bank (Greece)
2. Eurobank (Greece)
3. National Bank of Greece (Greece)
4. Piraeus Bank (Greece)

Then there are two banks which are subsidiaries of non-EU banks. USB Bank is particularly welcoming of international clients.

1. Societe Generale (Lebanon)
2. USB Bank (Lebanon)

Of the remaining 25 banks, nine are branches of foreign banks in the EU. These banks engage with international clients but many are introduced to the Cyprus’ wing only by first being clients with the bank locally.

1. AS Expobank (Latvia)
2. Banque SBA (France, in turn owned by a Lebanese bank)
3. Barclays Bank (UK)
4. CC Bank (Bulgaria)
5. EFG Bank (Luxembourg)
6. Fibank (Bulgaria)
7. TKB Banka (Latvia)
8. National Bank of Greece (Greece)
9. Saxo Bank (Denmark)

The remaining 16 are branches of foreign banks from outside the EU. This is where we find FBME. The other banks mostly use their Cyprus’ entity as a conduit for trade into EU. Occasionally, international clients that don’t fit the EU conduit profile are taken on.

1. Arab Jordan Investment Bank (Jordan)
2. Bank of Beirut (Lebanon)
3. BankMed (Lebanon)
4. Banque Bemo (Lebanon)
5. BBAC (Lebanon)
6. BLOM Bank (Lebanon)
7. Byblos Bank (Lebanon)
8. Credit Libanais (Lebanon)
9. FBME (Tanzania – Lebanon)
10. IBL (Lebanon)
11. Jordan Ahli Bank (Jordan)
12. Jordan Kuwait Bank (Jordan, Kuwait)
13. Lebanon and Gulf Bank (Lebanon)
14. Avtovaz Bank (Russia)
15. Promsvyazbank (Russia)
16. Privatbank (Ukraine)

Lastly, the two representative offices:

1. Atlas Bank (Montenegro)
2. Zenit Bank (Russia)

These two don’t offer any banking service in Cyprus. They simply act as representatives of their home banks.

Banking Secrecy

Being an EU jurisdiction, Cyprus does not offer much in terms of secrecy for EU residents.

For non-EU residents, Cyprus does have some of the strictest banking secrecy in the EU. In the fallout of the Yugoslav wars, it became known that banks in Cyprus had handled money for people such as Slobodan Milošević which caused quite some commotion, especially when Cyprus initially refused to cooperate.

Cyprus is generally not seen as a problematic jurisdiction in terms of secrecy. It does respond to requests for information where legally obligated.

FBME Bank

OK. Let’s take a look at what happened to FBME, a Tanzanian bank operating in Cyprus, with very close ties to Lebanon, and formerly a bank in the Cayman Islands. Did you plot that out in your map? Good, let’s continue.

Background

FBME Bank logo.

FBME Bank (often just FBME) traces its roots and ownership back to Lebanon. In 1952, the Saab family formed Federal Bank of Lebanon SAL (FBL). This bank is today one of the largest in Lebanon. This bank in 1982 established the Federal Bank of Middle East in Cyprus, as a separate entity from FBL.

Four years later, the bank renamed FBME and moved its headquarters to the Cayman Islands. The reasons for this were largely down to cost and the Cayman Islands at the time being far more easy-going than Cyprus, not to mention lower tax.

Capital requirements on Cayman Islands banks are essentially set by the CIMA and not by law, meaning that CIMA dictates how well funded a bank must be. In the early 2000s, CIMA found that the Lebanese-Cypriot bank FBME needed to increase its capital to such a degree that the bank decided to move elsewhere.

In 2003, FBME bought a small commercial bank in Tanzania called Delphis Bank. This bank was collapsing and proved a cheap way for FBME to obtain a banking license in a no-questions-asked jurisdiction with zero international reputation. A veritable tabula rasa of surreptitious banking activities.

At this time, FBME in Cyprus became a branch of the Tanzanian bank. For all intents and purposes, though, the bank remained Cypriot. Most operations took place in Cyprus with only enough activities in Tanzania to satisfy the Tanzanian authorities, who were (and still are) very friendly with the Saab family and FBME.

FBME was for long one of the most popular banks in the offshore financial services sector. Virtually everyone had relations with FBME and in certain sectors – such as gambling and shipping – very few companies did not have an account or some relation with FBME or FBMECS.

The bank was an almost entirely purely offshore-focused bank. It did not compete with the local banks and the bank was left largely unattended.

FBME was virtually unheard of outside of the offshore of international finance sector. It attracted clients – mostly international businesses and high-networth individuals – through a vast network of intermediaries and qualified introducers. An introducer could be a customer with a good track record with the bank or an authorised third-party. The bank would usually require intermediaries to be registered for AML supervision somewhere.

Virtually every corporate service provider had a relation with FBME and the bank was tremendously popular.

For one, the bank was perceived as being extra secretive. This was only partly true. On a handful of cases, the bank would lean on its Tanzanian license in order to decline exchanges of information that a Cypriot bank would be obligated to fulfill.

Many wanted to bank with the bank to get their hands on nameless reloadable prepaid cards, issued through the bank’s card services wing FBMECS. These cards were routinely resold by prepaid card sellers.

FBMECS was busted repeatedly by Visa and MasterCard for violating card scheme regulations.

Another factor to FBME’s popularity was its generous kickbacks. Client referrals could earn thousands of euro, which on top of the usual 400 to 1,000 EUR bank account opening fee made it very profitable to take clients to FBME.

The bank was penalized twice by the Central Bank of Cyprus. Once for failing to perform due diligence and once for circumventing the capital controls Cyprus had put in place. Additionally, the bank was popular with HYIPs, Ponzi schemes, and fraudsters including phishers. While this is not unique to FBME, the abundance of such accounts relative to FBME’s size was disproportionate.

FinCEN

On the 15th of July 2014, FinCEN (Financial Crimes Enforcement Network), a bureau of the  United States Department of the Treasury, issued a notice of proposed rulemaking, declaring FBME a foreign financial institution of primary money-laundering concern.

A lot has already been written on the matter. Instead of spending time rewriting what others have written, go ahead and read FBME’s version, an article by Steptoe & Johnson LLP, or a sensationalist summary by Legal Floris.

In short, FinCEN has accused FBME on being a knowing conduit for money laundering, particularly with ties to the militant wing of Hezbollah as well as organized crime and fraud. FinCEN also accused FBME of knowingly taking on clients with incomplete KYC.

Is this true? FBME was indeed very popular with criminal elements, but so are a lot of other banks. FBME also had shortcomings in KYC which towards the last year or so the bank tried to remedy by exercising extremely careful due diligence, but it was still possible for a trusted intermediary to bypass most of these and settle for the bare minimum. Again, this is not unique for FBME but FBME was singled out.

The Cypriot authorities have suspended FBME’s operations and installed supremely unimpressive management of the bank, taking customer withdrawals to a grinding halt.

The Tanzanian authorities followed suite but have taken a much more lenient approach.

The dispute is unsettled and is currently pending ruling by an international arbitration court where FBME is citing a trade agreement between Cyprus and Lebanon.

What will happen to my money in FBME?

Unknown. Unclear. Uncertain.

At the time operations were suspended, the bank was highly liquid.

There are a lot of possibilities.

The bank might be sold, which should mean funds are safe.

The bank might be shut down, which would leave Cyprus to pay out deposit insurance for accounts held there and Tanzania for accounts held there.

The bank might resume operations, which is quite unlikely as it looks right now.

The bank might be shut down in Cyprus but resumed in Tanzania.

The bank might be split and partially sold, shut down, or resumed in the different jurisdiction.

Has this happened before?

Yes – maybe.

Other banks have been declared money laundering nests by FinCEN and been shut out of the USD financial system, which often means the banks also loses EUR and GBP or at the very least has its supply severely limited.

In Latvia, Multibanka was effectively shut down for over a year before being sold to new owners and trust restored in the bank enough for FinCEN to lift the ban.

In Andorra, Banca Privada d’Andorra (BPA) is undergoing a similar process. The difference there is that the Andorran authorities have proven themselves competent and responsive — a stark contrast to the Cypriot authorities.

Living in Cyprus

Quality of Life

Cyprus is warm and safe, with generally high standards of living. It is comparable to other European Mediterranean nations. Power will go out every once in a while, nepotism is the norm, and there is the whole Northern Cyprus split. Things you either can’t stand or learn to live with.

Being a former British territory and because the island is a major tourist destination, English is well spoken. Much of the government is bilingual and business is often conducted in English.

Taxation

Generally low and attractive.

Cyprus has enacted a relatively complex tax code. It is out of scope for this article to go in-depth on this.

As noted above, a resident company typically pay 12.5% corporate tax.

Immigration and Relocation

As an EU country, it’s very easy for EU and EEA national to settle here.

For other nationals, there are special programmes for high-networth individuals, including a Citizenship-by-Investment programme. For an investment of 2.5 million EUR, one can obtain a Cypriot citizenship and passport with all its bells and whistles.

As an EU member and a jurisdiction with generally good diplomatic ties, a Cypriot passport can be used for visa-free entry into over 150 jurisdictions.

Final words

Cyprus is on paper one of Europe’s finest tax planning jurisdictions, comparable to both Malta and Gibraltar.

However, Cyprus has sustained reputational damage with the capital controls, the FBME affair, a criticized citizenship-for-investment programme, and turning a blind eye to sketchy financial dealings (although nowadays intra-EU dealings are well monitored).

The jurisdiction boasts an attractive corporate law and tax code coupled with overall good banks that are open to riskier structures.

Living in Cyprus is favourable from a tax perspective and generally enjoyable.

See also

• OECD Peer Review (also has a list of TIEA and DTA)
• Financial Secrecy Index
• FATF documents
• CFATF documents

Click here to see all Jurisdiction Spotlight articles.

Let me warn you that this post will get technical. If reading about what goes on in the machinery of a bank doesn’t actually interest you, this particular article is not for you.

This post is inspired by a couple of suggestions in comments and on the forum. To a lot (most) people, banks are black-boxes where money goes in one end and comes out the other. What happens in between is akin to witchcraft.

Today, I will go through three big points:

1. Core Banking
2. Internet Banking
3. Wire Transfers

Core Banking

This is a system which is the most fundamental piece to a bank. This system tracks balances on accounts, transfers, transactions. In some cases, this system provides the customer-facing internet banking and even website, but larger banks often segregate core banking away from online banking.

Fiserv, Oracle, FIS, and  are some of the largest suppliers of core banking. Fiserv is used by for example FirstCaribbean International and Oracle is (was) used by FBME.

Their services are either hosted in the so-called cloud, which means virtual servers in multiple jurisdictions, or – because cloud hosting may not be congruent with banking laws – be hosted locally with the bank.

One thing to note about especially smaller banks in the Caribbean and Pacific is that they host their core banking servers in the US, New Zealand, or Australia. This may be incongruent with the level of privacy some international investors may seek.

Many banks use their own core banking systems or a combination of own-made and outsourced.

The core banking system is in turn connected or integrated to SWIFT for international transfers or other payment schemes, direct debit networks, clearing houses/networks asuch as FPS, BACS, CHAPS, ACH, SCT, SDD, and so on. It can also have an interface to card schemes networks, such as Visa and MasterCard.

Core banking also touches on compliance systems, which we will return to later in this article.

Internet Banking

Similar to core banking, internet banking is often wholly or partially outsourced. Major vendors include the aforementioned and for example Avaloq and Misys.

User interface is often highly customized but if you use enough banks (especially smaller ones), you start seeing striking similarities in features. This is because a lot of banks have purchased the same system and just changes the look and feel.

Security is another thing that sets some banks apart. A surprising number of banks (around 50% globally) still rely on just username or password for logging and making transactions.

Fortunately, two-factor authentication is becoming cheaper to implement and more and more banks are implementing it. Examples of two-factor authentication includes token generator (for example mobile application or digipass), SMS, token card (TAN), and so on.

These systems used to be very difficult and time-consuming to implement but competition has driven the costs down significantly in the last few years.

Wire Transfers

Why do wire transfers generally take longer with smaller banks than bigger banks?

What it comes down to is how much of the process is automatic and how the bank handles risk.

A common complaint about small banks (mainly Caribbean) is that transactions take long to process on average, and that processing times vary greatly. On the flip side, wiring funds from for example UBS in Switzerland to HSBC in Hong Kong or from Lloyds in UK to Standard Chartered in UAE is practically always going to take the same amount of time (one to three working days).

Large banks like the ones mentioned have built, configured, and integrated their core banking system in such a way that SWIFT messages (or other international payment schemes) are processed automatically and credited to or debited from the recipient’s account without any manual intervention, unless the transaction is automatically flagged for manual review by a fraud or compliance system, for example by significantly deviating from typical transactions to and from that account, triggering a sanctions list check, or coming from/going to a high-risk country.

A small bank will not have this luxury and instead process transactions manually. There are still banks out there in the international financial services sector which require customers to send wire instructions as PDF or Word files, signed by hand. A handful of banks require these documents be sent by fax.

Once a transaction is sent or received, it will very often pass through a correspondent account with an intermediary bank. For example, virtually none of the Caribbean banks hold their own USD despite transacting almost exclusively in that currency. Instead, the funds are held on behalf of clients with the bank’s own bank accounts in the US, often with Bank of America, Wells Fargo, and Chase Bank.

This bank will in turn have its own core banking system and transactions can be held for review here as well. Dealing with a large bank that is licensed to hold the relevant currencies directly will remove this additional step.

This also puts smaller banks at risk of having their correspondent accounts revoked. This is fairly common. Although rarely revoked without notice, small banks often have to work hard to find new correspondent accounts.

Because of this risk, smaller banks will look much closer at transactions. This slows down transaction times since your wire transfer is only going to go out after someone has looked at it. Smaller banks also tend to ask for a lot more supporting documentation since they cannot avail themselves the luxury of automated risk reviews of transactions.

Conclusion

Bigger banks are often more sophisticated because they have more money to spend to infrastructure, whereas smaller banks need to rely on other factors to drive in clients.

Correspondent banking is a risky business for all parties involved. To the account holder, important wire transfers can take unduly long to arrive. To the bank, transactions need to be monitored closely. To the correspondent bank, small banks pose a problem in that they often operate from poorly regulated jurisdictions and transactions typically pose a much higher risk of fraud, money laundering, or other illegal or unwanted activities than direct transactions.

I will return to this topic in the future to discuss application process and other details based on feedback.

This jurisdiction is only recognized by one other jurisdiction: Turkey, the nation that founded Northern Cyprus.

Situation at the northern tip of Cyprus, The Turkish Republic of Northern Cyprus (TRNC for short) has been an eyesore to the EU since its inception.

Although the Turkish invasion of Cyprus was justified to most at the time, the failure to strike a peace deal and for Turkey to withdraw its troops has been a thorn in the side of many. TRNC is often considered a puppet state of Turkey.

In reality, it is generally tolerated and aside from some heated diplomatic and political exchanges every few years, the Turkish Republic of Northern Cyprus shows no signs of going away. Although the Republic of Cyprus has de jure jurisdiction over the whole island, Northern Cyprus is de facto independent or a territory of Turkey.

