Four Steps to Building an Offshore Bank

Four Steps to Build an Offshore Bank

When building an offshore bank, there are four steps you must work through. Here’s what you need to plan for and understand when building an offshore bank. These are the four steps to taking an international bank from permit to operational.

First, keep in mind that this article is focused on offshore banks. That is, an international bank formed in a low or zero tax country. One that will do business with people and companies outside of its country of licensure.

Second, these four steps to building an offshore bank are general guidelines. Every jurisdiction has a different set of laws and many use different terminology for these categories. For a complete guide to forming an offshore bank, see my 300-page book, Offshore Bank License Guide, 2017 (Amazon Kindle edition)

The top jurisdictions for an offshore bank are Puerto Rico, Caymans, Belize, Dominica, St. Lucia, Panama, and Switzerland. Puerto Rico issues about 25 licenses a year, while Cayman and the rest issue 1 to 2, depending on the year. Belize hasn’t issued a new license in about 7 years. Puerto Rico’s International Financial Entity license is dominating the industry in 2018.

Because of the popularity of cryptocurrency and ICOs, the value of banks in Switzerland and elsewhere have increased dramatically in the last year. For example, I’m aware of an offshore crypto friendly bank with European and US correspondent accounts that are on the market at $100 million in Bitcoin.  

With that said, here are the four steps to building an offshore bank:

  1. Permit to Organize / Incorporate,
  2. Compliance, AML, IT, Employees, Office, etc.,
  3. Correspondent Bank Account, and
  4. Operating License

The first step in building an offshore bank is your permit to incorporate or permit to organize. We also refer to this as your preliminary license. With this permit, the government is basically saying they will allow you to build and open a bank in their country.

In order to obtain a permit to organize, you must submit a very detailed business plan and financials to your government regulator. You must also file information on each officer, director, and the person involved in the business (including police reports, references and personal, financial data). All of this will be used to judge the group’s banking expertise and ability to run a clean and professional international bank.

This first step is often the most urgent for a startup. Once a government gives you the green light, you can go out and raise money, build out the business, and do those things necessary to launch the bank. It’s during this stage that most offshore banks need the most help to navigate the complex application process.

Once you have your permit to organize, you have the government’s permission to incorporate an international bank. It’s after the permit is issued that you will spend money on building out an office, hiring employees, drafting your detailed operating manuals, building a compliance program, and purchasing hardware and software.

Certain jurisdictions have an employment requirement and some do not. For example, Puerto Rico requires a minimum of 5 employees on the island (the largest IFE has 450 employees). Dominica doesn’t have a fixed number, but you should have account opening and compliance based on the island.

In some countries, you’ll need a secure office environment for your servers and client files. The government will come in to check your facilities before issuing a permit to operate. The same goes for computers and software… the government will come in and test these before allowing you to go live.

The third step in forming an offshore bank is negotiating a correspondent account, is the step that most ignore in the beginning. However, securing a correspondent partner is by far the most difficult task after the permit to organize is issued.

You should be prepared to spend some serious money on consultants and lawyers. You probably spen1 $100,000 to $250,000 to get a permit to organize. Most spend $50,000 to $100,000 on lawyers to negotiate a correspondent account.

Plus, you’ll need capital to fund this account. While you can get a permit to organize in Dominica with $1 million in capital, you’ll need much more than this to secure a quality correspondent partner. Most have $3 to $7 million in funds on top of their corporate capital by the time they go in search of a correspondent bank.

And this is why the government first issues a permit to organize. Then you build out your systems, hire your people, and negotiate your correspondent account. If you need to raise money, you can do so after receiving your permit to organize.

  • Note that you generally don’t need to put up any capital until you’re ready to launch and are applying for your permit to operate.

However, you won’t get your permit to operate unless and until you have a correspondent banking partner. You must have a correspondent bank in place before any government will allow you to go live.

Once you have all of your systems, documents, and people in place, and a signed agreement with a correspondent partner, you can request an operating permit from your regulator.

During this process, government regulators will audit your books, test your security, and meet with your people. They’ll check everything to ensure you’re running a quality bank. One that won’t bring trouble or risk to the island.

Because most of the work with the government was done during the permit to organize stage, the permit to operate should be easy. If you’ve spent money and hired the right people, then this will be a standard audit…. A mechanical process. Regulators will come in and be impressed with your professionalism.

If you’re trying to start an offshore bank on a shoestring budget, the permit to operate will be a challenge. If you don’t have a top-notch compliance person on staff, the government will look at you very closely. If you haven’t purchased a well-known core banking platform, tests will be more in depth.

I hope you’ve found this article on the four steps to build an offshore bank to be helpful. For more information, please contact us at or call us at (619) 483-1708. We’ll be happy to assist you throughout the offshore bank licensing and operating process.

mexico banking license

Capital Requirements for a Banking License in Mexico

When applying for a new banking license, you must have a certain amount of capital. This article is on the capital requirements to apply for a banking license in Mexico. Note that this is the amount of cash you need to have to apply for the license. To operate the bank, you must maintain an 8.5% reserve and a 2.5% reserve in Mexico.

The amount of capital required for a banking license varies greatly from country to country. The lowest capital amount for a respected jurisdiction is the US territory of Puerto Rico. An international banking license in Puerto Rico required $550,000 in capital. $250,000 in paid-in capital and $300.000 in a CD held in a local bank.

In the Caribbean, most jurisdictions require $1 million to $5 million in capital. This is one of the reasons Puerto Rico issued 24 licenses last year and Caribbean financial centers issued 1 or 2 depending on the country.

For more information, you can read my 300 page Offshore Bank License Guide on Amazon Kindle.

Without any more adieu, here are the capital requirements for a banking license in Mexico.

A. A required minimum capital of $27.5 million USD for banks that carry out the following activities:

  • Take deposits
  • Take loans
  • Issue debt
  • Issue subordinated debt
  • Make deposits in foreign financial institutions
  • Grant loans and debt purchase transactions
  • Act as guarantor
  • Issue third party letters of credit
  • Carry out transactions involving securities
  • Issue convertible debt
  • Carry out commercial transactions
  • Trade gold, silver and foreign currency
  • Offer security deposit boxes
  • Issue letters of credit
  • Act as trustee
  • Offer escrow accounts
  • Act as agent for bondholders
  • Act as payment agent for security issuers
  • Offer bookkeeping services
  • Act as estate trustee
  • Act as agent in a bankruptcy procedure
  • Offer appraisals
  • Purchase and sale of real estate for the bank´s use
  • Leasing transactions
  • Derivatives transactions
  • Factoring transactions
  • Offer payment mechanisms

B. A required minimum capital of $16.5 million USD for banks that carry out the following activities:

  • Take deposits
  • Take loans
  • Issue debt
  • Issue subordinated debt
  • Make deposits in foreign financial institutions
  • Grant loans and debt purchase transactions
  • Act as guarantor
  • Issue third party letters of credit
  • Carry out commercial transactions
  • Purchase and sale of real estate for the bank´s use
  • Leasing transactions
  • Derivatives transactions

C. A required minimum capital of $11 million USD for banks in the following categories:

I. Banks that carry out transactions only with Institutional Investors (as defined below), Qualified Investors (as defined below) or legal entities:

  • Take deposits
  • Take loans
  • Issue subordinated debt
  • Offer escrow accounts

II. Banks that carry out the following activities:

  • Make deposits in foreign financial institutions
  • Carry out transactions involving securities
  • Issue convertible debt
  • Carry out commercial transactions
  • Trade gold, silver and foreign currency
  • Act as trustee
  • Act as agent for bondholders
  • Act as payment agent for security issuers
  • Offer bookkeeping services
  • Act as estate trustee
  • Act as agent in a bankruptcy procedure
  • Offer appraisals
  • Purchase and sale of real estate for the bank´s use
  • Offer payment mechanisms for the bank´s use

III. Banks that carry out any of the following transactions with authorized payment mechanisms:

1. Transactions involving:

  • Deposits
  • Loans
  • Deposits in foreign financial institutions
  • Grant loans and debt purchase transactions with other financial institutions
  • Transactions involving government or bank bonds
  • Transactions with foreign currency:
  • Commercial transactions
  • Trade gold, silver and foreign currency.

D. A required minimum capital of $27.5 million USD for banks that carry out a mix of the transactions listed above that does not fit in any of the aforementioned categories.


Institutional Investor: Insurance companies, investment funds or pension funds.

Qualified Investor: Any person with annual investments in securities of $458,000 USD or with an annual income of $152,000 USD.


