It can be very difficult to open an offshore bank account. Whether you’re American, European, or Chinese, times are tough. Most international banks are closing their doors to everyone but those with residency visas. Here’s how to fight through and open an offshore bank account.
Opening an account offshore is VERY different from opening one in the United States. It’s this difference that causes the uninitiated much frustration and stress. If you think you’re going to walk into a bank in Cayman or Panama and open an account on the spot, you are in for a rude awakening.
In this article, I’ll explain how to open different types of offshore bank accounts. Follow these instructions and you can get an account with minimal headache… not stress free, but as efficient as possible.
There are three types of offshore bank accounts:
- Managed investment accounts with $500,000 to $2.5 million minimum balances,
- Basic offshore accounts at small banks in Cook Islands, Belize, and elsewhere, and
- Business accounts at larger commercial banks such as Hong Kong and Panama.
The first requires an advanced structure, most commonly an offshore trust, and the use of an investment manager in the country where you will open the bank account. The most popular structure is an offshore trust set up in the Cook Islands with a Cook Islands trustee and protector. The trustee then hires an investment manager in Switzerland, who in turn opens the offshore bank account.
This offshore trust structure gives the settlor 2 or 3 layers of separation from trust activities, significantly increasing asset protection. Because of the costs of forming and managing these structures, I generally recommend them for offshore accounts with $1.5 to $2.5 million, though it’s possible to open a managed offshore account with $500,000.
Because of the size of the account, and because of the separation between the trustee and investment manager, these offshore bank accounts are relatively easy to open. In most cases, you fill out a few forms and send the package via FedEx to Switzerland. Depending on the country and the bank you select, a personal visit might also be required.
The next option is opening an offshore bank account at a small offshore bank. Most of these banks will allow you to open an account by email or FedEx, as requiring a personal visit would be to burdensome. While they might want to require a visit, no one is going to fly to Belize or the Cook Islands to open a small account.
The way into these banks is with a personal introduction. The firm that forms your offshore LLC or corporation will fill out your account opening forms and submit them to the bank on your behalf.
You will need a certified copy of your company documents, a notarized copy of your passport, a notarized copy of a utility bill that reflects your name and home address, and, in some cases, a bank reference letter. That’s it… the process is quick (about 2 weeks) and relatively simple.
Most of these small offshore banks have minimum account sizes of $5,000 to $20,000. Checks are not available and most transactions are completed by wire transfer. Some offshore banks, but not all, offer debit cards.
Smaller offshore banks are best used to hold your savings and investment accounts. If you’re looking to plant a flag offshore, these are often the best places to start.
These banks will accept business accounts. However, because of the costs of wire transfers, they’re generally not recommended for companies with more than 4 to 7 transactions a month. Of course, if the inbound and outbound transfers are sizable, you might still consider an offshore bank with higher volumes.
I also recommend smaller offshore banks for US retirement accounts. They’re usually experienced in these situations and understand the ownership structure. This is important because an offshore IRA LLC is owned by your retirement account and not you personally… a distinction that confuses many international banks.
Then there are small offshore business accounts… the bane of my existence. If you want to open a business account in a country like Cayman or Panama, get ready for the proctologist. Offshore business bank accounts are extremely difficult to get approved.
The reason for the difficulty is simple – small business accounts have lots of cash flowing through, but little staying at the bank. This exposes the bank to risks of money laundering, tax evasion and becoming embroiled in a dispute with the United States or European Union.
For all of these reasons, the bank’s default answer to a small business account is no. If you can work the system and convince them otherwise, then you might get an account opened. But, expect the process to be long and painful.
In order to prevail, you should have your company documents and references in order. You will also need some proof of prior income and business activities. This is usually 2 years of tax returns and cash flow / profit and loss statements.
I hope you’ve found this article on how to open an offshore bank account to be helpful. For more information, please contact us at email@example.com or call us at (619) 550-2743. We will be happy to set up a structure and assist you through the maze of opening your bank account.