TRNC was briefly recognized by Bangladesh and Pakistan, but both withdrew their recognition after UN and US pressure. Azerbaijan and The Gambia have indicated willingness to recognize TRNC but have not yet done so, again due to pressure from the UN and US.

A handful of unrecognized diplomatic missions (representative offices) have been set up in 17 jurisdictions across Europe, Asia, and the US.

Diplomatic relations with the TRNC are warming up with many jurisdictions but recognition is still far away, if it ever will be achieved. It is about as unlikely that TRNC will become a sovereign nation as it is unlikely that Turkey will give up control.

Cyprus is handling the situation in a supremely inane manner, using what little diplomatic power it has to make life difficult in TRNC, in one example blocking EU aid by using its veto power, for which it was criticized by the US, UK, and others.

Geography and Demography

Map from Wikipedia.

Incorporation and Business

General Information

“Oh, so the company is registered in Cyprus?”

“No, Northern Cyprus.”

As a non-recognized quasi-jurisdiction, Northern Cypriot companies are not welcome anywhere because they fail to meet the requirements of being entities. No, you can’t get around this by having for example an IBC owned by a Northern Cypriot entity.

A Northern Cypriot company has no value outside of TRNC and Turkey. Despite a favourable tax regime for offshore companies, which need foreign ownership and operations, the jurisdiction is effectively useless.

Requirements

A TRNC offshore company must comply with the following requirements.

• Shareholders or partners are not residents of TRNC.
• Income cannot derive from within TRNC.
• Cannot take loans or investments from residents of TRNC (does not include other offshore companies).
• Memorandum and articles of incorporation must be in Turkish.
• Minimum 5,000 USD paid up share capital.
• Registered office and address in TRNC.

Taxation

None or very low for offshore companies. Resident companies are subject to 25% corporate tax.

Record Keeping

Required and audited financial statements must usually be submitted to the authorities.

Public Records

Public list of companies. Ownership and directors disclosed to authorities but not public information.

Banking

TRNC established its central bank, Kuzey Kıbrıs Türk Cumhuriyeti Merkez Bankası, in 1983. TRNC enjoys a semblance of international recognition when it comes to banking, in that its central bank has been accepted as a member of the Islamic Financial Services Board (IFSB), based in Malaysia.

The TRNC banking sector is essentially an extension of the Turkish banking sector.

Banking is done entirely through correspondent banks since TRNC does not have its own currency. While some of these banks have held correspondent accounts in for example UK and Germany, the banks are nowadays completely reliant on Turkish banks for correspondent accounts.

While some banks have SWIFT BICs, they are domiciled in Turkey and non-connected.

Banking in the TRNC is a hassle but doable. Non-TRNC entities are welcome and remote account opening is very common. These banks are no strangers to high risk merchants and corporations. Money laundering is likely a problem in TRNC, more so than in Turkey due to the lack of oversight.

Banks in Northern Cyprus

There are 38 local banks in TRNC.

There is one public bank, Kıbrıs Vakıflar Bankası, and one development bank, KKTC  Kalkınma Bankası.

There are 14 private banks:

• Akfinans Bank
• Asbank
• Creditwest Bank
• K.Türk Koop.Merkez Bankası
• Kıbrıs Faisal İslam Bankası
• Kıbrıs İktisat Bankası
• Kıbrıs Kapitalbank
• Limasol Türk Koop. Bankası
• Nova Bank
• Şekerbank (Kıbrıs)
• Türk Bankası
• Universal Bank
• Viyabank
• Yakın Doğu Bank

Then there are seven branches of foreign (all Turkish) banks:

• Garanti Bankası
• Halk Bankası
• HSBC Bank
• Ing Bank
• Türk Ekonomi Bankası
• Türkiye İş Bankası
• Ziraat Bankası

Lastly, there are nine savings banks:

• Asya Bank
• Denizbank
• Erbank
• Kıbrıs Continental Bank
• Kıbrıs Endüstri Bankası
• Kıbrıs Ticaret Bankası
• Rumeli Bank
• Tilmo Bank
• Yasa Bank

Financial reports for some banks are available on the TRNC Central Bank website. It’s all in Turkish and Google Translate does not handle Turkish very well, so be careful how you read those reports.

Northern Cyprus Offshore Banks

Since August 2008, TRNC operates an offshore banking sector similar to for example Taiwan’s OBU and IBA jurisdiction, which is separate from the local market and with bare-minimum regulatory oversight and insight. In Turkish, it’s called Uluslararası Bankacılık Birimleri which translates to International Banking Unit.

The new 2008 law was passed following an earlier set of laws which could best be described as financial piracy. Shell banks could be set up with bare minimum requirements and because of basically non-existent due diligence controls, these banks were very popular with criminals. All in all, 52 banks’ licensed have been revoked. For being an unrecognized jurisdiction, this is quite an impressive figure.

Today, there are seven IBU banks left in TRNC:

1. Allied Turkish Bank
2. Atlasbank
3. Cleveland
4. Euro Deniz
5. Fortress Bank
6. Mondial Private Bank
7. Şekerbank

Banking Secrecy

Rigorous, at least for offshore banks. TRNC as not signed any EOI treaties and only honours local and Turkish court orders.

However, due to the jurisdiction’s peculiar international standing, it is unlikely that any major abuse would be tolerated. There are AML laws which at least superficially are up to par with international standards.

Living in Northern Cyprus

Quality of Life

Arguably not as high as in the Cyprus but still high.

That is, assuming you don’t account for the hassle of living in a non-recognized territory. Post has to go via Turkey and even if the Turkish post is pretty fast and reliable, it’s still a hassle.

Infrastructure is generally good.

Crossing the border to Cyprus is easy for EU nationals following Cyprus accession to the EU. Other nationals are generally recommended to enter Cyprus first.

While there is an airport, Ercan International Airport (Ercan Uluslararası Havalimanı), flights to outside of Turkey require a stopover in Turkey. People usually exit TRNC into Cyprus and fly from Larnaca.

Taxation

Taxation in TRNC is low to average compared to Europe.

However, the jurisdiction has not signed any tax treaties which can make it problematic to receive income from abroad.

While there is no tax on passive income from abroad, normal income tax can reach marginal rates of 37% for high income.

In an attempt to attract foreign retirees, TRNC levies between nil and 3% tax on foreign pension income.

Immigration and Relocation

Most nationals are given a 90-day tourist visa upon entry. One-year residence permits are fairly trivial and cheap to obtain.

TRNC citizenship is contingent on ten years of residency or Turkish Cypriot family ties. It is generally not attractive, although TRNC passports are accepted for visa applications in the US, UK, France, and Australia.

Final words

A territory which has seen rampant bank fraud and likely continues to look the other way for money laundering, TRNC is one of the darkest spots in the financial services industry. Banks here should be seen as nothing more than intermediaries for the Turkish banks that sponsor them.

Incorporating is practically useless.

Living in TRNC can have taxation advantages but living in unrecognized territory can be very problematic.

Not for everyone. Fun to visit.

Click here to see all Jurisdiction Spotlight articles.

What is offshore web hosting?

First of all, offshore can mean a lot of different things.

In the financial services context, it is usually in reference to secretive and/or low-tax jurisdictions with favourable laws for incorporation, trusts, and banking. Jurisdictions such as Cayman Islands, British Virgin Islands, Switzerland, Belize, and Seychelles come to mind for most people.

In the context of web hosting (physical server location), offshore typically refers to favourable business taxation, strong privacy laws, relaxed legislation for certain types of content (typically gambling but also adult entertainment or other contents), strong freedom of speech, or little to no censorship.

One thing to consider is that many web hosting companies claim to be in attractive jurisdictions, they still utilize data centers with servers physically located in typically non-offshore jurisdictions such as the US and the UK.

Does server location affect taxation?

This is a tricky one. It used to be the case that it would not matter but some tax authorities have taken the stance that server locations of for purely-online business can constitute a place of operations.

While you are unlikely to find such favourable rulings in high tax jurisdictions (unless it’s in their favour), it can mean that living in a low-tax jurisdiction and hosting your 100% virtual business in a separate jurisdiction can alleviate you of the troublesome permanent establishment rules so many expat investors and entrepreneurs face.

Speak to a local lawyer for more information.

Does server location affect privacy?

Yes, it can. But you need to take measures to ensure this privacy.

While for example Germany and Austria have strong privacy and data protection laws, the privilege of privacy is lost if the server and traffic passing to, from, and through it are not secured.

For example, all traffic should at minimum be encrypted using transmission encryption such as TLS/SSL (HTTPS). The transmitted data itself can be encrypted as well. Look into file system encryption.

Email content can be further encrypted using PGP/GPG technologies. This is cumbersome to set up and requires manual intervention by senders and receivers

No system is 100% secure. Know your risks.

Also consider that encryption gone bad (i.e. forgotten passwords) means data loss.

Combined with strong data protection laws, an offshore server location can help create a technical architecture which is able to offer greater privacy and data protection than other solutions.

What content is permitted?

This depends on your location.

Notably, adult content is forbidden or tightly regulated in countries with strict obscenity laws, such as Germany, UK, and countries whose cultures strongly oppose it.

Gambling (both operators and affiliates) can find it difficult sometimes, with some jurisdictions taking a hardline approach to anything that’s even remotely gambling related.

For politically sensitive content, typically offshore hosting might not be suitable for both technical and legal reasons in offshore jurisdictions. The US is popular for its very strong freedom of speech laws, being the digital home to many websites and organizations that would not be permitted or very cumbersome to operate in for example Europe. That doesn’t mean safe from government prodding, though.

Similarly, Iceland has gained a lot of recent popularity for attempting to position itself as an alternative to the US for freedom of speech as well as strong whistle-blower protection laws.

Then there are locations where pretty much anything goes as long as you block locals from accessing your servers’ contents, don’t criticize or go against the local regime, and stay away from the most egregious cultural  taboos (for example, no adult content in Iran).

Now, it also depends on your host or data center. They may have additional requirements and conditions, so make sure you read the fine prints.

Offshore Server Locations

I often encounter people who want to host their offshore servers where their IBC or offshore company is located, which usually is the aforementioned Seychelles, Belize, or BVI.

First of all, in order to host something, there needs to be a data center.

There aren’t any worth speaking of Seychelles and Belize. The Seychelles are an archipelago far off the African east coast. Much of its internet connectivity comes form satellites, and a single submarine cable to Tanzania. Belize is thick with jungle and poor infrastructure. As anyone who has used a hotel wifi in Belize can attest to, internet speeds are atrocious.

While there are hosting capabilities in BVI, they are so expensive that it’s practically only feasible for banks and large corporations to host there. Most local companies even host in the US, which is the nexus point for most traffic in the Americas. Practically all traffic between the Americas and other continents pass through the US.

Some (relatively) well-connected and potentially suitable locations include:

• Austria
• Germany
• Hong Kong
• Iceland
• Luxembourg
• Malaysia (not Labuan)
• Netherlands
• Panama
• Singapore
• Sweden
• Switzerland
• Turkey
• USA

Other Implications

The European Court of Justice (ECJ) recently ruled that an agreement between the EU and the US called Safe Harbor is unlawful. The agreement meant that companies could transmit data information from the EU, which has stronger data protection laws than the US, into the US.

The ECJ found that this arrangement was unlawful because companies that were self-certified for Safe Harbor could not guarantee frivolous government insight into data on European persons.

Data protection is a difficult topic and can turn out to be a major challenge, especially with servers located offshore.

Technical aspects such as latency (ping) and bandwidth can be problematic. Having a server in a remote location can lead to long loading times, especially for visitors far away. If most of your visitors are in Europe and you have a server in Malaysia, those visitors will have a far slower experience than at a website hosted in Europe or, usually, even the US.

The latency and bandwidth issues can be resolved partly with a CDN (content delivery network) which is a third party which hosts parts of your infrastructure locally across the globe to reduce loading times. This is often used for images and scripts.

Cloud Hosting or Distributed Hosting

Cloud hosting is not clearly defined but usually understood to mean distributed hosting, i.e. a technical architecture where content is hosted on multiple servers in geographically diverse locations. This is comparable to a CDN, as mentioned above.

This type of hosting can be problematic in that it can be difficult to know at any given moment where exactly your data is located and in what jurisdiction your application is. Although you may be assured it’s in a certain countries, this can still be problematic. For example, laws can vary greatly between states or special territories of certain countries.

Conclusion

Hosting a server offshore can be expensive and have a negative impact on your visitors.

However, in some cases, the drawbacks can be outweighed by benefits in privacy, taxation, or (other) regulatory advantages such as permitting content elsewhere not suitable.

Marshall Islands…

IBC legislation? Check.

Mobile bearer shares? Check.

LLC legislation?

Modern, responsive corporate registry? Check.

Politically stable? Check.

Low tax even for resident persons? Check.

Tiny banking sector giving it an internationally low profile? Check.

Mostly clean reputation? Check.

Maritime services (yacht registration, flag of convenience)? Check.

Interesting flag? Check.

The first time many of you hear about this jurisdiction? Check.

Set sail for the South Pacific!

Overview

A convenient backyard for the US to test nuclear weapons, the Bikini Atolls of the Marshall Islands were subject to 23 nuclear detonations between 1946 and 1958. At the time, the islands belonged to the US. The Marshall Islands gained independence in 1979 which in 1986 was changed to a Compact of Free Association with the US.

Marshall Islands is a sovereign nation. It has especially close ties with the US, which in part shields it from international criticism. The US is responsible for military defense and for providing aid.

Geography and Demography

Incorporation and Business

Reputation

Despite being very secretive, the Marshall Islands is fairly small in business and holding and its practically non-existing banking sector has led to the jurisdiction being left mostly alone.

It’s a fairly unknown jurisdiction outside of maritime vessel registrations, where it is by contrast one of the largest jurisdictions since the late 1940s competing with Panama and Liberia.

General Information

Marshall Islands is similar to Liberia in that the government is its own incorporation service provider. The registered agent for non-resident domestic companies is The Trust Company of The Marshall Islands.

The corporate registry is controlled by the Marshall Islands Maritime and Corporate Registries but is effectively run by a government-appointed organization called International Registries, Inc. This organization is based in the USA, which worries some. Others see it as an advantage. Most don’t seem to care.

Although supposedly limited to legal and financial professionals (intermediaries), registrations can sometimes be done directly with the registry but many opt for using an intermediary service provider, as they may be able to help with bank account opening.

Opening a bank account for a Marshall Islands company be very difficult, especially with mobile bearer shares. A good trustee or fiduciary is essential.

Marshall Islands companies are commonly used as asset protection vehicles or flags of convenience for ships.

The costs of forming a Marshall Islands company varies from anywhere from a little under 1,000 to around 2,000 USD and annual maintenance is around half the incorporation cost.

Regulator

There is no dedicated regulator of the corporate services sector. Enforcement effectively falls on the financial intelligence unit, law enforcement, and ultimately the Marshallese courts.

The IRI is capable of striking off non-compliant companies.

International Business Company (IBC)

Often referred to as non-resident domestic companies (NRDC), these are pretty typical IBCs. The most notable feature is perhaps that mobile bearer shares are still permitted.