I hope you’ve found this article helpful. For more information on setting up an international bank, please contact me at or call us at (619) 483-1708.

You can also read my 300-page book on the topic on Amazon Kindle. Click here to go to Amazon’s site.

bank license compliance

Puerto Rico Bank License Compliance Requirements

An international bank licensed in Puerto Rico must comply with all US compliance requirements. All Puerto Rico Act 273 banks must keep detailed records of account holders, and comply with all Know Your Customer (KYC) and Anti Money Laundering (AML) rules.

In a recent post on Bloomberg, the author implies that non-US persons can open accounts at Puerto Rican International Financial Entities (IFEs) anonymously through the use of an offshore corporation. This is completely false.

All US KYC and AML rules apply in Puerto Rico. All Puerto Rican IFEs follow the standards prescribed by the FDIC (even though none are insured by the FDIC). For more information on FDIC requirements, see: Bank Secrecy Act and Anti-Money Laundering

During the licensing and launch of these international banks licensed in Puerto under Act 273, great attention is paid by government regulators (OCIF) to the KYC and AML procedures of the IFE. There is no way a bank that doesn’t follow standard procedures will be issued a license. It will be a cold day in hell before an IFE is allowed to operate without collecting information on its account holders.

More importantly, OCIF audits these entities regularly to ensure full compliance. Running an IFE from Puerto Rico is very similar to running a bank in California. The major difference is that an IFE pays only 4% in tax vs. nearly 50% in California (Federal and State).

Even with proper KYC and AML compliance, an account in Puerto Rico (or in the United States) offers non-US persons significant asset protection and privacy. Because IFEs in Puerto Rico are specifically designed to offer services to international clients, opening a account at an IFE is good option compared to the larger banks in the US who can’t be bothered with all the reporting required on these accounts. Most US banks don’t have the necessary processes and procedures in place to vet foreign accounts. On the other hand, IFE’s have spent millions on IT to be able to efficiently vet international customers.

One reason for this popularity is that the United States, and Puerto Rico by extension, has not signed on to the Common Reporting Standard global tax compliance program. The Common Reporting Standard (CRS) provides for the automatic exchange of tax and financial information between 100 countries.

The intent of CRS is to force “tax havens” such as British Virgin Islands, Cayman Islands, and Panama (2018) to report all accounts to member states. That is to say, CRS was put in place to force reporting and compliance of cross border transactions between low tax and high tax jurisdictions.

Because the United States has not signed on to CRS, accounts in the US territory of Puerto Rico will not be automatically reported. Considering that the United States started the compliance push with FATCA, some consider its failure to sign onto CRS a bit hypocritical, but we’re apparently to busy making America great again to give a damn what Europe thinks.

Thus, non-US persons have increased privacy and protection in Puerto Rico compared to other offshore jurisdictions. But this is a very long way from IFEs allowing old school anonymous accounts. It’s a fact that no international bank in Puerto Rico will permit anyone to open an account using an offshore corporation without disclosing the ultimate beneficial owner and thoroughly vetting that person’s source of funds.

Yes, non-US persons should open their IFE account under an offshore corporation. The reason for this is that the foreign entity gives you asset protection and privacy. This is NOT done to hide your identity from the bank… it’s so that only you and your banker know who owns the structure. It’s to protect your privacy while, at the same time, allowing the IFE to be fully compliant with US AML and KYC requirements.

I should also point out that IFEs in Puerto Rico must comply with all IRS reporting requirements. Because IFEs don’t usually accept US persons, few have any interaction with the Service. If your IFE does open accounts for US persons, it will have US reporting requirements.

Again, the CRS loophole in Puerto Rico is not the doing of the government of Puerto Rico. It’s the result of US policy that flows down to the territories which have to accept what’s mandated from the mainland. International banks structured in Puerto Rico must comply with all US BSA, KYC, and AML policies. If the US is not a party to a treaty (such as OECD’s CRS), then that treaty doesn’t apply to banks in its territories.

I hope this article on Puerto Rico banking license compliance requirements helps. For more, see: International Financial Entities Licenses in Puerto Rico. For the basics of setting up an IFE as an offshore bank, see: Lowest Cost Offshore Bank License is Puerto Rico.

If you’re considering forming an offshore bank, see: The 8 Components of an Offshore Bank License and take a read through Top 5 Offshore Bank License Jurisdictions for 2017.

We’ll be happy to assist you negotiate a banking license in Puerto Rico. We are the only firm providing a turnkey package and can assist you throughout the process. Please contact us at or call us at (619) 483-1708 for more information.

Puerto Rico tax incentives

A Detailed Analysis of Puerto Rico’s Tax Incentive Programs

Below is an updated review of Puerto Rico’s tax incentives for 2017. Major changes were made to Act 20 and Act 22 on July 11, 2017 (the most popular of Puerto Rico’s tax incentives). In addition, some of the tax incentives have been added and others have been amended. Below is a complete list of the tax holidays available in Puerto Rico as of August 2017.

A new business friendly government has been elected in Puerto Rico and they’re making you a tax deal you can’t refuse. Move a business to the island and pay only 4% in tax, move yourself to Puerto Rico and pay zero in capital gains, set up a bank or hedge fund and pay only 4% tax, etc. The list of tax incentives in Puerto Rico has become very impressive.

And only Puerto Rico can offer you these tax incentives. We US citizens are taxed on our worldwide income. The ONLY exception to this is residents of the US territory of Puerto Rico.

Residents of Puerto Rico don’t pay US taxes on Puerto Rico sourced income. They pay only Puerto Rico tax on local profits and capital gains (including stock gains in publicly traded companies). See US Tax Code Section 933.

This means that Puerto Rico is free to set whatever tax rates it wants. In years past, the government would charge residents about the same as the US IRS, so there was no benefit to relocating.

Today, Puerto Rico has many tax incentives for business and high net worth individuals. The government is very motivated to attract quality businesses to the island and has pulled out all the stops with these updated tax incentives. For more, see How to benefit from Puerto Rico’s bankruptcy.

Puerto Rico’s tax incentives have turned this territory into a tax haven on steroids. Whether you’re a high net worth individual, a one man shop, or a multinational, there’s a tax incentive for you.

Few places in the world offer a better return on investment than Puerto Rico. With a growing variety of services and emerging industries, the island’s success will be directly attributable to the incentives available. To diversify the economy, the local government has developed an aggressive economic stimulus package in the form of tax incentives to help make operations on the island more profitable for companies settling here.

Ranging from exporting services, practicing medicine, tourism, and manufacturing, there are a variety of tax incentives available in Puerto Rico. Below is an updated list of tax incentives the territory has to offer:

A List of Puerto Rico’s Tax Incentives for 2017

Act 20 Known as the law to promote the export of services, Act 20 offers attractive tax incentives for companies at fixed rate of 4% and minimal requirements that establish and expand the export services industry on the island. The tax incentive is guaranteed for 20 years. See below for more information.
Act 22 Law to Encourage the Relocation of Individual Investors to Puerto Rico seeks to attract new residents to the Island. It offers a total tax exemption on passive income generated or accumulated once the individual is a bona fide resident of Puerto Rico. Tax exemption on capital gains and much more.
Act 73 Known as the Puerto Rico Economic Incentives for Development Act, was established to provide an efficient environment and opportunities for the development of local industry, to offer an attractive contributory proposal, to attract foreign direct investment and to promote the economic and social development of Puerto Rico.
Act 273 Regulates the organization and operation of international financial institutions authorized by the Office of the Commissioner of Financial Institutions to operate in Puerto Rico, and grants tax exemption decrees, among other benefits. The export of services is an economic activity that has been identified as one of the key pieces for the economic development of Puerto Rico and financial services employ the largest number of people per business under the tax incentives. The IFE tax incentive is generally used by international banks, investment funds, hedge funds and family offices.
Act 399 International insurers and reinsurers act allows entities to organize a captive insurance in Puerto Rico. International insurers may incorporate a holding company for the interest in another company. Tax exemptions for insurers that qualify for an international insurer license are 100% exempt on all income (including liquidation and dissolution of its operations in PR) derived by the international insurer or international insurer holding company. Also, 100% tax exemption on municipal license tax, property tax, dividends, and distributions to its shareholders. Moreover, interest, dividends or distributions paid to foreign entities or non-residents, not engaged in business in Puerto Rico are tax free. Captive insurance in Puerto Rico facilitates business through alternative risk management strategies and as a vehicle to enter Latin America and US markets. Integrated insurance plans and segregated assets plans serving high net worth individual markets are the focus of most companies using this tax incentive.
Act 185 Private Equity Funds not only represent a proven alternative to investment, but also constitute a financing and economic propulsion tool that facilitates the pooling of private capital in order to finance the expansion of companies, restructure businesses at risk and to promote pioneering businesses in full development. In addition, by promoting this investment vehicle used by investors around the world, it promotes the creation of jobs for professionals in the field of securities and financial business in Puerto Rico, as well as the development of the securities industry on our Island. Private equity funds generally pay a 4% tax rate on gains.
Act 135 The Young Entrepreneurs Act was established for hard working young adults within the ages of 16 to 35. The subsections of this Act grants tax exemption for individuals (from ages 16 to 26 making under $40,000) and new business (from ages 16 to 35 until $500,000).
Act 74 The Act for Tourism Development, offered through the Puerto Rico Tourism Company, provides incentives for the development of world-class tourist industry. The benefits granted under this law will be valid for 10 years from the time that the eligibility of the tourism project is established and if they are eligible they can be extended to apply to the operational phase for an additional 10 years. Act 74 is most commonly used by large  hotel projects, but a variety of projects can qualify.
Act 14 The law for the retention and return of medical professionals hopes to keep and return some doctors to the island by offering them a tax deal. In order to establish a rate of contribution on income and dividends accrued in medical practice to doctors residing in Puerto Rico the law hopes to halt the mass exodus of the Puerto Rican medical class and encourage the return or transfer of medical professionals to Puerto Rico, especially medical specialists. As of July 11, 2017, Act 14 can be combined with the telemedicine components of the Act 20 tax incentive program.
Act  83 Establishes standards to promote renewable energy, in accordance with short, medium and long-term compulsory targets, known as the Renewable Energy Portfolio

