How are Offshore Banks Licensed?

• Increasing financial stability risks forecasted for 2023.
• Stable economic growth and zero-tax jurisdictions in Belize are motivating drivers behind the creation of offshore accounts with Caye International Bank.
• Experts, like Luigi Wewege, suggest that the U.S. economy will likely be heading into mild recession during the first half of 2023.

Offshore banking licenses allow the holders to run a bank in one country which provides services to residents in other countries, who then act as the depositors. In other words, the depositors do not live in the country where the bank is situated but can still deposit their money there.

The licenses for offshore banking are supplied by the country within which the bank is established. It is therefore not issued by the country in which the depositors reside. Most of the account holders of an offshore bank will therefore be non-residents of the country.

Why offshore banking?

The process behind creating an offshore bank account is considered somewhat complicated. However, after such a license has been issued, the benefits are quite substantial. Most offshore banks are created within economies that have zero-tax jurisdictions, which means that they are not subject to any forms of direct or indirect taxation. This also leads to increased privacy and confidentiality; your money is your business.

• Tax optimization: Some offshore jurisdictions have lower tax rates than other countries which can make offshore banking an attractive option for individuals or businesses looking to minimize their tax burden. 
• Protection of Assets: Offshore banking can also provide protection for assets from potential lawsuits, creditors, or government seizure. 
•  Increased Privacy and Confidentiality: Many offshore banks are located in jurisdictions with strict privacy laws which can protect the personal and financial information of account holders from being disclosed to third parties.
• Greater international investment opportunities: Offshore banking can provide access to a wider range of international investment opportunities, including those that may be unavailable or heavily restricted in the account holder’s home country. 
• Currency diversification: Offshore banking allows individuals to hold and manage accounts in multiple currencies, which can prove a hedge against currency fluctuations and political instability. 

Obtaining an offshore banking license

The process of obtaining offshore banking licenses differ depending on the country. That said, certain regulations are standard and are typically required by all international regulators.

This simply refers to that which should get done before the application process can commence. Failure to have the correct documentation in place beforehand, could result in the application for a license to be denied. First, a business plan should be created and submitted. This shows the jurisdiction committee that those who plan on starting an offshore banking business are aware of the risks and compliance factors related to it.

Part of the preparation for obtaining an offshore banking license, should include reviewing the capital requirements. Most jurisdictions will require the submission of proof of income, or wealth sources, to demonstrate that they meet the adequate requirements for setting up an offshore bank.

The license fee is also something which should be taken into consideration beforehand. Some jurisdictions require a license fee only at the time of purchase, and others require an annual renewal fee. Those applying for an offshore banking license should also have various documents in place for the application.

At the time of application, those applying should choose the correct banking license. This is determined by the intended activity of the business and the requirements of the customer base. There are two options for banking licenses, Class A and Class B license.

With a Class A license there are practically no restrictions in terms of banking for your corporation. However, for offshore banking Class B licenses are typically issued, which offer banking services to people that are not within the country of operation.

After determining which license is best suited, the registration of the company can commence. Registration will only be considered if all the requirements of the license have been met, capital requirements are met, and any extra local procedures have been followed.

Revoking of licenses

When the license of an offshore bank has been revoked, it means that it no longer has the authorization to conduct banking business. This typically occurs if the bank conducts activities which are not in accordance with the license that was granted, as well as when the bank does not follow the laws and regulations of the jurisdiction.

To Conclude

Obtaining an offshore bank license has certain procedures and regulations which need to be followed and adhered to. These procedures differ depending on the country in which the bank aims to operate. Without the relevant documents, and other necessary information, which is demanded by the jurisdiction, permission will not be granted for the setup of an offshore bank. Lastly, the license of an offshore bank can be revoked due to certain activities. 

This article has been produced in partnership with Luigi Wewege, CEO of Caye International Bank.