Requirements are typical:

• One director required. Corporate directors permitted.
• One shareholder required. Corporate shareholders permitted.
• One secretary required. Usually provided by the registered agent.
• No paid up share capital required (usually 50,000 USD capital authorized, 500 bearer shares).
• Registered address in the Marshall Islands required.

Taxation

None.

Record Keeping

Required but need not be submitted. Bare minimum requirements.

Limited Liability Company (LLC)

Marshall Islands LLC legislation is based on the Delaware and Wyoming laws. Series LLCs are permitted. (See more under Series LLC in my Offshore, USA article.)

Requirements are typical:

• At least one member. Can be corporate.
• Registered address in the Marshall Islands required.

Taxation

Not a taxable entity. Members are taxed and non-resident members are not subject to any Marshall Islands taxation.

Record Keeping

Required but need not be submitted. Bare minimum requirements.

Partnership

There are two types of partnerships: General and Limited.

In a general partnership, all partners are personally liable, whereas in a limited partnership, some members can be excluded from personal liability.

These types of entities are rarely used for trading except for in situations that call specifically for a partnership. In most cases, an LLC or IBC (NRDC) is used.

Public Records

Company name and type is public information and searchable online.

Banking Sector

None to speak of.

There are two commercial banks: the Bank of Marshall Islands and Bank of Guam.

Living in Marshall Islands

Nationals of the USA, Palau, and Micronesia can settle down freely in the Marshall Islands.

Obtaining a work permit is not easy. Jobs can only be given to non-residents or non-citizens if the position cannot be filled by a local. While the workforce in Marshall Islands is quite small and limited, it’s not particularly easy to move to Marshall Islands to set up a company, which means foreigners are usually dependent on a local company to hire them.

Citizenship is generally not attractive but can be applied for after five years of residence. Dual citizenship is not recognized except for children born abroad to Marshallese citizens.

Final words

Marshall Islands is a highly secretive jurisdiction for corporations and provides a very easy means to incorporate.

Although the registry is in the US, the jurisdiction is a sovereign nation.

Banking is problematic, although far from impossible. Opting for registered shares makes bank account opening easier.

See also

• OECD Peer Review (also has a list of TIEA and DTA)
• Financial Secrecy Index
• FATF documents

Why You (Might) Need One

“I’m afraid I can’t answer that. You need to speak to a tax adviser.”

That is a common answer to questions asked in the blog comments and forums here, and elsewhere.

There are a number of reasons why you get this answer. The most common reason is that answering is simply too risky for the person asking and or the person answering. Worst case for the person asking, they do something wrong and it ends up costing them dearly. Worst case for the person answering, it is seen as giving qualified financial advice and they are liable for anything that goes wrong. Now, most posters are anonymous and there is no legal risk to them (only moral and ethical) but it is nonetheless a concern.

Another reason for the deferral is that nuances are very, very important. Most questions are vague; inherently so, because this is a sector where privacy and confidentiality are highly desired. No one wants to share their full personal and financial details on a publicly accessible forum.

However, without knowing all those details, any advice given is bad advice. Here is a non-exhaustive list of things that can make a difference for taxation in the most commonly discussed scenarios (personal wealth and corporate taxation):

• Jurisdictions involved:
• Incorporation
• Citizenship(s)
• Residence (including previous residences) of directors, shareholders, members, and senior management
• Bank or banks
• Server location
• Office location
• Operations
• Amounts (10,000 is different from 10 million) and turnover
• Profitability
• Type of activity
• Duration
• Type of entity (LLC vs IBC or other company form can make a big difference)
• Means and type of payment
• Quality of documentation
• So on and so forth

Going through all that is on the asker’s side very intrusive and on the answerer’s side very time consuming to go through. Especially for the person answering, it would take hours and days to perform a thorough review and only someone with years of training and expertise can provide a qualified answer. That skill set and time cost money, hence the need for a tax adviser of some kind.

Finding an (Offshore) Tax Adviser

First of all, you need to figure out what it is you actually need.

As tempting as it might be to scour the internet for tax adviser based in the British Virgin Islands to get some good advice on your tax situation, the responsible thing to do for most people is going to be local tax advisory.

That lawyer or certified accountant you found in BVI might know the inner workings of BVI tax law like the back of his or her hand, but they are less likely to know enough about yours to give sound advice.

If you have a good relation with your home bank (particularly if you have a named, dedicated contact), they can often refer you to tax advisers. Otherwise, turn to friends and family or simply start contacting advisers, ask some initial questions, and get a feeling for what they can offer you.

It is normal to be able to ask a few basic questions without paying. Initial consultation is also often free. But just like you can’t expect someone to fix your car for free, nor can you expect someone to set up your personal finances for free.

A tax adviser in your home jurisdiction probably cannot help you with the level of detail you need. In most cases, they cannot or simply aren’t suitable for incorporating offshore, setting up a trust, et cetera. These advisers are usually just dealing with domestic law.

Licensed Tax Advisers and Offshore Law Firms

Tax advisers in tax havens are often registered trustees or fiduciaries and they or their employers at least are listed on the jurisdiction’s financial regulator’s website. In many other jurisdictions, qualified advisers of varying degrees can be found on the websites of accountancy industry organizations or financial services organizations such as the HKICPA (Hong Kong Institute of Certified Public Accountants), ISCA (Institute of Singapore Chartered Accountants), or ICAB (Chartered Accountants Bermuda).

But aside from picking a licensed adviser, how do you pick a good adviser?

This is tricky. If, as per above, you have a strong relationship with someone at your bank and if it is an international bank (possibly with branches in tax havens), they can again refer you to advisers in offshore jurisdictions. Not all banks will do this and some may even treat you as suspicious for just asking so approach the subject with care.

The financial services industry loves patting itself on the back. It can get a very self-congratulatory but it can serve as one of many pieces of information in the hunt for a tax adviser. Look into awards and other accomplishments awarded to service providers or individuals. These are often handed out by the financial services regulator and industry organizations.

It is also perfectly normal to ask to see credentials from an adviser.

But at the end of the day, short of getting a personal referral from someone you trust, picking an adviser is very difficult.

Big Names

There are a couple of big names (big firms) that dominate the sector. These aren’t necessarily always the best choice but one thing they typically do better than smaller operators is having multi-jurisdictional knowledge.

These include the Big Four accounting firms Deloitte, PwC, KPMG, and EY. Dealing with them can be a blessing and a curse. On the one hand, they have tremendous amounts of skill. On the other hand, they cost a lot because their typical clients are large corporations or high-networth individuals.

Other names worth mentioning (jurisdiction in bracket is their home jurisdiction):

• Appleby (Bermuda)
• Bedell (Jersey)
• BDO (Belgium)
• Carey Olsen (Jersey and Guernsey)
• Conyers Dill (Bermuda)
• Harneys (BVI)
• HBM Group (Curaçao)
• Henley & Partners (Jersey)
• Intertrust (Switzerland)
• Jordans Trust (UK)
• Maples and Calder (Cayman Islands)
• Mossack & Fonseca (Panama)
• Mourant Ozannes (Jersey and Guernsey)
• Ogier (Jersey)
• Travers Thorp Alberga (Cayman Islands)
• Trident Trust (BVI)
• Walkers (Cayman Islands)

As always, none of this is an endorsement or recommendation of any kind.

Conclusion

If you want to be very thorough, two sets of competence are required: one for your current jurisdiction and one for whatever other jurisdiction you have in mind (or multiple).

A multi-national adviser usually costs more, especially ones present in jurisdictions that aren’t tax havens, but can be very convenient in that you have a single point of contact. A more frugal approach is to split the two.

In the end, though, paying a few thousand for good tax advice generally costs a lot less than the penalties, fines, reputational damage, and other potential repercussions of being convicted of tax evasion, money laundering, or other financial crime.

I’ve often considered and struggled to find ways for people who don’t understand nuances of tax to determine fact from fiction amid all the different messages out there. Some suggestions for anyone trying to locate a high quality tax advisor:

– cross check – this is definitely an added expense and so a lot of people are very unwilling to go through it but it’s often worthwhile to have multiple sources vet a particular piece of information. Two words of caution here. First, take the literal content from one advisor to the other to have them vet it VA trying to explain what the one advisor said if you’re not well versed in the details you’re very likely to lose something in translation and get an inaccurate assessment. I’ve on some occasions written up specific questions for people to take to Deloitte or other major firms to help guide with this process to ensure the right information gets communicated. Second, unfortunately tax advisors frequently seem to like to bash each other’s solutions one person will favour a trust another will favour a private interest foundation one will prefer Belize another Anguilla. This is fair they are trying to win your business but learn to separate out what’s illegal from what’s personal preference.

– deal with the right people at the big firms – Deloitte, EY, etc do have some very skilled and knowledgeable tax people but just because you talk to someone from one of these firms doesn’t mean they know a thing about international tax. Chances are the local expert you’re dealing with for general business isn’t the right person to talk to about international make sure you get a referral to their international planning department and be aware usually the way these firms are organized particular advisors specialize in particular jurisdictions and client needs so use them to vet that particular information and don’t necessarily rely on them for other information. I know some advisors who are high level tax attorneys who are fantastic for the area they cover but I’m scared when I see them advising on other jurisdictions very few have a broad understanding of international tax it’s usually quite targeted the details they’ll know are critical but get the other details fact checked by a relevant expert

– get them to cite laws and case law – you’ll have cases of uncertainty and conflict sometimes it is just that… Uncertain for example Malaysian source income isn’t defined in Malaysian tax law, some court challenges have established precedents but they don’t answer everything. The best you can usually do is to have this information cited, which will help to inform the answers provided by other experts when cross checking as well

– be wary of anyone who takes a nonchalant attitude to your tax situation if they aren’t willing to dig in deep gather a lot of information and do an extensive review there’s a good chance they’ll overlook some important detail, which could end up costing you significantly.

As for referrals sadly from what I’ve seen they don’t constitute a reliable source of credibility because often people have non-compliant structures that simply haven’t been challenged and this creates a false positive for the work of the given advisor. I’ve seen a lot of high level people give referrals where the person referred simply isn’t a true expert. It doesn’t always go this way the referral might be good but it’s simply very difficult to know.

One of the least reputable, most irresponsible jurisdictions in the world, the Comoros is often categorized together with Nauru as one of the two absolutely worst.

Arguably, even TRNC is a more reputable jurisdiction than The Comoros. The difference is that The Comoros actually is an independent nation and fully recognized.

In a previous post, I referred to there being three well-established international financial centers (offshore jurisdictions) in Africa: Mauritius, Seychelles, and Liberia.

This is the fourth one. The one no one wants to talk about.

And it’s a two-in-one deal!

Overview

Flag of Grand Comore.

The Union of the Comoros is made up of three more or less autonomous islands: Anjouan (also called Ndzuwani or Nzwani), Mwali (also called Mohéli), and the namesake Grande Comore (also called Ngazidja).

For being three small islands, the Comoros has a perhaps surprisingly intricate history. It has ties both to African and Arabic culture. A number of sultanates have risen and fallen on these islands, with the Sultanate of Anjouan (Nduzwani) being the most prosperous and being known for at one time fighting a war against the Sultanate of Zanzibar which readers may remember was under Omani influence.

What is present day Comoros started somewhere in the 1970s which culminated in the islands gaining  independence from France in 1975. (France still controls the neighbouring island Mayotte, which voted against independence. Nonetheless, the Union of the Comoros claims Mayotte as a part of its territory.)

Flag of Anjouan.

However, in 1997, Anjouan and Mweli declared independence from The Comoros, attempting to reinstate French rule following what had been an authoritarian regime from the Grande Comore.

After a regime change in 2002, the African Union tried to strongarm Anjouan into rejoining the union.

However, in 2001, Anjouan had been taken over by a military rebel force. In 2008, the island of Anjouan was stormed by some 2,000 soldiers from the African Union. This was mostly welcomed by the inhabitants. The invasion caused three fatalities of the rebel troops and none of the invading forces.

Flag of Mwali.

Since 2011, there has been a democratically elected president ruling over all three islands.

All in all since its independence in 1975, there have been more than 20 attempts coups.

It can be very difficult to obtain reliable, official information about the Comorian government and its laws. This is ex

The Union of the Comoros is a member of the UN, African Union, Arab League, World Bank, IMF, and a plethora of other international organizations.

The jurisdiction is not a member of OECD, has signed only one tax treaty (a mostly symbolic DTA with the UAE), and has not signed up for AEOI.

The Comoros both is and is not at risk of money laundering. The financial services sector is only barely regulated but it is very small, especially for banking, which makes it fairly small risk. This is a similar line of reasoning used by for example the Seychelles, whose financial services sector is very secretive but because banking is so small, it is not of great international concern.

Geography and Demography

Incorporation and Business

Where the Comoros is a known jurisdiction, the reputation is absolutely horrendous.

One of the biggest problems with The Comoros is that there continues to circulate providers who claim to sell Comorian companies when in fact all they do is take payment to issue worthless documents, while no legal entity is actually formed.

With The Comoros not being a signatory to the 1967 Hage convention (Hague Evidence Convention), it is not possible to obtain apostille and instead certification by an embassy or government authority is required. However, because companies are usually incorporated in Anjouan or Mwali, a Comorian embassy or government authority is usually unable to actually verify the information due to secrecy, lack of internal cooperation, or simply not wanting anything to do with those types of activities.

For Anjouan, a company by the name Anjouan Corporate Services Ltd is supposedly the central registered agent and only licensed corporate service provider. This wouldn’t be entirely unlike Marshall Islands and Liberia, were it not for the fact that it’s practically impossible to verify.

For Mwali, there are a couple of websites that claim various degrees of officialness.

How can you tell an incorporated Comorian entity from a worthless piece of paper? You can’t.

Banking Sector

Simply atrocious.

By 1999, Anjouan had issued some 300 banking licenses with bare minimum requirements. The licensees were fully non-resident and had no activities in the Comoros or Anjouan; so called shell banks.

Although some International Banking Acts in for example the Caribbean and South Pacific contain some unsavory clauses surrounding owner and director due diligence and customer protection, they are not as egregious as the old Anjouan banking regulation.

A makeshift financial services regulator was set up in 2002, which did little more than actively promote The Comoros as a lawless haven for financial crimes. This veritable banking piracy came to an end in 2005 when the old law was revoked and practically all licenses with it.

Old flag of Anjouan.

Since then, FATF has toughened its recommendations against shell banks, making it practically impossible to actually make use of a Comorian banking license, even if the 2005 banking law is closer to international standards. The reputational damage done to the Comoros is simply

There are still plenty of service providers out there selling Anjouan banking licenses. Curiously, most of them (all 10 or so I just checked) are still using the old Anjouan flag, seen here to the right, which was replaced in 2012.

Now, let’s not forget about Mwali (Mohéli).

Old flag of Mwali (Mohéli).

This island has a history much like Anjouan. One similarity is, again, the flag problem. Many websites and corporate service providers still fly the old official flag, seen to the left.

There have supposedly been 24 banking license issued in Mwali, of which 14 have been suspended and three are under liquidation (a process that seemingly takes a very long time, since the website in question has not changed in many months).