These are benefits of the Puerto Rico Tax Incentives in 2017:

Act 20 Export Services from Puerto Rico attempts to create a “World Class International Service Center” in the Commonwealth of Puerto Rico. The Act 20 tax incentive is for businesses providing a service from Puerto Rico to companies or person’s outside of Puerto Rico. Just about any portable, online, or service business can qualify.

Remember that residents don’t pay US federal taxes on Puerto Rico sourced income (Section 933). Under the umbrella of the Act 20 tax incentive, the entity in Puerto Rico will pay 4% corporate tax for eligible export services and receive a 100% exemption on dividends for PR bona fide resident shareholders. That means the corporation will pay 4% on net profits and can distribute those profits to a residents of Puerto Rico tax free. You can exchange your US rate of 40% for a PR rate of 4% overnight.

In general, businesses providing eligible services in the categories of corporate headquarters, call centers, internet marketing, online businesses, and just about any portable business will pay 4% in corporate tax and enjoy 100% exemption from property taxes during the first five years of operations. After the 5 years period, a 90% exemption will apply to property taxes and the 4% rate is good for 20 years. The Act 20 decree is granted for a 20-year term, renewable for 10 additional years, provided certain conditions are satisfied. That is to say, the 4% Act 20 tax incentive is guaranteed for 20 years.

To obtain an Act 20 decree, the business must meet minimal requirements. For example, the entity should be a new entity incorporated and the owners must pass a background check (can’t have a criminal record). Local businesses may apply for the Act 20 tax incentive program.

As of July 11, 2017, there is no minimum number of employees of an Act 20 tax incentive. As you read articles on the web, note that the number of employees was 3 in 2012. It increased to 5 in December of 2015 and is now zero. For more information, see: Puerto Rico Eliminates 5 Employee Requirement.

There are a few exceptions to this rule. If the Act 20 tax incentive company offers a substantial amount of employment outside of Puerto Rico, the Secretary of DDEC may mandate reasonable ratios of local to non resident employees. For example, you have 100 employees in the Philippines and 2 in Puerto Rico. The government is likely to require you increase your PR workforce.

Also, the Act 20 tax incentive business must provide eligible export services specified under the regulations. You will find a list of those services below. Also, an Act 20 company is prohibited from offering services to locals.

That is to say, an Act 20 tax incentive company must be providing a service from Puerto Rico to companies or persons outside of Puerto Rico.

Only Puerto Rico sourced income qualifies for this 4% tax incentive. Puerto Rico sourced income is usually income generated by work done in Puerto Rico.

Likewise, income earned from work done in the United States is always US source income and taxable in the US. US source income is never Puerto Rico source income and doesn’t qualify for the tax incentive. For more, see: What is Puerto Rico Sourced Income for an Act 20 Business.

Eligible Activities For Act 20 Tax Incentive in Puerto Rico

  • Research and development;
  • Advertising and public relations;
  • Consulting services, including, but not limited to, economic, scientific, environmental, technological, managerial, marketing, human resources, computer and auditing consulting services; Advisement on matters of any industry or business;
  • Creative industries defined as any business with the potential to create jobs and income, principally on exportation of good and services in the following sectors: Design (graphic, industrial, fashion, interior) Art (music,visual art, performing arts, publications)
  • Media (app development, video games, online media, digital content and multimedia)
  • Creative Services (architecture and creative education);
  • Production of blueprints, architectural and engineering services, and project management;
  • Professional services such as legal, tax and accounting services;
  • Centralized management services, including, but not limited to, strategic direction, planning, distribution, logistics and budgetary services carried out by the headquarters or similar regional offices of an entity engaged in rendering such services;
  • Centers for electronic data processing;
  • Development of computer software;
  • Voice and data tele-communications between persons located outside of Puerto Rico;
  • Call centers;
  • Shared services centers, including, but not limited to, accounting, finance, tax, auditing, marketing, engineering, quality control, human resources, communications, electronic data processing, and other centralized management services;
  • Storage and distribution centers of businesses dedicated to transportation of products and articles pertaining to third parties, also known as hubs;
  • Educational and training services;
  • Hospital and laboratory services;
  • Investment banking and other financial services, including but not limited to, asset management, management of investment alternatives, management of activities related to private capital investment, management of hedge funds and high risk funds, management of pools of capital, management of trusts that serve to turn different types of assets into stocks, and management of escrow accounts;

New Eligible Activities for the Act 20 Tax Incentive as of July 2017

  • Hospital services and laboratories including medical tourism and telemedicine facilities.
  • Companies dedicated to international trading (known as trading companies) – Trading companies will mean any entity that produces no less than 80% of gross income from the following:
    • Sales to any persons or entities that are outside of Puerto Rico, for use, consumption or disposition outside of Puerto Rico, of products which have been manufactured inside or outside of Puerto Rico and have been bought by the eligible business for resale;
    • From commissions derived from sales of goods for consumption and use outside of Puerto Rico will be considered industrial development income. The property used for this income is not used for other activities not authorized under tax decree; and
    • Other eligible exportation services as described under this law.

Puerto Rico’s Act 22 Tax Incentive

The Act 22 tax incentive, also known as the Act to Promote the Relocation of Investors to Puerto Rico, provides a total exemption from tax on Puerto Rico sourced capital gains, interest, and dividends realized once the individual is declared a bone fide resident. Once the investor becomes a bona fide resident, Puerto Rico’s Act 22 tax incentive will also grant them a 100% tax exemption with respect to gains from the sale of Puerto Rico property acquired if the sale takes place before 1/1/2036 and after their bonafide residence status. In addition, 90%-100% exemption on short and long-term capital gains, and 100% exemption on passive income, and 100% exemption on federal taxes on Puerto Rico source income for bona fide residents.

Act 22 decree holders may also qualify for Act 20 and various other tax holidays.

If you’re already a resident of Puerto Rico, you can’t use the Act 22 tax incentive. To obtain decree, you must not have been a resident of Puerto Rico at any time during the 6-year period prior the effective date of the Individual Investors Act (Jan 11, 2012). (Amended to 6 years before 2012 – it was previously 15 years.)

A Puerto Rico bona fide resident is an individual who is domiciled in Puerto Rico. Physical presence in Puerto Rico for a period of 183 days during the taxable year will create a presumption of residency for tax purposes. Other requirements are the individual cannot have a tax home outside of Puerto Rico and can’t maintain closer connections to United States or any other foreign country than to Puerto Rico.

Also, you must purchase a residence in Puerto Rico within 2 years of applying for Act 22. I suggest you do this ASAP because you must prove to the IRS that Puerto Rico is your home and you’re not there on a temporary basis. Buying a home within 2 years is required under the law and buying a home as soon as possible will help you if you’re selected for audit in the United States.

Basically, Puerto Rico should be your home for the foreseeable future. The territory should be where you call home, where you return to when you travel, and where most of your business interests are located. On a similar note, you should break as many ties to the United States as possible and focus your life in Puerto Rico.