With license fees as low as 20,000 USD for an unrestricted license, it surprises no one that Mwali and Anjouan have and are being used to set up unreliable, fraudulent banks and or banks which are essentially money laundering vehicles for quasi-sophisticated criminals with a penchant for politically unstable countries.

Banks in the Comoros

Banks in the Comoros should not be confused with traditional banks. Short of banks that cater only to the local market, a bank licensed in the Comoros is not a respected entity and opening correspondent accounts is practically impossible. Instead, many opt for licenses in slightly more reputable jurisdictions (such as the Dominican Republic), and effectively conduct all banking through that entity.

The license in the Comoros is only used as a veil of secrecy.

For the time being, these banks are too small and operating well enough to not draw too much attention but the closure of Comorian banks should not surprise anyone.

How can you tell a licensed and regulated Comorian bank from a fraudulent bank? You can’t.

Citizenship

Yes, Comorian citizenship can be acquired for an investment of 40,000 USD. With administrative fees it usually lands at 50,000 USD, not accounting for travel costs to visit the embassy in Dubai or the Comoros.

But before you reach for your check book, consider that it is a practically useless citizenship. Comorian citizens can enter only 15 countries without visa and can enter just over 20 countries and be granted a visa upon arrival. Aside from travel within Africa (if even then), this is not an improvement over most citizenships out there.

But what about for banking?

First of all, banks assess things like reporting under AEOI (Automatic Exchange of Information) based on residence more than citizen.

Furthermore, from experience in due diligence in financial services including banking, there are a couple of passports which if shown by a person who does not fit the expected characteristics of that jurisdiction, secondary ID is required.

Show a Comorian passport (without looking the part) to a skilled compliance officer and they will ask for your other passport.

The value of a Comorian citizenship and passport hardly justifies the 50,000 or so USD effort. For those to whom 50,000 USD is not a lot of money, far more reputable options are available. For those barely scraping together the necessary funds, the money is probably better spent on something else.

Living in The Comoros

Chances are that you don’t want to. It’s a politically unstable jurisdiction with significant corruption and crime problems.

Infrastructure is generally poor. The islands are remote and have not even seen much tourism.

And let’s not forget about the top marginal tax rate of 50%.

Final words

The Comoros is a jurisdiction to be aware – and wary – of. Using it is rarely a better choice than going with another jurisdiction, no matter what it’s for: incorporation, banking, or establishing a bank.

See also

• OECD Peer Review (also has a list of TIEA and DTA)
• FATF documents

It is finally time to tackle this issue, which is the biggest source of confusion for the would-be, could-be, and often shouldn’t-be offshore entrepreneur.

You Pay Tax Where You Live

In its simplest terms, this is what it comes down to.

Merely transferring your personal wealth to an offshore bank does not change your tax liability (the amount of tax you have to pay and why you have to pay it). Unless you live in a tax haven, in which case you would hopefully already be aware.

Decades ago, many jurisdictions’ tax laws were not prepared for the legal loopholes that jurisdictions like Cayman Islands, Jersey, and BVI made possible to exploit. Back then, you could live in a high-tax jurisdiction and wire funds abroad, thereby avoiding tax or entering a legal vacuum.

Quickly, laws were passed to prevent this and the concept of tax residence became an international standard.

Nowadays, in most jurisdictions, residents (whether citizens or not) are taxed on their worldwide income. Some jurisdictions make exceptions for foreign-sourced income, which is an often ill-defined concept with lots of room for interpretation (and, from time to time, bribes). See for example Panama, Macau, and Thailand.

Companies, Too

The same goes for companies.

While it may at some point have been possible to completely dodge tax by incorporating offshore, that is no longer the case. At least not without committing tax evasion.

While it is true that your Seychelles IBC doesn’t owe any tax in the Seychelles, you still have to pay tax where you live.

What is Tax Residence?

Tax residence is the residence for taxation purposes of a person: either a natural person (a human, you) or a legal or juridical person (a company).

Natural Person Tax Residence

For most people, this is the jurisdiction where they live or where the jurisdiction of their primary home. This most likely means that any income you earn (including money that ends up in your personal offshore bank account) must be taxed.

While secrecy may keep your tax authority from finding out about the funds, it is nonetheless a crime to declare and pay tax on taxable income.

Legal Person Tax Residence

There are a lot of different terms across different jurisdictions, such as permanent establishment, mind and management, and effective control.

These all mean more or less the same thing: a company is tax resident where the company is operated.

A typical example would be a Seychelles IBC. If your tax authority looks at your finances, they will in all likelihood determine that the company is a local company for tax reasons, since it is operated and managed from that jurisdiction.

Nominees

Will not help you. Nominees have typically no bearing on tax residence.

But…

What I have done in this article is to summarize thousands upon thousands of pages of laws, opinions by tax authorities, and court sentences across diametrically different jurisdictions.

Exceptions do exist. Don’t start celebrating, though. There probably aren’t any you can make use of.

How do you find out if you qualify for exceptions? How do you determine the exact nature of your situation? You would speak to a good tax adviser.

But sometimes not even that is enough. This is an industry and regulatory space built on trust, interpretations, and argumentations.

Dig Deeper

One good source for further research is Deloitte, which every year publishes about 100 tax guides on various jurisdictions.

To understand how different jurisdictions define residence, see Residence, Basis, and Taxable income under Corporation Taxation and Personal Taxation.

These are simplifications and, as discussed in my article on Finding a Tax Adviser, nuances can make a big difference.

In all likelihood, if you want to lower your tax burden and cannot afford the costly structures the likes of Google and Apple utilize, you are most likely going to have to move to tax haven. There might be things you can do to marginally lower your tax burden, especially if you have complex investments and savings.

See Also

What You Can and Cannot Do With an Offshore Company and Bank Account

Dark Side Part 1: Tax Evasion

Finding A Tax Adviser

Our last stop for this year’s journey across offshore jurisdictions and tax havens will be Antigua and Barbuda.

Sometimes considered a David to the Goliath that is the US over its WTO and online gambling spat, this jurisdiction holds a special place to many. Good or bad.

While not exactly a reputable jurisdiction, Antigua and Barbuda is often seen as tolerated, a distinction that puts it above many otherwise comparable jurisdictions.

Gambling, Antigua, the US, and the WTO

Much has been written about this topic over the years.

In short, Antigua and Barbuda was benefiting greatly from American gamblers on online poker rooms, sports betting websites, and casinos licensed and (minimally) taxed in Antigua. Antigua was one of the first jurisdictions in the world to create a regulatory framework for online gambling.

Then came UIGEA, the Unlawful Internet Gambling Enforcement Act, in 2006, added as Title VIII of the SAFE Port Act, a set of laws in the US that outlawed online gambling. Casinos worldwide plummeted as revenues from American players vanished.

Some found underhanded ways to keep American, while Antigua decided to pick a fight with Goliath.

Antigua took to the WTO (World Trade Organization) and claimed that the US was violating the GATS (General Agreement on Trades and Services), claiming an astronomical 3.5 billion USD in penalties. In December 2007, the WTO found in favour of Antigua but only awarded it 21 million USD.

The decision from WTO also empowered Antigua to disregard intellectual property rights of US rights holders without repercussions from WTO and WIPO. While other treaties complicate matters, it essentially means Antigua and Barbuda does not need to answer to copyright claims from the US up to the tune of 21 million USD per year.

Some claim this to mean that Antigua and Barbuda has no copyright laws. This is false. It also doesn’t mean that Antigua and Barbuda is completely lawless when it comes to US intellectual property rights.

Counterintuitively perhaps, the US and Antigua and Barbuda have strong relations. The gambling and WTO spat has not destroyed the two nations’ relations. The US provides financial aid to Antigua and Barbuda and helps combat drug trafficking.

See also:

• The Antigua- US WTO Dispute over Internet Gambling
• United States — Measures Affecting the Cross-Border Supply of Gambling and Betting Services
• The Antigua-United States Online Gambling Dispute

Geography and Demography

Map from Wikipedia.

Incorporation and Business

Reputation

As mentioned already, the reputation of Antigua and Barbuda is hard to define.

Don’t get me wrong, though. It’s generally bad. The question is how bad and what kind of bad.

The Seychelles for example have bad reputations for tax evasion as well as money laundering, whereas for example Mauritius is a a notorious tax haven but not seen as problematic in terms of money laundering or excessive secrecy.

Antigua and Barbuda has some deficiencies in its EOI (Exchange of Information) legislation, bookkeeping records, and ownership records. However, none egregious enough to garner much international criticism or outrage.

General Information

Antigua and Barbuda is not a top contender in popularity and offers no distinct advantages over most IBC jurisdictions.

Owing to limited competition, incorporation fees are relatively high. Many service providers do not have websites and instead only take on through intermediaries. Some may respond to email or even pick up the phone, if you try to reach out.

Companies are often formed for other purposes than traditional business and holding. A common usage of Antiguan IBCs is vessel registration, mostly yachts but also large freight ships. Antigua and Barbuda is one of the largest flag of convenience jurisdiction. Although the gap up to the world-leader Panama is enormous, Antigua compares in size to Liberia, Marshall Islands, The Bahamas, and Malta.

Antigua and Barbuda is a few-questions-asked kind of jurisdiction which puts a lot of emphasis on not rocking the boat. The government makes a good amount of money every year on the corporate services sector.

Regulator

The offshore financial services sector in Antigua and Barbuda is primarily the responsibility of the Financial Services Regulatory Commission (FSRC).

International Business Company (IBC)

IBCs are formed under the International Business Companies Act, enacted first in 1982 but which underwent significant revisions in the late 1990s.

Requirements are simple:

• One director required. Corporate directors permitted.
• One shareholder required. Corporate shareholders permitted.
• No paid up share capital required.
• Registered address in Antigua and Barbuda required.
• Bearer shares are permitted but must be deposited with a custodian.

Taxation

IBCs are guaranteed to be exempt from taxation for 50 years.

Public Records

Company name disclosed to authorities, which can be searched by contacting the FSRC. You usually need to show up in person, so if you are curious about the status of an Antiguan IBC, it’s better to ask for a certified copy of the corporate documents.

Or take a two-week vacation and expect to waste two to three business days dealing with the FSRC, if there’s anyone around to handle your inquiry.

Antigua and Barbuda International Trust

There isn’t a whole lot to say about Antigua and Barbuda as a trust jurisdiction. It’s again not a major player, outside of maritime services.

Trusts are formed under an International Trusts Law which was passed in 2007.

The legislation is as ironclad as you could expect. Short of local court orders, which are hard to come by, practically nothing penetrates an Antiguan trust.

Trusts are not perpetual but the maximum duration is 200 years, which should be plenty for most trusts.

Fraudulent conveyance is limited to one year.

Antigua and Barbuda Gaming License

Under the relatively watchful eyes of the Directorate of Offshore Gaming, has a reasonably reputable igaming sector.

Fees are low and getting a license is not particularly difficult.

The requirements and ease of getting a license are similar to for example Curaçao. The big difference is that Antigua is whitelisted by the UK and operators licensed there are allowed to market in the UK, whereas for operators licensed in Curaçao and unlicensed in Costa Rica cannot.

Service Providers

The FSRC maintains a list of all service providers. As of writing, it was most recently updated in October 2011.

Banking

Antigua and Barbuda is not different from most of its Caribbean peers. Banking is expensive and relatively poor in terms of service quality and sophistication.

Antigua and Barbuda Banking License

Antigua and Barbuda is known for its very easy-going banking license regime.

There are three classes of international banking licenses issued by the FSRC.

Class I needs a minimum of three million USD in capital, although 500,000 USD needs to be set aside for an investment in the FSRC. This is what most people think of when they imagine banking. A Class I bank can do everything a normal bank can, except for engage with local residents or the local currency, thereby creating a completely separate financial system that the local government cares practically nothing about (which includes you as a depositor and your rights).

Class II is a restricted license, requiring only 500,000 USD in capital (of which 100,000 USD be invested in the FSRC). These banks may only transact with pre-described customers. This is often used for captive banking or very specific-purpose banking needs.

Lastly, there is Class III. This license category is similar to Class I but also includes a trust license. The capital requirements are the same as Class I.

Setting up a bank in Antigua and Barbuda is very simple. You just need two resident senior staff members of which one must be a full-time employee and at least one must have experience in finance or banking, an office space that must be open for six hours every day between Monday and Friday (except for holidays – and except for all those days that no one actually checks), and a couple of laptops to fully satisfy the FSRC.

Accounting records can be kept overseas but need to be sent to Antigua once a month.

That’s it.

Of course, there is a lot more involved in order to actually make a bank functional.

Account Opening

Opening a bank account in Antigua and Barbuda is pretty straight forward. Practically every bank permits remote account opening, although an intermediary may be required in some cases.

Minimum deposits are usually around 2,000 – 10,000 USD.

Banking Secrecy

While it is similar to other IBA jurisdictions in that secrecy is stronger in theory than the local culture. However, Antigua and Barbuda is a relatively old jurisdiction and has stood its ground on a number of cases to prevent fishing expedition.

Antiguan authorities are empowered to compel banks to disclose information without a court order, and share this information with foreign authorities.

Banks in Antigua and Barbuda

There are twelve Class I or Class III in Antigua and Barbuda:

• Antigua Overseas Bank (In Receivership)
• BOI Bank Corporation
• BRS Banque
• CBA Bank and Trust
• D Bank (Formerly Davos International Bank)
• Global Bank of Commerce
• International Investment Bank
• Meinl Bank
• North International Bank
• PKB Privatbank
• Trium Bank and Trust
• Unicorp Bank Overseas

Older lists can be found circulating the internet, including several banks which have been forcibly shut down under more or less controversial circumstances. Three notable cases are Stanford International Bank, Antigua Overseas Bank, and Barrington Bank.

Living in Antigua and Barbuda

Antigua and Barbuda is a beautiful group of islands. It is no surprise why these islands are so popular with tourists.

Long-term living is relatively comfortable. Antigua and Barbuda is one of the wealthiest nations per capita in the region and following fiscal reforms in the early 2000s the nation’s debt-to-GDP ratio sank from over 130% to under 90%. The island is however highly dependent on tourism and the 2009-2011 global financial hardships hit the tiny island nation quite hard. It would no doubt have been much worse had the island been in its rough early-2000s shape but it still has not fully recovered.

Nonetheless, Antigua and Barbuda is politically stable and enjoys one of the highest standard of living in the Caribbean.

Taxation

There is no capital gains tax on residence but there is an income tax starting at 10% and going up to 25%.

The corporate tax for a local company is 25%.

There are talks about changing to a territorial taxation system.

Residency

Aside from the usual work permit route (which is difficult), residence can be obtained buy investing in property in Antigua. This programme is rather expensive, costing at least 20,000 USD per year. You need a very high income or very large wealth to make 20,000 USD worth your while.

Citizenship

Henley & Partners, the masterminds behind many citizenship by investment programmes, have helped Antigua and Barbuda establish such a programme, the Citizenship by Investment Program. For a cool 250,000 USD (temporarily discounted to 200,000 USD), a property investment of 400,000 USD, or an investment in a local business of 1.5 million USD (plus various administrative fees or other fees), one can obtain an Antigua and Barbudian passport.