Annual reports with the Office of Industrial Tax Exemption including evidence of compliance of conditions and requirements of the grant for taxable year immediately before the filing date of report.

Government Fees

$5,000 fee is due upon the approval of decree under Act 22 in addition to fees due with filing of Grant application. These fees do not include legal and other fees associated with negotiating the decree.

New July 2017 amendment requires you to donate at least $5,000 per year to an official charity in Puerto Rico each year. See: Changes to Puerto Rico’s Act 20 and Act 22

To qualify for the full Act 22 incentives, individual must become a bona fide resident of Puerto Rico.

Again, applicants must acquire a residential property in the first 2 years since the date of the notification of residency. (2015 amendment). The presentation of the Deed of Purchase & Sale is mandatory.

The focus of the Act 22 tax incentive is to eliminate capital gains on assets acquired after you move to the island. It’s also possible to allocate gains on assets acquired before you move to Puerto Rico between the United States and Puerto Rico.

Puerto Rico Tax Incentive Allocations

Tax exemptions on capital gains for Act 22 has a 10 year rule.

  • If the gain is Puerto Rico sourced income, the 10 year rule doesn’t apply and you pay zero tax. This usually applies to gains on stocks purchased after you move to Puerto Rico.
  • For Non-PR sourced income, which is usually assets purchased prior to becoming a Puerto Rico bona fide resident, you pay 10% in capital gains to Puerto Rico if you sell before before 10 years of residency and 5% to Puerto Rico if you sell after 10 years residency but before 1/1/2036.
  • A US investor with a US source gain, that sells before the 10 year term, pays US capital gains tax on the sale. After the 10 year term, you pay no federal income taxes.

Let’s say you buy Microsoft stock in 2010. When you move to Puerto Rico in October of 2017 you have an accrued gain of $200 per share. You live in Puerto Rico for 5 more years and accrue another $100 in gains. So, your total appreciation in the stock from 2010 to 2022 is $300 per share.

You sell the stock in 2022 and allocate the $300 gain between the United States and Puerto Rico. $200 of the gain is taxable at standard US capital gains rates, or 20% (assuming Trump does away with the Obamacare tax).

You also pay 10% on the $100 Puerto Rico sourced gain – the gain that accrued while you were a resident of Puerto Rico.

Had you held the stock for 10 years in Puerto Rico, or until October of 2027, you would have paid only 5% in capital gains tax on the $300 gain. You would not have paid any tax to the United States.

It’s important to note that Puerto Rico’s tax incentive for investors applies to Puerto Rico sourced gains and not US sourced gains. So, real estate in the United States, and rental properties in the United States do not qualify for Act 22. These are always US sourced gains and taxable by Uncle Sam. The same applies to partnership income (K-1s), interest income from banks in the United States, and any other US source income.

Remember that only Puerto Rico can offer these tax incentives on capital gains. When a US citizen moves to a foreign country, they must pay US tax on their passive income. Only Puerto Rico is exempted from US tax on capital gains.

So, in the stock example above, if you were living in France or Panama, you would pay US capital gains tax on your stock sale. Regardless of whether you sold those Microsoft shares in 2022 or 2027, you would pay US long term capital gains on the transaction.

Puerto Rico’s Act 273 Tax Incentive

Act 273-2012 was approved with the intention of ​​expanding International Financial Centers into Puerto Rico and significantly increasing the promotion and knowledge of the Island throughout the world’s financial circles. The result has been to turn Puerto Rico into a major international banking center.

Most who secure an Act 273 tax decree and license use it to build an international or offshore bank. A full service international bank that provides services to people and companies outside of Puerto Rico. Act 273 tax incentive for financial entities may offer services in the United States. Activities for the IFE must comport by AML and KYC regulations, BSA, FDIC “Standards” (does not need to be FDIC regulated) under the government of Puerto Rico.  

What makes Act 273 unique is that the charter can be used to build any type of financial services entity you require. It’s not just a simple banking charter as is available from other jurisdictions. With Puerto Rico’s tax incentive program you select from a menu of services you wish to offer. Depending on the services you select, you can setup either a bank, fund manager, investment advisory firm, family office, etc.

And Puerto Rico’s Act 273 has been an amazing success. While other tax havens are adding 1 or 2 banks a year, Puerto Rico issued 15 licenses in 2016 and looks to approve 20 IFE’s in 2017. Puerto Rico is already the largest offshore banking jurisdiction in the Caribbean after the Cayman Islands… and Cayman has a 20 year head start. It seems that Puerto Rico could pass Cayman in 3 or 4 years. For more, see Top 5 Offshore Bank License Jurisdictions for 2017

To date, International Financial Entities licenses have been issued to operate an international bank, a fund and investment manager, a family office, trading desks for international banks, and “in-house” correspondent bank, brokerages (additional license required), Bitcoin exchange, blockchain based bank, money transmitters / remitters, merchant services, and many other types of financial service entities.

In its most basic form, Puerto Rico’s Act 273 tax incentive is Act 20 for banks. It’s used to incorporate and license offshore banks in the territory, most of which do business with companies and individuals outside of Puerto Rico and outside of the United States. For an introductory article on using this tax incentive from Puerto Rico to operate an offshore bank, see: Lowest Cost Offshore Bank License is Puerto Rico.

In addition to operating as a bank, IFEs, along with the support of the Office of the Commissioner of Financial Institutions, are allowed to the purchase loans in Puerto Rico that are classified or high risks, from any bank that is considered to be a domestic person or any branch of Puerto Rico of a foreign bank. This include the execution of collateral related to said loans and the sale of the property that served as collateral of such loans.

If an investor wanted to come in and buy up properties in Puerto Rico while the bankruptcy is in process, they could do so in a tax advantaged way by forming and IFE under the Act 273 tax incentive.

Requirements For Puerto Rico’s Tax Incentive Under Act 273

  • Non refundable application fee of $5,000.00
  • BSA, KYC, AML compliance program requiredAuthorized capital stock no less than $5 million
  • Paid in capital of at least $250,000
  • Deposit with a local bank as a bond of $300,000
  • Minimum of 4 employees in Puerto Rico
  • Local office and IT infrastructure approved by regulators.
  • Financial Statements for the past 10 years, for shareholders with 10% or more in capital of the proposed IFE

Puerto Rico’s Act 273 tax incentive is guaranteed for 15 years and may be renewed.

Your IFE will pay corporate tax at 4% on its net profits. This tax rate applies to Puerto Rico sourced income. PR sourced income is earnings and profits from work performed in Puerto Rico. Therefore, most IFE’s have a significant number of employees in Puerto Rico. For a detailed article, see: Tax Planning for an International Bank License

List of Services Permitted Under Act 273

  1. Accept deposits from foreign individuals in accounts as well as demand or fixed term deposits and interbank deposits of funds, or otherwise borrow money from international financial institutions and any other foreign person;
  2. Make, procure, place, guarantee, secure , bond or service loans;
  3. Issue, confirm, give notice, negotiate or refinance letters of credit, including transactions for the financing of exports, even if the beneficiary is a domestic person;
  4. Discount, rediscount, deal or otherwise trade in money orders, bills of exchange and similar instruments;
  5. Invest in securities, stocks, notes and bonds of the Government;
  6. Carry out any banking transactions allowed by the Act in the currency of any country, or in gold or silver, and participate in foreign currency trade;
  7. Underwrite, distribute, and otherwise trade in securities, notes, debt instruments, drafts and bills of exchange issued by a foreign person for final purchase outside of the jurisdiction;
  8. Engage in trade financing of import, export, barter and exchange of raw materials and finished products activities with domestic persons;
  9. Engage in any activity of a financial nature outside of the jurisdiction which would be allowed to be done, directly or indirectly, by a bank holding company or by a foreign office or subsidiary of a United States bank under applicable United States law;
  10. Act as fiduciary, executor, administrator, registrar of stocks and bonds, property custodian, assignee, trustee, attorney in fact, agent, or in any other fiduciary capacity;
  11. Acquire and lease personal property at the request of a lessee who is foreign person, pursuant to a financial lease agreement that complies with the Regulations;
  12. Buy or sell securities and provide investment advice in relation to such transactions;
  13. Act as a clearinghouse in relation to financial contracts of instruments of foreign persons;
  14. Organize, manage, and provide management services to international financial institutions, and other types of financial entities located outside of the jurisdiction, such as investment companies and mutual funds;
  15. Engage in such other activities as are expressly authorized by the Regulations or order of the Director/Commissioner, or are incidental to the execution of the services authorized by the Act;
  16. Participate in the granting and/or securing of loans that originate and/or are secured by the stated governmental authorities mentioned in the Act;
  17. Establish branches outside of the jurisdiction, in the continental United States or its possessions, or in other foreign countries. Puerto Rico excludes the acceptance of deposits for these branches;
  18. Establish a service unit or office in the jurisdiction, in which only specific operations related to the services of the international financial institutions shall be conducted;
  19. Provide to other international financial institutions or to foreign persons outside of the jurisdiction, those services of a financial nature, as these are defined and generally accepted in the banking industry of the United States and the jurisdiction, and which are not listed in this section.
  20. Accept  properly collateralized deposits or otherwise borrow duly secured money from the Government Development Bank for Puerto Rico and the Economic Development Bank for Puerto Rico;
  21. Make or place deposits in, and otherwise give money on loan to, the Government Development Bank for Puerto Rico and the Economic Development Bank for Puerto Rico, any international financial institution, or any bank, including banks organized under the laws of Puerto Rico, and branches in Puerto Rico of banks that are foreign persons;
  22. Participate in the granting and/or securing of loans originated and/or secured by any bank considered a domestic person, excluding transactions between any bank considered a domestic person and an affiliate entity;
  23. Acquire classified or bad loans, as well as any personal or real property (tangible and intangible) that serves as collateral for such loans, from any bank considered a domestic person or from any branch of a foreign bank in Puerto Rico. This includes the execution of the collateral related to the aforementioned loans and the sale of property serving as collateral for said loans;
  24. Finance, through loans or financial securities, projects in areas of priority for the Government of Puerto Rico in those cases designated as extraordinary by the Secretary of the Treasurer and the Commissioner;
  25. Engage in rendering the following services: (i) asset management; (ii) alternative investment management; (iii) management of private capital investment activities; (iv) management of hedging funds or high risk funds; (v) pools of capital investment; (vi) administration of trusts that serve to convert different groups of assets into securities; and (vii) escrow accounts administration services; provided, that such services are offered to foreign persons.  

Puerto Rico’s Act 73 Tax Incentive

The industrial incentives program of the Commonwealth of Puerto Rico began in 1947 with the purpose of developing a manufacturing and export economy. The program has been transformed over time adapt to challenges of the economy.

Law No. 73 of 2008, known as the Economic Incentives for Puerto Rico Development Act, is the result of over six decades of experience in industrial development. This statute offers contributory incentives to attract new operations to the Island, as well as retain and stimulate the development of existing ones. The Law grants contributory credits for the creation of jobs and for the investment made by the company in research and development activities. Companies can access other incentives to reduce their operating costs and energy consumption, so that their operations are efficient and profitable.

The offer of tax incentives of the Commonwealth of Puerto Rico is particularly attractive for global high technology companies that require manufacturing processes with high added value. Likewise, they are a very effective instrument to promote innovation, since the Puerto Rico offers companies the most complete protection of their intellectual property rights under US laws.

Tax Incentives Available Under Act 73

  • Maximum income tax of 4%; Can be reduced to 1% and 0% for activities involving the use of pioneering technology
  • Tax credits of up to 50% for the purchase of local and recycled products
  • Tax credits up to $5,000 for job creation
  • Tax credits up to 50% for research and development (R&D)
  • Special deductions for investment in infrastructure, machinery and equipment
  • Tax credits of up to 50% for the investment in machinery and equipment for the production of renewable energy

Puerto Rico wishes to develop a productive business culture based on quality and competitiveness. Also invested in maximizing the yield of high potential land while developing sustainable operations. Monsanto, Pioneer Hi-Bred, BASF, Agrochemical, Bayer-Cropscience, Syngenta Seeds and Rice Tec are among the many companies that have identified Puerto Rico as fertile land for agriculture because of the tropical climate, and water supply. Due to weather conditions in Puerto Rico, 4 to 5 harvests per year can be produced compared to the United States whereas seasonal harvest produce only once a year.

Puerto Rico’s Act 399 Tax Incentive Program for International Insurance Centers

Puerto Rico is the ideal gateway for insurers and reinsurers wishing to enter the insurance market and the financial market because it enjoys direct access to the United States and other international markets.

Legal Background

Law No. 399 of 2004 and Act No. 400 of 2004 of Chapter 61 of the Puerto Rico Insurance Code were adopted in order to establish the basis for the International Insurance Center (IIC).

International Insurance Centers offer a competitive environment for insurers and reinsurers to cover risks outside of Puerto Rico, in accordance with a safe and flexible regulatory system that offers highly attractive tax benefits. Law No. 98 of 2011 provides a long-term contributory framework that will guarantee the treatment of international insurers and reinsurers for an initial term of 15 years, renewable for two additional periods of 15 years.

International insurers have a variety of options for organizing and operating within Act 399. These options include operating as an international insurance holding company, such as an international insurer or a branch of an international insurer and segregated asset regimes.

Tax Incentives Under Law 399

Among the tax incentives granted by the Puerto Rico International Insurers and Reinsurers Act are:

  • Tax exemption on premiums.
  • Tax exemption on dividends and other profit distributions generated by the international insurer and the holding company of the international insurer.
  • Exemption from taxes on municipal franchises, personal income and real property.
  • Exemption in the tax withheld on the payment of dividends and other distribution of profits to third parties, as well as exemption from the filing of tax returns with the Department of Treasury of the Commonwealth of Puerto Rico.
  • Tax exemption on the first $2.2 million of net income, applicable to individual cells within segregated and company-level asset plans. Any excess income will benefit from a tax rate. This amount was increased from $1.2 million to $2.2 million in 2016.
  • Preferential rate of 4%, guaranteed by Puerto Rico’s tax incentive program for 15 years and renewable.

Business Opportunities Under Law 399

The International Insurance Center is a platform to serve as:

  • Alternative risk management strategies as captive insurers or associated captives
  • Insurers or reinsurers access to Latin American or US markets.
  • Special Purpose Vehicles
  • Vehicle for integrated insurance plans
  • Corporate reorganization through holding companies of international insurers
  • Segregated asset plans to serve the market of individuals with high net capital
  • Risk assessment programs

Puerto Rico’s Act 185 Tax Incentive Program

The purpose of the Act 185 tax incentive is to establish the “Private Equity Fund Act” to promote the development of private capital in Puerto Rico. This is done through the formation of investment capital funds aimed at investing in companies that do not have access to public  markets and establish the applicable tax incentive framework.

The purpose of creating a Puerto Rico Private Equity Fund is to encourage the injection of private capital into Puerto Rico in various industries. Private equity funds that invest in securities that do not have access to public capital markets (such as the New York Stock Exchange, NASDAQ or other international markets), have become a key part of the recovery Economic development of the United States.

During the calendar year 2009, investment from private equity funds around the world totaled approximately ninety (90) trillion dollars, of which 36% was invested in the United States, which has particular significance in light of constraints faced by traditional banks in providing financing to private businesses.

Private Equity Funds not only represent a proven alternative to investment, but also constitute a financing and economic propulsion tool that facilitates the pooling of private capital in order to finance the expansion of companies, restructure businesses at risk and / or to promote pioneering businesses in full development.

In addition, by promoting this investment vehicle used by investors around the world, the government hopes to bring quality jobs in securities and financial businesses in Puerto Rico, as well as the development of the securities industry in the Island.

The Act allows for domestic or foreign investments, structured as partnerships and limited liability companies to elect to be treated as a fund under the Act (“Fund”) and to obtain tax benefits to Fund investors, among others, under the Puerto Rico Internal Revenue Code of 2011, as amended, (the “Code”).

Eligibility for Act 185

Any corporation or limited liability company, organized under the laws of the Commonwealth of Puerto Rico, of any State of the United States or of any foreign jurisdiction, engaged in investments in promissory notes, bonds, notes,  with or without collateral and including such collateral, shares, or any other value of a similar nature issued by entities that at the time of purchase, which are not quoted or traded in public securities markets of the United States or foreign countries, will qualify to be treated as a Fund, under the provisions of this Act, during each fiscal year that meets the following requirements:

  • Office located in Puerto Rico;
  • Engaged in business in Puerto Rico;
  • Accredited investors must be among the qualified investors;
  • The advisory board must include at least one resident of Puerto Rico;
  • Registered investment officer EBT-PR with an office in Puerto Rico;
  • Minimum $10 million capital within 2 years of receiving the license to operate;
  • A minimum of eighty percent (80%) of the capital contributed to the Fund by its paid-in capital, (excluding from such capital the money held by the Fund in bank accounts and other investments that are considered equivalent to cash) is invested in promissory notes, bonds, notes (including loans with and without collateral and including such collateral), shares or any other value of a similar nature that, at the time of purchase, are not quoted or traded In the public securities markets of the United States or foreign countries;
  • Up to 20% allowable in short term investments;
  • With 4 year restrict investment in and one business to 20% funds capital;
  • Foreign private equity must derive at least 80% of gross income from PR source;
  • Foreign PEF must within 4 years maintain at least 15% of funds capital invested in private securities; and
  • For PR PEF must within 4 years maintain at least 60% of funds capital invested in either private securities or exempt investment trust.