The passport is good for visa-free or visa-upon-arrival in over 133 countries and jurisdictions, placing it ahead of both Dominica and Saint Kitts and Nevis, which both have similar (but far more well-established) programmes.

Final words

Antigua and Barbuda is a jurisdiction everyone knows of but few actually take the time to fully appreciate.

The jurisdiction is very gambling friendly, making a popular jurisdiction not only for licensed offshore gambling operators for some gambling affiliates.

Incorporation is pretty standard but costs rarely make it a better option than many other IBC jurisdictions, more secretive or more reputable alike.

Living in Antigua and Barbuda is fantastic and for those with the financial means, acquiring citizenship can be a worthwhile investment.

See also

• OECD Peer Review (also has a list of TIEA and DTA)
• Financial Secrecy Index
• FATF documents
• CFATF documents

It’s that time of the year again. The time of the year when I crown the best offshore banks of the year.

As usual, best in this context shouldn’t be taken to imply financial stability, regulatory stability, ease of account opening, lowest fees, and so on. This is simply a list of offshore banks that I enjoyed working with during 2015.

Last year’s list was very ambitious and I am this time going to leave out banks that I would call exotic banks rather than offshore banks. I may return to those in a few weeks.

Without any further ado, below are the in my opinion and experience 12 best offshore banks of 2015.

Banks are listed alphabetically.

Bank Audi

Founded in 1830, this is the largest bank in Lebanon. It has since established subsidiaries and branches across the region and worldwide: Switzerland, Abu Dhabi, France, Egypt, Jordan, Turkey, the list goes on and on.

Bank Audi is one of the world’s finest private banks, perfecting the Lebanese tradition of wealth management.

As one of the tightest banking secrecy regimes, Lebanon and its banks know it can demand a lot from prospective clients. Bank Audi rarely accepts non-resident clients that cannot deposit at least eight figures.

However, for those seeking high quality banking in Lebanon and the region as a whole, Bank Audi is in many cases the best choice.

My experience with Bank Audi goes back many years. Through thick and thin (including wars and global financial turmoil), the bank has stood rock solid. Account opening can be a very thorough process and it’s especially difficult as a non-resident, but this in my experience means the bank has more time to spend on taking care of its clients, which it does exceedingly well.

Products and services are of top quality and sophisticated enough to satisfy practically anyone.

As of latest annual report (2014), the bank had assets of 41.9 billion USD.

Bank of Tokyo-Mitsubishi UFJ (BTMU)

While many may not think of Japan as fitting the typical criteria for offshore, this Tokyo-headquartered bank is one of the most important banks in maritime trade, which typically takes place offshore.

The bank is present in all corners of the world: Japan, Singapore, Hong Kong, Taiwan, Malaysia, China, UAE, Qatar, Bahrain, Turkey, UK, Cayman Islands, the US, and Canada just to mention some.

The bank is on paper very young, being formed as recently as 2006. However, its parent – through a series of mergers – traces its roots back to 1880.

If you are looking at buying a freight ship or do large-scale import/export across the high seas, chances are you will find yourself in a meeting with BTMU at some point.

I was first introduced to BTMU as I was getting involved in a couple of medium-sized shipping lines. There is a staggering amount of money involved, shell corporations come and go, large letters of credits are issued to secure landing, and due diligence needs to be quick. This is coupled with a myriad of risks: shipwreck, piracy, delays by weather, sabotage, and so on and so forth.

Through it all, BTMU is the kind of bank that has made sure businesses run smoothly. The bank strikes a phenomenal balance between risk and reward. The compliance officers at BTMU are probably some of the best in the industry, having a very keen sense for reviewing documents (including authenticity verification) in an accurate and timely manner.

According to its 2015 annual report, the MUFG (Mitsubishi UFJ Financial Group), parent of BTMU, had assets of 286 trillion JPY (circa 2.3 trillion USD or 2.17 trillion EUR).

Bank of Valletta

The go-to bank for every gambling operator and – for those who qualify – financial services provider in Malta, Bank of Valletta (named after the nation’s capital) is one of the finest banks in the Mediterranean (and world).

Founded in 1974 through a merger of banks going back well into the 1800s, the bank today has representative offices in Australia, Belgium, Italy, and Libya. It is not possible to open a Bank of Valletta account domiciled in those countries. You can open an account there, but the account will be domiciled in Malta.

Having partnered with Saxo Bank for trading, BOV now has a strong trading platform. It also has one of the best mobile apps in the industry.

Account opening for non-residents is possible but only through an intermediary, often costing around 1,000 EUR. Minimum deposit is usually just a few thousand EUR but is determined individually.

I have been able to place most kinds of companies with BOV. Very rarely does the bank say no and in those cases it’s usually been because the client has been reluctant to disclose all the details the bank asks for, which can be intrusive. However, Malta ranks as one of the lowest-risk jurisdictions for money laundering.

According to its 2015 annual report, the bank has assets of 9.9 billion EUR.

Butterfield

One of the few good local Caribbean banks, Butterfield stands out as the best in my opinion, mainly for its private banking and trustee services.

Based in Bermuda, this bank was founded in 1858 although it traces its roots as far back as a trading company founded in 1758. It has branches in the Bahamas, Cayman Islands, Guernsey, Switzerland, and United Kingdom.

Services vary somewhat between locations but mainly comes down to private banking and corporate banking. In Bermuda and Cayman Islands, it’s also a retail (personal) bank.

As of its 2014 annual report, the bank has assets of 9.9 billion BMD (9.9 billion USD / 9 billion EUR).

Citibank

Founded in 1812 as the City Bank of New York, Citibank is a primarily US bank.

Just over 50% of the bank’s revenue comes from the US, followed by Latin America at 25%, Asia at 20%, and Europe, Middle East, and Africa at 4%.

I would however not dub Citibank the best bank in the US. It’s one of the better ones, together with JP Morgan/Chase and Wells Fargo.

The bank has brought this excellence across Latin America and Asia, where it stands out as one of the best.

Account opening varies greatly by jurisdiction but is generally easy for residents and it’s relatively easy to transport account across jurisdictions.

Remote opening in Singapore (minimum 10,000 SGD) has recently become very popular.

According to its 2014 annual report, the Citigroup had assets of 1.84 trillion USD.

Crèdit Andorrà

Today the largest bank in Andorra, Crèdit Andorrà was founded in 1949.

Much has changed in Andorra since then. Banking secrecy has been eased to reach international standards, it has implemented FATCA, it has signed up for AEOI, and it has tightened its AML regulations. The jurisdiction ran without any major incidents until the still on-going problems with BPA (Banca Privada d’Andorra).

Through thick and thin, Crèdit Andorrà has stood strong up in the Pyrenees.

It used to be that non-residents showing up with passports, a banker’s reference, a utility bill, and a good explanation for wanting to bank in Andorra could open personal accounts with this bank. Although that may still happen, the bank greatly prefers non-resident clients (whether residents or corporations) to be seeking wealth management services.

The entry into private banking is quite humble, though, starting at around 50 – 100,000 EUR. This bank isn’t just for the ultra rich (like Bank Audi), but nonetheless offers excellent services.

The bank is also established in Panama and allows cross-jurisdictional account opening.

According to the bank’s 2014 annual report, its assets were 8.7 billion EUR.

LGT (Liechtenstein Global Trust)

Founded in 1920, LGT is wholly owned by the Liechtenstein royal family.

This bank is almost entirely dedicated to private banking, for both private individuals and for corporations. It is also a large investment bank.

LGT takes excellent care of its clients and while it is difficult to speak of and compare the success rate of wealth management, LGT enjoys a very strong reputation, which in my experience is well deserved.

Minimum deposit is flexible and depends on sophistication of services required. On occasion, I have seen the bank accept clients for between 50 to 500,000 CHF but they usually prefer far higher figures.

As of mid-2015, the bank has assets of 125.7 billion CHF (circa 127 billion USD / 115.8 billion EUR).

National Bank of Abu Dhabi (NBAD)

NBAD was founded in 1968, then the first bank of the emirate Abu Dhabi.

In 2007, the bank established itself in Switzerland as NBAD Suisse, based in Geneva. Praised already for its private banking in UAE, the bank continues this tradition in Switzerland.

The bank is also present in Bahrain, Oman, Kuwait, Jordan, Hong Kong, and Malaysia, to mention a few.

For private banking, the bank usually expects a few million USD/EUR/CHF to open an account.

Those with start-up RAK ICs are unlikely to be accepted by NBAD but more established corporate entities with presences in the region are accepted by the bank from time to time.

While I in previous year have lauded Abu Dhabi Commercial Bank, I decided this year to make this list shorter than previously and in making that decision, NBAD is the bank which in 2015 impressed me more.

The bank’s 2014 annual report shows assets of 376.1 billion AED (102 billion USD / 93 billion EUR).

OCBC

This also includes Bank of Singapore, OCBC’s private banking wing!

The Oversea-Chinese Banking Corporation (OCBC) was founded 1923, following the merger of three banks.

OCBC is a spectacular bank to work with, whether it’s as a personal account holder, small business, large corporate, high-networth individual, or trader. Whatever you heart desires – OCBC has it covered.

Things are getting more easy-going in Singapore in banking. Following a period of eased banking secrecy, AEOI, and FATCA, the banks are again gaining confidence to take on clients more easily. While it doesn’t mean you can just post a letter to OCBC and get an account, the bank is easing up somewhat on account opening for non-residents.

OCBC today boasts probably the best online banking facilities in the world. It might seem tired to rave about how good a bank’s online services are but when it comes to the likes of OCBC (and also UBS), it is a true distinction. It can save hours every year of your finance and treasury department’s time.

For private banking, OCBC bought ING Bank Asia in 2009 and rebranded it Bank of Singapore, which is one of highest regarded wealth managers in the world today. And rightly so.

For trading, OCBC has created iOCBC, which is a robust trading platform.

In 2014, OCBC bought Wing Hang bank in Hong Kong. While the transition is not completely finished yet, OCBC Wing Hang is easily the most exciting bank in Hong Kong right now.

In the bank’s 2014 annual report, they reported assets of 401 billion SGD (285 billion USD / 260 billion EUR).

Standard Chartered

Some are surprised to learn that Standard Chartered was founded in 1969. The bank certainly feels and seems older. This is because its roots go back to the mid-1800s but the bank as it is today was not incorporated until 1969.

Standard Chartered has two primary areas of interest: private banking and corporate banking (including private banking for corporate clients). In some jurisdiction, it also offers retail banking.

The bank is head-quartered in London but generates very little of its revenue in UK – or anywhere else in Europe. Well over 90% of its revenue comes from Asia, Africa, and the Middle East.

In many cases that I have seen and see on a daily basis, Standard Chartered is almost more of a financial platform than a bank. Companies move funds across borders and currencies with such ease that the bank is almost a transparent service providers.

That’s how good Standard Chartered is.

For private banking, they are more involved and work hard to maintain their stellar reputation.

Account opening is difficult. The bank is very picky, especially when it comes to non-residents. They usually ask for high minimum deposits. The lowest I have seen is their minimum of 100,000 HKD for new corporate clients in Hong Kong, but non-residents face a pretty hard time opening an account. It’s not impossible, though.

As of its 2014 annual report, it has assets of 726 billion USD (661 billion EUR).

UBS

One (and the in my opinion the better) of the two Swiss giants, UBS was founded in 1862, if you look back to the earliest signs of what would eventually become present day UBS. The bank’s early history is full of mergers.

UBS has had private banking at its core since the early days and they have perfected it since.

The bank has suffered from the financial turmoil in the last decade and since 2007, its largest shareholder is (perhaps surprisingly) the Singaporean government. UBS has established a relatively strong wealth management in Singapore.

The bank has focused heavily on growing globally, today being present in (among others) Liechtenstein, Jersey, Monaco, Luxembourg, Turkey, Austria, Canada, the US, Hong Kong, South Korea, New Zealand, UAE, Bahrain, Qatar, Bahamas, Uruguay, and Panama. Note that they aren’t a bank in all jurisdiction. Sometimes, they settle for just an investment services license.

Whether a personal account holder, business of any size, or just in need of private banking, UBS does the job very well.

UBS has relatively attractive cards, offering CHF, EUR, and USD currency cards in Switzerland. You can find more impressive reward points elsewhere but as merely an extension of corporate or personal banking, they cards are among the best.

In my opinion, UBS competes with OCBC for best online banking services.

According to its 2014 annual report, the bank has assets of just over 1 trillion CHF (1.01 trillion USD / 921 billion EUR).

Zürcher Kantonalbank (ZKB)

More or less every canton in Switzerland has its own cantonal bank (Kantonalbank in German). Zürich founded theirs in 1870.

And what a bank it is.

Wholly owned by the government of Zürich, ZKB is the go-to bank for many residents of the canton, competing mainly with UBS and Credit Suisse.

Every couple of quarters, I look into investments with ZKB (my own, clients’, and acquaintances’) and find that while growth might not beat more aggressive banks like UBS on a year-on-year comparison, ZKB often outperforms in a long run. Overall growth and long-term returns tend to be better than many other banks; a sentiment I know many account holders share.

The Swiss mentality in banking (and most things in life) is to take the slow and steady approach, something ZKB has taken to heart.

Account opening is relatively straight-forward but will in most cases require 250 – 500,000 CHF deposit.

Commercial banking is available for non-resident companies but the bank strongly prefers having some sort of Swiss connection. Small, non-resident companies are almost never accepted.

As per the bank’s 2014 annual report, it has assets of 158 billion CHF (159 billion USD / 145 billion EUR).

Conclusion

2015 is over and so is this list. To recap:

• Bank Audi
• Bank of Tokyo-Mitsubishi UFJ
• Bank of Valletta
• Butterfield
• Citibank
• Crèdit Andorrà
• LGT
• National Bank of Abu Dhabi
• OCBC
• Standard Chartered
• UBS
• Zürcher Kantonalbank

Do you have experiences (good or bad) with these banks? Or other banks that you want to share? Feel free to leave a comment or join the discussions over on the STREBER Weekly forums.

See you again next year! We’ll kick things off with a look at Dominica, and then head east…

Welcome to 2016!

We are starting to run out of Caribbean jurisdictions to inspect. Dominica is however is one you definitely cannot overlook.

It has a lot in common with Antigua and Barbuda and Saint Kitts and Nevis, with its easy-going banking regulations and citizenship by investment programme.

This is one of those jurisdictions that are starting to fall behind the rest of the competition, pretty badly. What was once a strong jurisdiction today operates websites, opening hours, and staff responsiveness that simply isn’t good enough any longer. Change might be on the way, and it can’t come soon enough.

One thing is distinct about Dominica is its heritage, though. While its history is mostly dominated by English influence, it has also seen a lot of French influence. (Sound familiar?)

It is one of few (15 to be precise) national flags that contain a bird: a sisserou or imperial parrot, which is unique to Dominica.

Chances are that you are pronouncing the name of the country wrong. Owing to its French heritage, it sounds closer to the French word Dominique. Emphasis is on the third syllable. Dominica as opposed to Dominica.

With all that cleared up, let’s get into it, shall we?

Geography and Demography

Map from Wikipedia.