Certain income of the fund may be exempt from tax. General withholding tax provision are applicable. For investors interest and dividends received from fund are taxed at fixed 10%, and capital gains pay zero tax. Sale of ownership interest has a fixed rate 5% on capital gains unless reinvested. PR resident investors benefit from deductions of capital loss and deductions for initial investment. General partners (advisors, and PEF) to receive income are taxed at fixed 5% and capital gains at 2.5%.

The 185 Act will not affect tax treatment in respect to other tax incentive programs or future incentive programs. Remember that this Act is focused on those who wish to invest in Puerto Rico. Act 273 should be used by those wanting to manage US or international funds.

Puerto Rico’s Tax Incentive Act 135

The Law on Incentives and Financing for Young Entrepreneurs aims to expedite and facilitate the creation of new businesses by young residents of Puerto Rico.

Eligibility for the Young Entrepreneurs Tax Incentive Program

“Young Entrepreneur” means any individual who is a resident of Puerto Rico between the ages of 16 and 35 and who wishes to create and operate a new business in the territory. Also must have obtained a high school diploma or an equivalent certification or college degree.

A written agreement for youth entrepreneurship with CCE (Compañía de Comercio y Exportación de Puerto Rico) before starting commercial operations is required. This Act shall take effect immediately after its approval, and shall be effective for taxable years beginning before January 1st, 2020.

New Business Created by Young Entrepreneurs

  • Business that begins its main commercial operation after signing a Special Agreement for the Creation of Companies.
  • It must be operated exclusively by Young Entrepreneurs, as defined in the Law.
  • It will not be considered as New Business that has been operating through affiliates or is the result of a reorganization.

Puerto Rico Tax Incentives Available

  • Income tax exemption for youth ages 16 to 26 on the first $40,000 of gross income generated by wages, services and / or self-employment;
  • Student loan refinancing which shall not exceed 6%
  • Total tax exemption on income, municipal patent and property tax on new businesses established by young people aged 16-35 over the first $500,000 of gross income generated during the first three (3) years of operation;
  • Program for financing and for Venture Capital Investment with the BDE ( Banco de Desarrollo Economico) for young entrepreneurs;
  • PRIDCO Preferential Property Rentals and Land Authority;
  • Expedited process for the granting of permits and certifications.

To obtain the Act 135 decree applicant must provide:

  • Online application
  • US or PR government issued ID
  • Original birth certificate
  • Recent no debt certificate with Treasury Department of Puerto Rico (Hacienda)
  • Recent certificate of filed tax returns for last 5 years
  • Recent certificate of no debt with CRIM (and financial statement)
  • Recent certificate of compliance with ASSUME (Child support)
  • Any reasonable information asked for by the Commerce and Exportation Company (CCE)

Act 135 is limited to one new business per each applicant. Registration and permits up to date are required. A specific list of other incentive acts can not be availed in combination with Act 135.

Puerto Rico’s Act 74 Tax Incentive Program

The Tourism Development Act desires to transform Puerto Rico into a world class tourist destination by providing tax credits and tax incentives for businesses engaged in eligible activities.

Specifically focused on the development of the hotel industry, the act seeks to move capital onto the island. Act 74 provides 90% of most tax exemptions if the activity is in most areas of Puerto Rico (such as San Juan) and 100% if in Vieques. The tax incentive period is 10 years.

Eligibility for Act 74 Tax Breaks

  • Hotel administration and ownership including timeshares, vacation club programs condo hotels, guest houses, theme parks golf courses, marina, port facilities, agro hospices, agro tourism, medical tourism, nautical tourism among others.
  • Ownership of leases made with an Act 74 decree
  • Development of natural resources such a cavern, forest, natural reserve, and others
  • Purchase of existing hotels

Description of Puerto Rico’s Tax Incentives Under Act 74

The following is a brief description of the tax incentives available under Act 74. In most cases these are being used for the purchase of large hotels. But, Act 74 has many uses in Puerto Rico for the right small and medium sized investor. For a hotel deal, see: Chinese investor buys Marriott casino hotel in San Juan for $184M

  • The 10% of net profits are taxed at the regular rate and zero tax on 90% of the net profits (ie. 39% corporate tax on first 10% = 3.9% of full tax);
  • 100% exemptions on alternative minimum tax and undistributed income (retained earnings);
  • 90% tax exemption on personal property tax (up to 8.83% = .888%) and real property tax (10.83% = 1.083%);
  • 90% tax municipal license tax (up to 5% = .5%);
  • Up to 100% tax exemption on excise tax on imported goods;
  • Up to 100% tax exemption on sales and use tax (11.5% to 0);
  • Up to 100% tax exemption on municipal construction excise tax; and
  • Persons with equity interests in approved activities may receive tax credits of up to 50% of the cash paid for equity or 10% tax credit on total project cost.

Under Act 74, anyone acquiring an equity interest or who contributes land to an entity that develops an exempt tourism business will be entitled to an investment tax credit equal to 50% of the cash paid for equity investment or 10% tax credit on total project cost, whichever is lowest. The tax credit is to be taken in two installments. Half of the credit during the first year of the investment, while the remaining tax credit may be used in the second year. Any unused tax credits may be carried forward. The tax credits may also be assigned, transferred or sold. Puerto Rico has a healthy secondary market for the immediate sale of such credits. Many developers choose to inject such credits into the project, reducing the amount of equity required.

Puerto Rico’s Tax Incentive Act 14

Puerto Rico’s tax incentive Act 14 is titled the Return and Retention of Doctors in Puerto Rico and was established on February 21, 2017. This tax decree is for all qualified doctors with Puerto Rico source income. Puerto Rico sourced income is income from work performed in Puerto Rico.

Qualified Physicians who have a Decree under this Act will be subject, excluding any other contribution on eligible income provided by the Code or any other law, to a fixed rate of income tax of 4% on their eligible income generated by offering professional medical services.

Qualified physicians who have a decree under this Act may make voluntary contributions, after the payment of income taxes, up to twenty-five percent (25%) of the net income in the case of individual retirement plans (Keogh) or up to one Twenty five percent (25%) of their salary in the case of corporate retirement plans.

Eligible dividends shall be exempt from withholding tax on income at source and from payment of income taxes of Puerto Rico, including the alternate minimum tax provided in the Code, up to a limit of two hundred and fifty thousand ($250,000) dollars per taxable year.

As of July 11, 2017, Puerto Rico’s tax incentive Act 14 can be combined with Act 20. This new section allows for telemedicine and other “export services.” Through this combination, a medical doctor in Puerto Rico can receive tax free dividends and a 4% rate on income in excess of Act 14’s $250,000 cap.

Term to Apply for the Decree

All Qualified Physicians will have a term of two (2) years from the date of this law to submit their application to the department. Any request submitted to the Department after that date will not be accepted or evaluated.

Period of Tax Incentive

A Qualified Physician who holds a Decree granted under this Act, shall enjoy the tax holiday for a period of fifteen (15) years provided that during the term standards are met.

Doctor must comply with:

  • One hundred and eighty (180) hours of community service specified in the regulations or
  • By providing medical services as part of a service contract with the Health Plan of the Government of Puerto Rico. The Qualified Physician must provide one hundred and eighty (180) hours of service to health plan patients (typically low income persons). This work will not need to be offered free of charge and may be offered as an employee or independent contractor of the person or entity contracting with the Health Plan of the Government of Puerto Rico.

Puerto Rico’s Tax Incentive Act 83

An exempt business operating in Puerto Rico under the Green Energy Incentives Act by means of a Puerto Rico entity is not subject to any taxes (such as a dividend tax, import tax or other similar taxes) on its income from its eligible activities in Puerto Rico, other than the Puerto Rico fixed income tax rate established in the tax decree, regardless if said income is distributed or retained by the entity.