Incorporation and Business

Reputation

Dominica has a relatively clean reputation but it is of course known to be a tax haven. It is considered more or less along the lines of Antigua and Barbuda and Saint Kitts and Nevis: not as good as the (still) British Overseas Territories but not as wild and unruly as Belize and Seychelles.

It is sometimes confused with the far less reputable Dominican Republic.

General Information

Dominica is not very popular and because of that, competition is not particularly fierce. Prices are usually quite low, though.

Incorporation usually takes between one and three business days.

Many registered agents will perform more in-depth due diligence for incorporation than many other jurisdictions, some even requiring a police conduct report just to form a company. While an initial hassle, it’s potentially putting Dominica ahead of other jurisdictions.

Regulator

The Dominica Financial Services Unit is a division of the Dominica ministry of finance and is responsible for most of the offshore sector.

International Business Company (IBC)

It’s a cookie-cutter IBC jurisdiction, with laws enacted by the International Business Companies Act, 1996.

Requirements are the usual:

• One director required. Corporate directors permitted.
• One shareholder required. Corporate shareholders permitted.
• No paid up share capital required. Usually 100,000 USD authorised with 100,000 shares at 1 USD value.
• Registered address in Dominica required.
• Bearer shares are permitted.

Taxation

IBCs are guaranteed to be exempt from taxation for 20 years.

Since the law was enacted in 1996, this year will see the first companies’ tax exemption expire. The government has expressed no intent to start taxing IBCs, knowing fully well that such companies would just abandon Dominica.

Record Keeping

Required but need not be submitted. Audits are optional.

Public Records

Company name is disclosed to the authorities but are not subject to public inspection.

Dominica International Trust

In 1997 (10 years before Antigua), Dominica enacted its International Trusts law: International Exempt Trust Act, 1997.

It comes with all the usual features:

• No forced heirship.
• Only local court orders are honoured (assuming the trustee is Dominican resident).
• Narrow time limit on fraudulent conveyance (usually two years).
• Protector is permitted.
• No Dominican tax.

Trusts are however limited to 100 years, except for charitable trusts which may be indefinite.

Trusts must be registered although they are not subject to public inspection.

Dominica Gaming License

Dominica has an Internet Gaming licensing regime.

The license fees are low and operators are taxed on the greater of 50,000 USD or 5% of profits every half year.

Service operators tout Dominica as being leading, but good luck finding anyone (especially major operators) holding a license here.

There is as of writing a sole license holder: Teledom Ltd., which operates as World Wide Wagering; quite possibly one of the sketchiest-looking gambling sites out there.

What’s so leading about this is a mystery.

Service Providers

There is no simple list of licensed registered agents. The closest we can get to an official list is a list of Authorised Agents on the citizenship programme website.

But don’t worry. If you come across some reputable-looking service provider for Dominica, you can always contact the FSU. They will get back to you in – on average – about a week.

Banking

Dominica is not different from most of its Caribbean peers. Banking is expensive and relatively poor in terms of service quality and sophistication.

Account Opening

Opening a bank account in Dominica is pretty straight forward. Practically every bank permits remote account opening, although an intermediary may be required in some cases.

Minimum deposits are usually around 2,000 – 10,000 USD.

Be especially vigilant and look into not only if a bank is licensed, but also determine whether it is a reputable institution with a long-standing history.

That is if you decide you want to bank in Dominica for some reason, rather than in a more reputable jurisdiction.

Banking Secrecy

The same as most of these Caribbean paradise islands.

The law is strong but there is virtually no culture of financial secrecy. Unlike a banker in Switzerland or Singapore, a banker in Dominica makes very little money and does not come from a tradition of decades upon decades of taking personal privacy and banking confidentiality seriously.

Dominica Banking License

What sets Dominica aside is with what absolute ease and disregard for international standard on due diligence they issue licenses.

If you can fill in a couple of application forms mostly correctly and deposit bribes I mean license fees to the right authorities, they will fax you a license post haste!

Banks in Dominica

Do you really want to? OK, fine.

There are four commercial banks. These will from time to time accept IBCs, but they aren’t offshore banks and as such not subject to the (hypothetically) super strict banking secrecy. If you for some reason absolutely want to bank in Dominica, these are the banks most likely to be worth your time.

• First Caribbean International Bank
• National Bank of Dominica
• Royal Bank of Canada
• Scotiabank

Then we have one development bank and ten credit unions. These banks are not going to want to touch your local IBC but I have been told they take on non-residents from time to time. Don’t hold your breath, though.

• Agricultural Industrial and Development Bank (AID BANK)
• Calibishie Co-operative Credit Union Ltd
• Castle Bruce Co-operative Credit Union Ltd
• Central Co-operative Credit Union Ltd
• Grand Bay Co-operative Credit Union Ltd
• National Co-operative Credit Union Ltd
• Marigot Co-operative Credit Union Ltd
• SouthEastern Co-operative Credit Union Ltd
• St. Mary’s Co-operative Credit Union Ltd
• West Coast Co-operative Credit Union Ltd
• Woodfordhill Co-operative Credit Union Ltd

Then we have them… The licensed offshore banks. I’m using the word licensed loosely here. Dominica and its authorities do not care one iota what these banks do, who’s behind them, and what happens to their clients. Now, don’t get me wrong. If pressure gets too high (from other jurisdictions or threats from the big commercial banks), they will revoke licenses.

• Commonwealth Bank (Since 2010)
• Barnett Capital Bank (Since 2011)  (Non- Compliant)
• Brilla Bank and Trust  (Since 2012) (Non- Compliant: Cease and Desist Order)
• ASA Bank and Trust  (Since 2012)
• FGC Bank and Trust  (Since 2012)
• IBank Coorporation (Since 2013)
• Arton Bank Corporation (Since 2014)
• BBP Bandenia Private Bank Inc (Since 2015) (No Physical Presence)
• Zuma Bank Corporation (Since 2015)
• Cathedral Investment Bank (CIB) Americas Bank Inc (Since 2015) (No Physical Presence)
• Interoceanic Bank of the Caribbean Inc  (Since 2015)  (No Physical Presence)

Just look at that. These people issued three licenses in 2015 to banks with no physical presence in Dominica. Absolutely none. I bet you can’t wait to deposit money with these criminals fine bankers?

Hyperbole aside, it’s not all bad. I have just never been in a situation where a bank account in Dominica has been the best choice.

Living in Dominica

Standard of living in Dominica is not particularly high. Infrastructure leaves lot to be desired.

It does however have the typical beaches, climate, and culture. While this makes it an excellent destination for a Caribbean vacation at a lower budget than many other islands, it does not automatically make it attractive for settling down for most people.

Taxation

Although lacking capital gains tax, personal income tax quickly reaches 35%. People who are not ordinarily resident in Dominica can qualify for tax exemption on income not remitted to Dominica.

Citizenship

Dominica operates one of the most well-known citizenship by investment programmes, under supervision by the CBIU.

There are a number of ways. In the end, you’re looking at a bill of around 200 – 400,000 USD (largely depending on how many, if any, dependents you have). In return, you get a passport that can take you to some 90 jurisdictions without visa or by getting visa upon arrival.

This is significantly less than Saint Kitts and Nevis and Antigua and Barbuda. Dominica usually works out to be cheaper and if saving some 50 – 100,000 USD is worth it, this is the edge that Dominica has.

Final words

I speak harshly about Dominica’s banking sector. Perhaps I should have been just as hard on Antigua and Barbuda and a couple of other jurisdiction. What sets them aside from the parrots running the show in Dominica, though, is that the others have mostly cleaned up their act.

Dominica is perfectly fine for incorporation and acquiring one of the best established citizenship-by-investment programmes.

And that about wraps it up.

See also

• OECD Peer Review (also has a list of TIEA and DTA)
• Financial Secrecy Index
• FATF documents
• CFATF documents

For the sake of ease, I am going to bundle Free Trade Zones (FTZ), Free Zones (FZ), Free Ports (FPs), Free Economic Zone (FEZ), Special Economic Zone (SEZ), and other variations thereof into the term Free Trade Zone (FTZ). There are differences between them but none that is universal.

This article will only serve as a cursory overview of what FTZs are. I will go into more detail about specific FTZs in the future.

But let’s start with the basics.

What is an FTZ?

These are zones (often geographical but sometimes purely regulatory) in which a different set of laws and regulations surrounding business activities, immigration, finance, technology, and other sectors and factors.

The probably most well-known FTZs are in China in UAE, but FTZs can be found across the whole world.

Things to consider:

• Does the FTZ have a special purpose? For example, the Cayman Islands has a SEZ which is focused on knowledge, whereas Djibouti’s FTZ is focused on the physical trade of goods.
• Is a local presence required?
• If a local presence is required, how are the immigration requirements compared to the rest of the jurisdiction?
• Is the FTZ included in DTAs?
• What are the regulations in the FTZ for your industry?
• Are there any capital control differences?

What is the purpose of an FTZ?

They are typically either designed to simply business in a confined space, so as to not affect the jurisdiction as a whole, or to experiment with different legislation.

This is particularly apparent in for new economic zones set up in China, where bureaucracy is much more streamlined than the rest of the country, almost to the point of competing with Hong Kong, and the Cayman Islands Special Economic Zone, which has significantly easier immigration policies.

Some FTZs are structured to cater largely to warehouses or re-shipping.

Should I incorporate in an FTZ?

Maybe.

The first step is to assess your requirements – what you are looking for, what you need, and how important each criterion is. Take that and compare it to interesting FTZs.

As mentioned, some have local presence requirements (beyond just a registered office) as they are intended for companies that actually engage in local import/export (see for example Djibouti) or simply as a means to filter out companies that are just looking to establish a shell corporation.

Whether this is a hinder or an advantage is up to you to decide.

In many cases, FTZ have easier immigration policies which makes it easier to relocate yourself and or staff to the jurisdiction. This doesn’t necessarily mean that you as a foreigner can just pack your bags and settle down in some jurisdiction that’s otherwise almost impossible to set up base in (e.g., the aforementioned Cayman Islands).

What are the taxes in an FTZ?

Companies incorporated and or operating from an FTZ (as circumstances and regulation may dictate) usually pay no tax, or at the very least a significantly lower tax rate than normal companies.

That isn’t always the case, though. A handful of FTZs are only set up to allow for a different, more lenient, regulation on certain sectors.

An FTZ company not controlled from within the FTZ runs a very high risk of being deemed tax resident wherever it is operated or owned, as as such enjoys no tax benefits.

Are FTZs secretive?

Not necessarily. Many are in transparent, high-tax jurisdictions and serve only as a convenient port for import/export. Secrecy is not something one can expect from all FTZs.

Banking and FTZ

It is worth noting that banks often do not operate in FTZs or at least not under any special regulations, unlike for example International Banking Acts.

That is, a bank operating in an FTZ does normally not have any increased banking secrecy advantages over other banks nor are they more lenient with account opening.

Inversely, however, an FTZ company can find it more challenging to open a local bank account than a regular company, especially if there is non-resident ownership and or directorship. This is because the FTZ company may appear to pose a higher risk than a regular company due to operating in an isolated legal space which isn’t always understood by the bank.

FTZ and PayPal, other payment processors

Contrary to popular belief, as an FTZ company, you aren’t necessarily in any different position than a regular company in the same jurisdiction.

Payment processors do not usually treat FTZ companies any differently from other companies in the same jurisdictions, although exceptions can and do occur.

One thing to consider is that there may be capital control and currency usage differences between the FTZ and the mainland, meaning that FTZs cannot trade in the local currency.

Conclusion

FTZ companies and residence varies greatly between jurisdiction. An FTZ in Kenya can be very different from an FTZ in China which can be different from an FTZ in UAE.

In most cases, chances are that a non-resident FTZ company is not a better choice an IBC or other offshore company (IBC, LLC, non-resident, you name it).

Ras al-Khaimah (or more commonly RAK) is a subnational entity – an emirate – of the United Arab Emirates (or more commonly UAE).

The UAE is a federation of hereditary absolute monarchies called emirates, which are led by emirs.

There is an overall government, led by president Sheikh Khalifa (whose full name is Khalifa bin Zayed Al Nahyan), who is also the emir of the emirate Abu Dhabi, where in the capital city of Abu Dhabi is located. The emirs of the other six emirates join the president on the Federal Supreme Council.

The presidency is effectively hereditary.

As an international financial center (offshore jurisdiction), UAE is a complicated one. Taxes are almost unheard of but forming a business is unfortunately not always easy and banking, although of high quality, is difficult to arrange.

Addressing the topic of incorporation and running a business, numerous free-trade zones have been set up and each emirate is sufficiently independent to set up its own laws on incorporation.

RAK is ruled by Saud bin Saqr al Qasimi. The Qasimi family has ruled Ras al-Khaimah since the 1700s. They also rule the emirate of Sharjah, which shares flag with RAK.

Geography and Demography

Map from Wikipedia.

Incorporation and Business

Reputation

UAE is a true zero-tax jurisdiction. Resident and non-resident companies are taxed the same: not at all.

Many jurisdictions simply don’t tax non-resident companies and couple this with an easy regulatory framework to attract non-resident companies; for example Cyprus and Gibraltar. The accounting gymnastics utilized for those structures can look worse than incorporating in a jurisdiction that taxes neither residents nor non-residents. While it may be intuitive to bundle Cayman Islands and Bermuda into this group of jurisdictions, neither of them have big companies operating locally (aside from a barely-staffed office here or there to qualify for tax residence).

UAE does. UAE has some of the world’s busiest ports and a lively commercial sector, spanning everything from financial services to manufacturing.

As a whole, UAE enjoys a strong international reputation. It is known that its FTZ and subnational divisions don’t always live up to international standards but this is more or less tolerated. UAE is a necessary ally in the region to many western (and eastern) governments. It does enough to get by without any major reputational backlashes.

RAK is one of these tolerated subnational entities. Companies here can be very secretive and practically impossible to get information out of.

Many compliance officers and risk managers fail to look beyond the country stated in the registered office address of a company, not realizing that there can be a big difference within the UAE.

General Information

RAK has quickly become the most popular jurisdiction for non-resident incorporation in the region and is a contender for the top spot for resident incorporations, the #1 spot still held by Dubai.

Costs are higher than many jurisdictions but the price is often worthwhile considering the stability and reputability of the jurisdiction. For those who actually want to establish a presence in a zero-tax jurisdiction, none offer such business-friendliness and value as UAE and perhaps especially RAK.

Because UAE is not a signatory to the 1961 Apostille Treaty, it can be very tedious to open bank account for UAE companies on your own outside of UAE. Unless using a corporate service provider which can place you with overseas banks through their long-standing strong relationship with partner banks, getting documents certified can be a huge time and money sink as it needs to be legalized by an embassy to be valid.

Because of UAE’s peculiar standing and unique conditions, many service providers offer full director services for a relatively modest fee to make companies appear resident in UAE. This can sometimes be successfully deployed to make a UAE company satisfy foreign tax authorities’ tax residency rules and not be deemed a local company. Your mileage may vary. As always, be very careful and seek professional advice.

Regulator

There are three regulators: the RAK government for regular companies, the RAK FTZ, and the RAKIA (RAK Investment Authority). The latter two are the most commonly used by non-residents and foreigners because of their more easy-going regulations.

RAK-FTZ

Aside from branches of local or foreign companies, there are two types of companies that can be formed in the RAK FTZ.

The RAK-FTZ Free Zone Establishment (FZE) is a a  single-owner company, although another person can be the manager of the company.

It is different from the RAK-FTZ Free Zone Company (FZC) which has between two to five owners.

These companies require a license and this can add a lot of cost: Commercial License, Consultancy/Services License, Industrial License, and Educational License. Coupled with the need for local facilities (offices) being required. This can add costs of several thousand AED per year, which is why RAK FTZ companies are not particularly common with non-residents. For those intending to set up an actual presence, this can be quite cost effective.

RAKIA

RAKIA has two business types: free-zone company and non-free-zone company. The difference is that free-zone companies can have more than 49% foreign ownership, are generally more easy-going, but are limited in their ability to trade locally.

Both business types can take on one of the same entities forms: Establishment (single member) or Limited Liability Company (LLC, based on the US law).

Branches are also permitted.

Like RAK FTZ, RAKIA companies must have facilities and a license. There are five license types here: Consultancy/Services, Trading/General Trading, Commercial, Industrial, and Media.

Costs are comparable to FTZ.

RAK Offshore – International Company

I bet you thought we were done. Nope. Not so fast.

In 2006, a new legislation was passed by RAK called the International Companies Regulations 2006, based on the BVI international companies law. This is a special legislation within the RAK FTZ. And it’s the most popular one for non-resident foreigners.

It has the features and requirements one can expect of an IBC-clone but with the reputational advantages of being in the UAE.

A RAK IC needs only one director and one shareholder (can be the same person). Shares must be registered, meaning bearer shares are not permitted.

Contrary to what some believe, RAK ICs can and routinely do bank in the UAE. More on banking later. However, they are generally barred from trading with RAK residents and can only own real estate in the UAE with special permission.

Share capital can be denominated in AED, USD, EUR, or GBP. Other currencies are permitted by special approval, which is usually not that difficult to obtain.

Curiousty, shareholders of a RAK IC can choose a different jurisdiction than RAK or UAE for some aspects of running the business. While this can be advantageous to for example satisfy investors who do not trust the UAE, it is not always recognized in the jurisdiction of choice (i.e. a local court might not honour the request for a hearing due to the company not being incorporated under local laws).

Taxation

Aside from the oil sector and branches of foreign banks, there is no corporate tax rate anywhere in the UAE.

Record Keeping

Required but need not be submitted. Audits are optional.

Public Records

Varies but generally very secretive.

Banking

Banking in RAK is not different from banking in the UAE. There are no banks licensed just in Ras al-Khaimah. Banks are controlled by the Central Bank of the UAE. However, not all banks are present in multiple emirates. This does not mean they are restricted by license; just by internal policy. Enforcement is in some cases left to local authorities.

UAE has adopted the IBAN standard. This can be of a tremendous advantage to entrepreneurs with business partners in the EU. UAE is not a member of SEPA, though.

Cards are often available in multiple currencies, with USD being the most common aside from AED.

The banks are generally easy-going once an account is opened but the banks are more inquisitive than for example Europeans, Americans, and Canadians might be used to from banking at home.

The UAE culture is very personal. It’s important to establish a personal relationship with your contacts at the bank in order to build trust. The same could be said about for example banking in Switzerland, but the difference is that the Swiss banker will be very unlikely to deviate from the policies even after trusting you whereas a banker in the UAE will waive through transactions that perhaps should have been looked at closer.

Account Opening

So just how do you open a bank account in Ras al-Khaimah?

Well, you would begin by expanding your search to banks in the entire United Arab Emirates. For some reason, I come across a lot of people who think that a RAK IC cannot bank in RAK or the UAE. I guess there is some confusion surrounding the restriction on trading in the local economy. Banking does not violate this requirement, although it is wise to be careful about using a RAK IC company to invest in local companies through for example the UAE stock exchange.

A personal visit is required. Yes, sure, there are exceptions but odds are that you don’t qualify. UAE regulators are aware of the volatility and sensitivity of the region. It would be a huge detriment to the kingdom’s finances if it were to become blacklisted by FATF, OECD, US, and the EU for money laundering.

Banking Secrecy

During the Lebanese banking crisis, a lot of capital flowed to UAE, where investors were drawn not just by the financial stability but also the relatively strong banking secrecy. UAE was known as a country that did not give in to international pressure easily.

Today, UAE has signed up for both FATCA and OECD AEOI. Outside of that, secrecy remains strong. The banks are very diligent to satisfy FATCA but OECD AEOI is not taken at all as seriously.

Banks in UAE

As of writing, there are 46 commercial banks in UAE:

• ABN Amro Bank NV
• Abu Dhabi Commercial Bank
• Abu Dhabi Islamic Bank
• Al Ahli Bank of Kuwait
• Al Rafidain Bank
• Al Hilal Bank
• Arab African International Bank
• Arab Bank For Investment And Foreign Trade
• Arab Bank PLC
• Bank Melli Iran
• Bank of Baroda
• Bank of Sharjah
• Bank Saderat Iran
• Blom Bank France SA
• Banque Du Caire
• Calyon Bank
• Al Khaliji France
• BNP Paribas Bank
• HSBC Bank Middle East
• CitiBank NA
• Commercial Bank International
• Commercial Bank of Dubai
• Dubai Islamic Bank
• Dubai Bank PJSC
• El Nilein Bank
• Emirates NBD
• Emirates Islamic Bank
• First Gulf Bank
• Habib Bank Limited
• Habib Bank AG Zurich
• Invest Bank
• Janata Bank
• Lloyds Bank TSB
• Mashreq Bank
• National Bank of Abu Dhabi
• National Bank of Bahrain
• National Bank of Fujairah
• National Bank of Oman
• National Bank of RAK
• National Bank of UAQ
• Noor Islamic Bank PJSC
• Sharjah Islamic Bank
• Standard Chartered Bank
• Union National Bank
• United Arab Bank
• United Bank Limited

There are eight branches of foreign banks:

• Bank of Bahrain & Kuwait
• Barclays Bank
• Doha Bank
• ED & F Investment Products Ltd.
• ICICI Bank
• Korea Exchange Bank
• Standard Bank London Ltd.
• Union Bancaire prive’e (CBI-TDB)
• Westdeutche Landesbank

The UAE Central Bank does a commendable job declaring ownership and making financials on banks it supervises easy to find (for those banks that do publicly share their financials):

• Licensed Banks & Other Financial Institutions’ Ownership
• Links to Banks’ Published Financial Data
• Links to Banks’ Charges in the UAE

Living in Ras al-Khaimah

Life in RAK does not come with the glitz and glamour of Dubai. It’s more relaxed, intimate (stronger sense of community), and has a more varied and accessible outdoors to offer. There is quite a bit of history to see and culture to enjoy in RAK.

It can get very, very hot in UAE. Temperatures well over 40°C (104°F) are common in summer and it rarely dips below 20°C (68°F) at the peak of winter.

RAK, like the rest of UAE, is generally very safe. Foreigners are treated well. While UAE is not as conservative as many other nations in the region, foreigners are expected to follow local customs. Some foreigners find this difficult to comply with, whereas most adapt with ease.

Immigration

By forming a RAK FTZ company, it is possible to very easily obtain a residence permit. Total costs typically end up being a few thousand USD/EUR for an investor/entrepreneur. Pure shareholders need to show investment of 50,000 AED into the business. There is quite a lot of paperwork required.

All in all, the process takes a couple of weeks to complete. It’s not as fast, cheap, and convenient as Panama, but it is truly tax free.

Note that RAK ICs are not included here. The company must be resident and have activities that take place in RAK.

Citizenship

Residents can apply for citizenship after 30 years (7 years for those of certain Arabic descent), provided that they speak Arabic, have a stable income, and have no criminal record.

Taxation

Taxation is on consumption and usage and not income.

This can make Ras al-Khaimah incredibly attractive and essentially tax free.

Final words

UAE is one of the finest jurisdictions in the world and RAK offers some of the lowest barriers to entrance.

RAK has almost anything the international entrepreneur or investor could want: easy-going offshore companies, free-zone companies, and local companies.

Banking in the UAE as a whole is very good, but one should plan a visit to the bank.

Next week, we move on to Dubai.

See also

• OECD Peer Review (also has a list of TIEA and DTA)
• FATF documents
• MENAFATF documents

Because many readers will read the UAE posts individually, much of the content will be the same or very similar.

Dubai is a subnational entity – an emirate – of the United Arab Emirates (or more commonly UAE). Together with Abu Dhabi, it is one of two emirates that have veto powers in the Federal Supreme Council.

The UAE is a federation of hereditary absolute monarchies called emirates, which are led by emirs.

There is an overall government, led by president Sheikh Khalifa (whose full name is Khalifa bin Zayed Al Nahyan), who is also the emir of the emirate Abu Dhabi, where in the capital city of Abu Dhabi is located. The emirs of the other six emirates join the president on the Federal Supreme Council.

The presidency is effectively hereditary.

As an international financial center (offshore jurisdiction), UAE is a complicated one. Taxes are almost unheard of but forming a business is unfortunately not always easy and banking, although of high quality, is difficult to arrange.

Addressing the topic of incorporation and running a business, numerous free-trade zones have been set up and each emirate is sufficiently independent to set up its own laws on incorporation.

Dubai is the name of both the emirate and the city. The city is much more known than the emirate.

And yes, it’s just like in all the pictures and promo videos you might have seen. There is also a lot more to Dubai. The city and emirate expand beyond the hip and cool city center.

Geography and Demography

Map from Wikipedia.

Incorporation and Business

Reputation

UAE is a true zero-tax jurisdiction. Resident and non-resident companies are taxed the same: not at all.

Many jurisdictions simply don’t tax non-resident companies and couple this with an easy regulatory framework to attract non-resident companies; for example Cyprus and Gibraltar. The accounting gymnastics utilized for those structures can look worse than incorporating in a jurisdiction that taxes neither residents nor non-residents. While it may be intuitive to bundle Cayman Islands and Bermuda into this group of jurisdictions, neither of them have big companies operating locally (aside from a barely-staffed office here or there to qualify for tax residence).

UAE does. UAE has some of the world’s busiest ports and a lively commercial sector, spanning everything from financial services to manufacturing.

As a whole, UAE enjoys a strong international reputation. It is known that its FTZ and subnational divisions don’t always live up to international standards but this is more or less tolerated. UAE is a necessary ally in the region to many western (and eastern) governments. It does enough to get by without any major reputational backlashes.

Many compliance officers and risk managers fail to look beyond the country stated in the registered office address of a company, not realizing that there can be a big difference within the UAE.

Incidentally, Dubai is home to one of the most famous and reputable FTZs in the world.

General Information

Based on that most readers of STREBER Weekly, who are looking to form a company, are start-ups or freelancers, forming a company in Dubai is probably not the right choice for you. You are most likely going to find Ras al-Khaimah more interesting. In RAK, you can incorporate what is essentially an IBC but with the reputational advantages of the UAE.

However, if you are curious about setting up an actual office and presence somewhere without paying a dime in tax, keep reading. Dubai might be just what you need.

Because UAE is not a signatory to the 1961 Apostille Treaty, it can be very tedious to open bank account for UAE companies on your own outside of UAE. Unless using a corporate service provider which can place you with overseas banks through their long-standing strong relationship with partner banks, getting documents certified can be a huge time and money sink as it needs to be legalized by an embassy to be valid.

Because of UAE’s peculiar standing and unique conditions, many service providers offer full director services for a relatively modest fee to make companies appear resident in UAE. This can sometimes be successfully deployed to make a UAE company satisfy foreign tax authorities’ tax residency rules and not be deemed a local company. Your mileage may vary. As always, be very careful and seek professional advice.

Free Trade Zones

There are over 20 different FTZs in Dubai. Some of the most popular or known include Dubai Internet City, Dubai International Financial Center, Jebel Ali Free Zone (JAFZA), and Dubai Airport Free Zone.

Incorporating, getting an office, hiring staff, and handling immigration are easy across the FTZs. Since each FTZ is designed for a set of specific purposes, it’s important to pick the right one.

Considering that licenses and premises are required, costs are comparatively low, but too high for those seeking just to form an entity somewhere and operate remotely. As I mentioned earlier, Ras al-Khaimah is likely a better option.

Dubai Internet City (DIC)

I wish I were joking but the Dubai Internet City website is currently down for maintenance.

Located within the jurisdiction of Dubai Creative Clusters Authority (formerly Dubai Technology And Media Free Zone), The DIC is meant for online businesses. Walking around the DIC, you can see many familiar names on post boxes.

It’s easy to get to and from the DIC with the driverless and fully automatic Dubai metro.

Dubai International Financial Center (DIFC)

The DIFC is a free zone dedicated to financial services such as banking, wealth management, and insurance.

Some 1,800 licenses have been issued in the DIFC. This number includes surrendered licenses and dissolved companies. Many are branches of foreign banks and other financial service providers.

Jebel Ali Free Zone (JAFZA)

Jafza was set up in 1985 and is focused on manufacturing, construction, shipping, and warehousing. It has since grown to become the world’s largest free zone in area.

Regulator

Each FTZ has its own regulator which is answerable to the Dubai authorities which in turn are answerable to the Supreme Council.

Taxation

Aside from the oil sector and branches of foreign banks, there is no corporate tax rate anywhere in the UAE.

Record Keeping

Required but need not be submitted. Audits are usually optional.

Public Records

Varies but generally very secretive.

Banking

Banks in Dubai are licensed by the Central Bank but may operate from the Dubai International Financial Center.

UAE has adopted the IBAN standard. This can be of a tremendous advantage to entrepreneurs with business partners in the EU. UAE is not a member of SEPA, though.

Cards are often available in multiple currencies, with USD being the most common aside from AED.

The banks are generally easy-going once an account is opened but the banks are more inquisitive than for example Europeans, Americans, and Canadians might be used to from banking at home.

The UAE culture is very personal. It’s important to establish a personal relationship with your contacts at the bank in order to build trust. The same could be said about for example banking in Switzerland, but the difference is that the Swiss banker will be very unlikely to deviate from the policies even after trusting you whereas a banker in the UAE will waive through transactions that perhaps should have been looked at closer.

Open a Bank Account in Dubai

Opening a bank account is theoretically not different from opening a bank account in UAE. In reality, the banks based in Dubai are usually more easy-going than in for example Abu Dhabi.

A personal visit is practically always required. Exceptions occur but are rare and usually reserved for persons or corporations of substantial wealth. Personal relationships are very important in UAE and the Middle East as a whole; far more so than in for example Europe or the Americas.

Assuming you’re not just open a small savings or investment account, you will get a personal contact at the bank. This person will be the first point of contact for any queries you may have to the bank. This can make banking take longer (for example if your contact is away or unavailable), but it’s how business is done the region.

Paperwork is not different from most other jurisdictions. Non-resident and foreign companies are welcome but anything more alien than a RAK IC may face a lot of questions about why they are banking in UAE. An introducer is effectively required for any such account opening.

Due diligence is taken fairly seriously. It would be a huge detriment to the kingdom’s finances if it were to become blacklisted by FATF, OECD, US, and the EU for money laundering.