Upon repatriation, the distributed income will be subject to the tax imposed by the jurisdiction in which the owners of the Puerto Rico entity reside, if any. If the owners are residents of Puerto Rico, these distributions are likely tax free.  If the owners are residents of the United States, these distributions will be taxed as qualified dividends at 20 to 23.5% (depending on what happens with the Obamacare tax).

For the purpose of promoting the generation of green energy markets and the development
of mechanisms to incentivize the establishment, organization, and operation of green energy
production units in Puerto Rico at commercial level, and to stimulate the development of
sustainable energy systems that further energy use savings and efficiency, a special fund
denominated the Green Energy Fund of Puerto Rico was established pursuant to the
short, medium, and long-term objectives of this Act.

Eligibility for Act 83

Under the Green Energy Incentives Act, businesses engaged in the following activities will be considered eligible to apply for a tax decree:

  • Production and sale of renewable energy;
  • Operating renewable energy production units;
  • Businesses involved in the assembly of renewable energy equipment; and
  • Owners of property, real or personal, used by an exempt business in its exempt operations, such as a lessor of real estate used in operations of an exempt business.

Tax Exemptions Under Act 83

  • 4% fixed income tax rate on income derived from the production of energy in Puerto Rico;
  • 12% fixed income tax rate, withheld at source, on royalties paid to foreign entities with respect to intangible property used in the exempt business;
  • 100% tax exemption on dividend distributions;
  • 4% fixed income tax rate on gains derived from the sale of ownership interests or substantially all the assets of the exempt business, in lieu of any other Puerto Rico income tax imposed on such gains;
  • 90% tax exemption from personal property taxes. The taxable portion will be subject to the regular tax rate, that currently can be up to 8.83%; therefore, after considering
    the 90% exemption, the effective tax rate would be up to 0.883%;
  • 90% tax exemption from real property taxes. The taxable portion will be subject to the regular tax rate, that currently can be up to 10.83%; therefore, after considering the 90% exemption, the effective tax rate would be up to 1.083%;
  • 60% tax exemption on municipal license taxes, with the first 3 semesters being 100% exempt. Any taxable portion will be subject to the regular tax rate, that currently can be up to 0.5%; therefore, after considering the 60% exemption, the effective tax rate would be up to 0.02%;
  • 100% tax exemption on municipal construction taxes;
  • 100% tax exemption on excise taxes and sales and use tax on renewable energy equipment; and
  • Accelerated depreciation – 100% first-year bonus depreciation, with ability to carry over to subsequent tax years until exhausted.

Tax Credits

The Green Energy Incentives Act also provides various tax credits, including:

  • 25% tax credit on purchases of products manufactured in Puerto Rico;
  • 35% tax credit on purchases of products manufactured in Puerto Rico made from recycled materials;
  • Tax credit for job creation during the first year of operations that ranges from $1,000 per job created in an industrial area of intermediate development (as determined by the Office of Industrial Tax Exemption) to $2,500 for jobs created in an industrial area of low development. In the case of businesses established in the municipalities of Vieques and Culebra, this tax credit is $5,000 per job;
  • 50% tax credit on eligible research and development activity costs; and
  • 12% tax credit for royalties paid to foreign entities with respect to intangible property used in the exempt business.


Thank you for sticking with me on this article on all of Puerto Rico’s tax incentive programs. The territory of Puerto Rico is making a series of offers that can’t be matched by any foreign jurisdiction… at least for US citizens and US owned businesses.

Only Puerto Rico can offer a zero percent tax on dividends to its residents under Act 20. Only Puerto Rico can offer a zero percent tax rate on capital gains. Only Puerto Rico can offer an offshore bank charter without all the headaches of Federal oversight (not to mention the 4% tax rate). Only Puerto Rico can distribute dividends to its residents under Act 20 tax free.

If you want to reduce your worldwide tax on business income and capital gains, give the tax incentives of Puerto Rico a shot. For more information, please contact me at or call us at (619) 483-1708. We’ll be happy to help you to set up in Puerto Rico.

future of offshore banking

Blockchain and cryptocurrency are the future of offshore banking

As I watch the offshore banking industry fight it’s way back to respectability and profitability, I expect blockchain and cryptocurrencies to play a major role in the comeback. Small offshore banks are down, but far from out. Blockchain and cryptocurrency will bring with them a paradigm shift in costs, allowing offshore banks to compete with their larger counterparts in top tier jurisdictions.

Note that I’m talking about the systems and technologies behind blockchain and cryptocurrencies in this article. About the value of blockchain in the offshore banking industry. So, let me get the volatility issue out of the way up front.

Yes, Ethereum, Bitcoin, and the rest are volatile. Ethereum lost about 50% of it’s value recently, and Bitcoin 25% before making a comeback on a deal to prevent the “fork.” And some believe the Ethereum market is a major bubble because of ICOs.

Such assets don’t fit well onto the balance sheets of certain offshore banks because of the regulatory policies of Central Banks.  

For example, Belize is not the jurisdiction for an offshore bank that holds cryptocurrency. Their basic capital requirement is 20% and goes higher the more volatile the asset. Want to hold $1 of pink sheet stock? You need $1 of cash on your books.

But there are offshore jurisdictions that are working to attract Crypto banks. For example, the US territory of Puerto Rico just issued a license for a Cryptocurrency International Financial Entity (their version of a banking license). Dominica is also active in the issuance of quality offshore banking licenses and makes allowances for cryptocurrency.  

And a number of open-sourced groups have been formed to increase the availability of blockchain technology for offshore banks. For example, the Enterprise Ethereum Alliance became the world’s largest open-source blockchain initiative on July 18, 2017. With members like MasterCard, Cisco and Scotiabank, I have high hopes for this team.

Scotiabank makes EEA interesting as as association offshore banks. Scotia holds a banking license in Puerto Rico, and licenses throughout the Caribbean, but no US license. Scotia is closely tied to Bank of America, and has offices in the United States, but no US charter.

With that said, the value of blockchain and cryptocurrency for offshore banks is in the following three areas:

  1. The ability to transmit FIAT and cryptocurrency via blockchain outside of the high cost legacy systems like SWIFT and Fedwire.
  2. The ability to transact without the oversight and compliance costs of a correspondent bank.
  3. The ability to finance through ICOs and act as a platform for international ICOs for your clients.

Operational Efficiency

I believe that, because of it’s ability to transmit efficiently, blockchain will revolutionize the offshore banking industry. Offshore banks are being crushed by the high costs of compliance and by the outdated systems they’re forced to use.

When a small international bank wants to send a wire, they need to ask their correspondent for permission. Then the correspondent charges a fee, an agent takes a cut (if it’s a nested account), SWIFT charges a fee, and so on. Many banks are forced to charge $100+ to send a wire and net $15 per transfer.

As a result, the only service an offshore bank can offer is wealth management and cash management / retained earnings. You can’t run most business accounts through an offshore bank because the wire fees will eat you alive. Likewise, you can’t easily make payments to vendors or make small transfers in any currency. And, finally, very few clients want to go through the hassle of sending an international wire.

An offshore bank operating over blockchain, or network like Ripple, can send FIAT or crypto ledger to ledger, thereby bypassing high cost wire systems. This will allow them to transmit money across borders at little or no cost.

Once these blockchain systems become available on a wider scale, offshore banks will be able to compete with larger correspondent banks who currently have a monopoly on money transmissions.

I don’t think we’ll need to wait long for blockchain to dominate the offshore banking industry. I have clients setting up in Puerto Rico now under Act 273 that will transfer multiple FIAT currencies over blockchain.

Offshore Bank Compliance Issues and Blockchain

Then there’s the ability to control your compliance costs by reducing or eliminating your exposure to correspondent banking partners. The bane of any offshore bank is correspondent banking. Ask any international banker what they worry about and they’ll say correspondent banking, compliance risks from corresponding partners, and how to keep their correspondent accounts open.

All quality banks will need to deal with AML and KYC. No matter how you transact, you must protect your bank from money launderers and criminals. On the other hand, FATCA and KYC (or even KYCC, Know Your Customer’s Customer), are out of control. The United States and the EU can fine an offshore bank out of existence for an honest mistake and everyone is running scared. Most of these compliance requirements are being pushed upon offshore banks by their correspondent partners.

Reducing the number of transactions processed through your correspondent bank reduces costs, reduces compliance, and allows you to do business on your terms, not those imposed by a global bank.

Someday, you might be able to eliminate the the correspondent parter all together which will change the game. For more, see: How to Setup a Bank for the Marijuana Industry.