Banking Secrecy

During the Lebanese banking crisis, a lot of capital flowed to UAE, where investors were drawn not just by the financial stability but also the relatively strong banking secrecy. UAE was known as a country that did not give in to international pressure easily.

Today, UAE has signed up for both FATCA and OECD AEOI. Outside of that, secrecy remains strong. The banks are very diligent to satisfy FATCA but OECD AEOI is not taken at all as seriously.

Banks in UAE

As of writing, there are 46 commercial banks in UAE:

• ABN Amro Bank NV
• Abu Dhabi Commercial Bank
• Abu Dhabi Islamic Bank
• Al Ahli Bank of Kuwait
• Al Rafidain Bank
• Al Hilal Bank
• Arab African International Bank
• Arab Bank For Investment And Foreign Trade
• Arab Bank PLC
• Bank Melli Iran
• Bank of Baroda
• Bank of Sharjah
• Bank Saderat Iran
• Blom Bank France SA
• Banque Du Caire
• Calyon Bank
• Al Khaliji France
• BNP Paribas Bank
• HSBC Bank Middle East
• CitiBank NA
• Commercial Bank International
• Commercial Bank of Dubai
• Dubai Islamic Bank
• Dubai Bank PJSC
• El Nilein Bank
• Emirates NBD
• Emirates Islamic Bank
• First Gulf Bank
• Habib Bank Limited
• Habib Bank AG Zurich
• Invest Bank
• Janata Bank
• Lloyds Bank TSB
• Mashreq Bank
• National Bank of Abu Dhabi
• National Bank of Bahrain
• National Bank of Fujairah
• National Bank of Oman
• National Bank of RAK
• National Bank of UAQ
• Noor Islamic Bank PJSC
• Sharjah Islamic Bank
• Standard Chartered Bank
• Union National Bank
• United Arab Bank
• United Bank Limited

There are eight branches of foreign banks:

• Bank of Bahrain & Kuwait
• Barclays Bank
• Doha Bank
• ED & F Investment Products Ltd.
• ICICI Bank
• Korea Exchange Bank
• Standard Bank London Ltd.
• Union Bancaire prive’e (CBI-TDB)
• Westdeutche Landesbank

The UAE Central Bank does a commendable job declaring ownership and making financials on banks it supervises easy to find (for those banks that do publicly share their financials):

• Licensed Banks & Other Financial Institutions’ Ownership
• Links to Banks’ Published Financial Data
• Links to Banks’ Charges in the UAE

Living in Dubai

It can get very, very hot in UAE. Temperatures well over 40°C (104°F) are common in summer and it rarely dips below 20°C (68°F) at the peak of winter.

Dubai is a city of stark contrasts.

Most western expats love it but some find it either too shallow or too conservative. Before settling down in Dubai, it is wise to spend a week or two here, preferably in early or late summer when the weather is getting cooler and tourist season peaks.

In the end, few expats last more than five to ten years. But that’s often enough time to build up significant savings and wealth.

Infrastructure in Dubai is top notch and it is generally very safe. There is comparatively little adjusting a non-Arabic expat needs to do to fit into Dubai.

Immigration

While not entirely as easy as Ras al-Khaimah, it is nonetheless fairly trivial to obtain residence permit in Dubai for investors and entrepreneurs which are starting a business.

There are a myriad of ways to accomplish this. All in all, a budget of 20 – 40,000 AED should be expected for all the paperwork.

All in all, the process takes a couple of weeks to complete. It’s not as fast, cheap, and convenient as Panama, but it is truly tax free.

Citizenship

Residents can apply for citizenship after 30 years (7 years for those of certain Arabic descent), provided that they speak Arabic, have a stable income, and have no criminal record.

Taxation

Taxation is on consumption and usage and not income.

This can make Dubai incredibly attractive and totally tax free.

Final words

UAE is one of the finest jurisdictions in the world and Dubai is one of the most exciting places in the region.

While not a suitable option for those seeking something akin to an IBC or typical LLC, Dubai is an excellent jurisdiction for setting up a business with physical premises in a tax free and business-friendly environment.

Banking in the UAE as a whole is very good, but one should plan a visit to the bank.

See also

• Jurisdiction Spotlight: Ras al-Khaimah
• OECD Peer Review (also has a list of TIEA and DTA)
• FATF documents
• MENAFATF documents

Because many readers will read the UAE posts individually, much of the content will be the same or very similar.

Abu Dhabi is a subnational entity – an emirate – of the United Arab Emirates (or more commonly UAE). Together with Dubai, it is one of two emirates that have veto powers in the Federal Supreme Council.

The UAE is a federation of hereditary absolute monarchies called emirates, which are controlled by emirs.

Abu Dhabi is home to the capital of UAE, also called Abu Dhabi. It is the largest, wealthiest, and most populous of the seven emirates, and acts as the seat of the government and home of the presidential family.

There is an overall government, led by president Sheikh Khalifa (whose full name is Khalifa bin Zayed Al Nahyan), who is also the emir of the emirate Abu Dhabi. The emirs of the other six emirates join the president on the Federal Supreme Council.

As an international financial center (offshore jurisdiction), UAE is a complicated one. Taxes are almost unheard of but forming a business is unfortunately not always easy and banking, although of high quality, is difficult to arrange.

Addressing the topic of incorporation and running a business, numerous free-trade zones have been set up and each emirate is sufficiently independent to set up its own laws on incorporation.

Compared to Dubai, Abu Dhabi is more conservative both socially and fiscally. The Abu Dhabi government has saved the Dubai emirate from financial problems on a number of occasions. You won’t find as wild and extravagant luxury as in Dubai, but there is more money in Abu Dhabi.

Geography and Demography

Map from Wikipedia.

Incorporation and Business

Reputation

UAE is a true zero-tax jurisdiction. Resident and non-resident companies are taxed the same: not at all.

Many jurisdictions simply don’t tax non-resident companies and couple this with an easy regulatory framework to attract non-resident companies; for example Cyprus and Gibraltar. The accounting gymnastics utilized for those structures can look worse than incorporating in a jurisdiction that taxes neither residents nor non-residents. While it may be intuitive to bundle Cayman Islands and Bermuda into this group of jurisdictions, neither of them have big companies operating locally (aside from a barely-staffed office here or there to qualify for tax residence).

UAE does. UAE has some of the world’s busiest ports and a lively commercial sector, spanning everything from financial services to manufacturing.

As a whole, UAE enjoys a strong international reputation. It is known that its FTZ and subnational divisions don’t always live up to international standards but this is more or less tolerated. UAE is a necessary ally in the region to many western (and eastern) governments. It does enough to get by without any major reputational backlashes.

Many compliance officers and risk managers fail to look beyond the country stated in the registered office address of a company, not realizing that there can be a big difference within the UAE.

Of all UAE jurisdictions (emirates and FTZs), Abu Dhabi is generally perceived as the most prestigious. While Ras al-Khaimah is mostly unknown or seen as average, Dubai is known for its extravagance and easy-going business dealings – some of them shady – Abu Dhabi has a clean reputation.

General Information

Based on that most readers of STREBER Weekly, who are looking to form a company, are start-ups or freelancers, Abu Dhabi is likely not the right jurisdiction. You are most likely going to find Ras al-Khaimah more interesting. In RAK, you can incorporate what is essentially an IBC but with the reputational advantages of the UAE.

However, if you are curious about setting up an actual office and presence somewhere without paying a dime in tax, it can be worth looking into Abu Dhabi. With costs being higher in Abu Dhabi than Dubai, the latter is usually where most new businesses are formed.

Because UAE is not a signatory to the 1961 Apostille Treaty, it can be very tedious to open bank account for UAE companies on your own outside of UAE. Unless using a corporate service provider which can place you with overseas banks through their long-standing strong relationship with partner banks, getting documents certified can be a huge time and money sink as it needs to be legalized by an embassy to be valid.

Because of UAE’s peculiar standing and unique conditions, many service providers offer full director services for a relatively modest fee to make companies appear resident in UAE. This can sometimes be successfully deployed to make a UAE company satisfy foreign tax authorities’ tax residency rules and not be deemed a local company. Your mileage may vary. As always, be very careful and seek professional advice.

Free Trade Zones

Abu Dhabi is home to numerous Free Trade Zones, the most famous perhaps being Twofour54, whose focus is media and entertainment.

Incorporating, getting an office, hiring staff, and handling immigration are easy across the FTZs. Since each FTZ is designed for a set of specific purposes, it’s important to pick the right one.

Considering that licenses and premises are required, costs are comparatively low, but too high for those seeking just to form an entity somewhere and operate remotely. As I mentioned earlier, Ras al-Khaimah is likely a better option.

Regulator

Each FTZ has its own regulator which is answerable to the Abu Dhabi authorities which in turn are answerable to the Supreme Council.

Taxation

Aside from the oil sector and branches of foreign banks, there is no corporate tax rate anywhere in the UAE.

Record Keeping

Required but need not be submitted. Audits are usually optional.

Public Records

Varies but generally very secretive.

Banking

While Dubai might be the commercial center of UAE, Abu Dhabi is the financial center.

As in RAK and Dubai, banks are licensed on a national level. Many have head quarters in Abu Dhabi or the Dubai International Financial Center.

UAE has adopted the IBAN standard. This can be of a tremendous advantage to entrepreneurs with business partners in the EU. UAE is not a member of SEPA, though.

Cards are often available in multiple currencies, with USD being the most common aside from AED.

The banks are generally easy-going once an account is opened but the banks are more inquisitive than for example Europeans, Americans, and Canadians might be used to from banking at home.

The UAE culture is very personal. It’s important to establish a personal relationship with your contacts at the bank in order to build trust. The same could be said about for example banking in Switzerland, but the difference is that the Swiss banker will be very unlikely to deviate from the policies even after trusting you whereas a banker in the UAE will waive through transactions that perhaps should have been looked at closer.

Open a Bank Account in Abu Dhabi

Opening a bank account is theoretically not different from opening a bank account in UAE. Banks in Dubai can be more easy-going than in Abu Dhabi, even branches of the same banks.

A personal visit is practically always required. Exceptions occur but are rare and usually reserved for persons or corporations of substantial wealth. Personal relationships are very important in UAE and the Middle East as a whole; far more so than in for example Europe or the Americas.

Assuming you’re not just open a small savings or investment account, you will get a personal contact at the bank. This person will be the first point of contact for any queries you may have to the bank. This can make banking take longer (for example if your contact is away or unavailable), but it’s how business is done the region.

Paperwork is not different from most other jurisdictions. Non-resident and foreign companies are welcome but anything more alien than a RAK IC may face a lot of questions about why they are banking in UAE. An introducer is effectively required for any such account opening.

Due diligence is taken fairly seriously. It would be a huge detriment to the kingdom’s finances if it were to become blacklisted by FATF, OECD, US, and the EU for money laundering.

Banking Secrecy

During the Lebanese banking crisis, a lot of capital flowed to UAE, where investors were drawn not just by the financial stability but also the relatively strong banking secrecy. UAE was known as a country that did not give in to international pressure easily.

Today, UAE has signed up for both FATCA and OECD AEOI. Outside of that, secrecy remains strong. The banks are very diligent to satisfy FATCA but OECD AEOI is not taken at all as seriously.

Banks in UAE

As of writing, there are 46 commercial banks in UAE:

• ABN Amro Bank NV
• Abu Dhabi Commercial Bank
• Abu Dhabi Islamic Bank
• Al Ahli Bank of Kuwait
• Al Rafidain Bank
• Al Hilal Bank
• Arab African International Bank
• Arab Bank For Investment And Foreign Trade
• Arab Bank PLC
• Bank Melli Iran
• Bank of Baroda
• Bank of Sharjah
• Bank Saderat Iran
• Blom Bank France SA
• Banque Du Caire
• Calyon Bank
• Al Khaliji France
• BNP Paribas Bank
• HSBC Bank Middle East
• CitiBank NA
• Commercial Bank International
• Commercial Bank of Dubai
• Dubai Islamic Bank
• Dubai Bank PJSC
• El Nilein Bank
• Emirates NBD
• Emirates Islamic Bank
• First Gulf Bank
• Habib Bank Limited
• Habib Bank AG Zurich
• Invest Bank
• Janata Bank
• Lloyds Bank TSB
• Mashreq Bank
• National Bank of Abu Dhabi
• National Bank of Bahrain
• National Bank of Fujairah
• National Bank of Oman
• National Bank of RAK
• National Bank of UAQ
• Noor Islamic Bank PJSC
• Sharjah Islamic Bank
• Standard Chartered Bank
• Union National Bank
• United Arab Bank
• United Bank Limited

There are eight branches of foreign banks:

• Bank of Bahrain & Kuwait
• Barclays Bank
• Doha Bank
• ED & F Investment Products Ltd.
• ICICI Bank
• Korea Exchange Bank
• Standard Bank London Ltd.
• Union Bancaire prive’e (CBI-TDB)
• Westdeutche Landesbank

The UAE Central Bank does a commendable job declaring ownership and making financials on banks it supervises easy to find (for those banks that do publicly share their financials):

• Licensed Banks & Other Financial Institutions’ Ownership
• Links to Banks’ Published Financial Data
• Links to Banks’ Charges in the UAE

Living in Abu Dhabi

It can get very, very hot in UAE. Temperatures well over 40°C (104°F) are common in summer and it rarely dips below 20°C (68°F) at the peak of winter.

Compared to Dubai, Abu Dhabi is more conservative and offers a lot less glitz and glamour. Life in Abu Dhabi is more quiet, akin to Ras al-Khaimah.

Non-GCC expats in Abu Dhabi either last shorter or longer than in Dubai. Most people either get settled in and stick around, or don’t stay particularly long.

Infrastructure in Abu Dhabi is top notch and it is generally very safe.

Immigration

While not entirely as easy as Ras al-Khaimah , it is nonetheless fairly trivial to obtain residence permit in Abu DHabi for investors and entrepreneurs which are starting a business.

There are a myriad of ways to accomplish this. All in all, a budget of tens of thousand of AED should be expected for all the paperwork.

All in all, the process takes a couple of weeks to complete. It’s not as fast, cheap, and convenient as Panama, but it is truly tax free.

Citizenship

Residents can apply for citizenship after 30 years (7 years for those of certain Arabic descent), provided that they speak Arabic, have a stable income, and have no criminal record.

Taxation

Taxation is on consumption and usage and not income.

This can make Abu Dhabi incredibly attractive and totally tax free.

Final words

UAE is one of the finest jurisdictions in the world and Abu Dhabi is the financial center of this kingdom.

While not a suitable option for those seeking something akin to an IBC or typical LLC, Abu Dhabi can be an excellent jurisdiction for setting up a business with physical premises in a tax free and business-friendly environment.

For most readers of this blog, I would imagine that RAK is preferred over Dubai which is preferred over Abu Dhabi for incorporation.

Banking in the UAE as a whole is very good, but one should plan a visit to the bank.

See also

• Jurisdiction Spotlight: Ras al-Khaimah
• Jurisdiction Spotlight: Dubai
• OECD Peer Review (also has a list of TIEA and DTA)
• FATF documents
• MENAFATF documents