Initial Coin Offerings and Offshore Banks

Finally, there’s the ICO market. For many reasons, these offerings are best facilitated by an offshore bank. The bank is best suited to perform the due diligence, secure the transaction, issue the tokens, hedge that token, and providing the FIAT currency against the Crypto that comes in.

ICOs have allowed startups around the world to raise hundreds of millions of dollars by issuing digital tokens.  Over half a billion dollars has been raised through these Initial Coin Offerings in the first 6 months of 2017. Amazing growth considering the ICO didn’t even exist 2 years ago.

And the speed of these ICOs is incredible. Genosis raised $12 million in 10 minutes back in April while Brave took in $35 million in less than 30 seconds. Demand for ICOs is strong and the opportunity for offshore banks is significant.

Running these ICOs through an offshore bank will maximize the privacy of the investors and may reduce SEC and other regulations. Operating outside of the purview of US regulators is sure to unlock capital and allow investors to place their capital more efficiently.

And there are plenty of reasons people prefer to hold their crypto offshore. For example, privacy, asset protection, etc. Also, the US IRS is in the process of auditing most crypto accounts at CoinBase. They can do this because of a John Doe summons issued to the brokerage last year.

While there are ICOs which are open to all US persons, the SEC just issued guidance saying that ICOs are regulated transactions (Reg D, Reg S, accredited investor standards, etc). The government hasn’t prosecuted anyone yet, but we all expect they will… and when that happens, some heads will roll. The SEC issued its first statement on ICOs July 25, 2017. See: Using a blockchain doesn’t exempt you from securities regulations.

It also appears that US brokerages will be subject to the money transmission laws of each state. See: Washington’s New Cryptocurrency Exchange Rules Are Now in Effect.

If an offshore business were to run an ICO through an offshore bank, they should avoid these regulations. Of course, you can’t market the offering in the United States without registering and must follow the KYC and AML rules of your jurisdiction. But, the use of an offshore bank for an offshore ICO is sure to reduce costs and streamline the process.

I’m  also looking forward to the first ICO by an offshore bank. A high tech international bank focused on privacy and blockchain is a perfect candidate for a big dollar ICO. For more, see: How to Raise Money for an International Bank.


I hope you’ve found this article on why I believe blockchain and cryptocurrencies are the future of offshore banking to be helpful. If you’re considering forming an offshore bank, you might also read through Tax Planning for an International Bank License.

For more information on setting up an offshore bank, or for assistance in opening a correspondent account, please contact us at or call us at (619) 483-1708. 

Tax Planning for an International Bank License

Tax Planning for an International Bank License

Tax planning for an international bank license is the most overlooked issue in startup banks. Sure, most offshore jurisdictions don’t tax your profits, but other countries will be looking for their cut if you set up an office or hire employees outside of your licensing jurisdiction. Here’s what you need to know about tax planning for an international bank license.

This article is focused on international bank licensed entities, sometimes referred to as Class B banks. An international bank is usually setup in a low or no tax offshore jurisdiction. As a condition of the license, these banks are prohibited from doing business with locals but can offer all manner of international banking services.

Countries either charge a large annual fee to allow an international bank to operate in the country, or a small tax on your earnings and profits. For example, the Cayman Islands Monetary Authority charges about $87,000 a year, plus other fees, to maintain an international license. Cayman won’t tax your business and makes their money on the annual fees.

  • I don’t consider Panama here because this country doesn’t issue international banking licenses to startup banks. You must have an existing license from a major jurisdiction to get an international license in Panama.

Smaller countries like Belize charge an annual fee of $15,000 and Dominica $10,000. Puerto Rico charges 4% tax on the net profits of the bank and a $5,000 annual fee.

So, the tax rate on income earned by an international bank will be 0% to 4% depending on the jurisdiction you select. That’s all fine and good… so, why does and international bank need “tax planning?” Taxes are very low no matter where you set up.

Here’s the catch: These 0% to 4% tax rates apply to income earned by the bank in its country of licensure.

If you license an international bank in Dominica, all your employees are in Dominica, and all work to generate the earnings of the bank are performed in Dominica, then 100% of the profits of the bank are Dominican sourced income and zero tax will be paid in Dominica.

But, what if you have an international banking license in Dominica, a small office with 2 employees on the island and 30 employees in the UK? The vast majority of the income of the bank will be allocated to the UK and taxed at 19%.

Do you also have a trading desk in Hong Kong? Then some of the profits will need to be allocated to that country and taxable at 16.5%. How about a sales office in the United States? Then income allocatable to that office will be taxed at 35%.

The bottom line is that income is sourced to the country where the work is performed to generate those profits. An international banking license gets you 0% to 4% on income earned in the country where you are licensed. All income earned abroad will be taxed where your employees are located.

Thus, tax planning for an international banking license includes two main components:

  1. Maximizing the value attributable to workers in the country that granted your international banking license, and
  2. Allocating income between your country of license and your foreign offices. This is a form a transfer pricing.

How much tax planning your international bank will need will depend on your business model. If you require 5 employees for a high dollar low volume business, then Dominica and Cayman will be fine. If you need 20 employees to start and plan to grow to over 100, then you should focus on Puerto Rico are a more advanced global tax strategy.

The simplest form of tax planning for an international bank is where all work is performed in your country of licensure. This is difficult in Belize with its population of 350,000 and nearly impossible in n Dominica with only 72,000 residents. While there is an abundance of professionals in Cayman, the costs of living and doing business on this island are very high.

The exception is the US territory of Puerto Rico. With a population of 3.5 million, and lower costs of doing business than any State in the Union, Puerto Rico is the most efficient jurisdiction for an international bank that will require a large number of employees. In fact, Puerto Rico is probably the only choice for a high volume transactional international bank if you want to keep your corporate tax rate below 15%.

There are international banks with over 400 employees in Puerto Rico and startups projecting 180 coming online. Puerto Rico is the only offshore jurisdiction that can support these numbers.

Yes, Puerto Rico is relatively large compared to other offshore banking jurisdictions, but that’s just part of the puzzle. Any US citizen can move to Puerto Rico and begin working… no visa, residency permit, work permit, or other red tape.

This means that an international bank licensed in Puerto Rico can move anyone it likes from the United States to the island. This gives you a virtually unlimited employment pool if you have the cash to entice them to move.

For these reasons, the fastest growing international banking center is Puerto Rico. The Island has 63 international banks operating now and 12 are in process. These banks will launch in 2 to 6 months.

This compares to 6 international banks in Belize, 15 in Dominica and 147 in Cayman (who has a 20 year head start on Puerto Rico). I expect Puerto Rico to surpass Cayman in the next 2 or years.

I hope you’ve found this article on tax planning for an international bank license to be helpful. For more on negotiating a bank license from Dominica, see: How to get an Offshore Bank License in Dominica.

For more on international bank licenses, see:

For more on Puerto Rico see:

For assistance in setting up a new international bank, or to negotiate a new correspondent account, please contact me at or call us at (619) 483-1708.

how to raise money for an international bank

How to Raise Money for an International Bank

Blockchain and cryptocurrencies are the future of offshore banking. Ledger based protocols allow offshore banks to compete with legacy banks by reducing wire transfer and remittance costs. Now, cryptocurrency has become the best way to raise money for an international bank.

Here’s how to raise money for an international bank with zero filing requirements, no Securities and Exchange Commission rules, no quarterly reporting, and no required public disclosures. Here’s how to fund an offshore bank with an ICO (Initial Cryptocurrency Offering).

The problem for an offshore bank in selling shares directly are obvious. Shareholders have zero liquidity.  Their only exit is to hope the bank is acquired or some random person comes along to buy their shares at a premium.

Don’t even think of an IPO in a major market with an international banking license. Even if you could get listed, the regulation would kill your business. That leaves you to pink sheets or small exchanges like Panama or the Eastern Caribbean Securities Exchange… and we’re back to zero liquidity.

Cryptocurrency can solve this problem. Offshore and international banks can now raise money and provide liquidity to their shareholders through cryptocurrency. No matter where you’re licensed, Dominica, Cayman Islands, Cook Islands, Puerto Rico, Gibraltar, Luxembourg, and anywhere inbetween, you can now issue “cryptoshares” which are 100% liquid.

A company called Bancor has developed a protocol that allows anyone to issue their own digital “smart tokens.” These tokens are linked to a cryptocurrency and can be converted at any time by the owner. This provides liquidity and a market price from day one. Click here for a whitepaper by Bancor.

And we’re talking about real money here. Bancor used it’s token protocol to raise nearly $150 million in 3 hours!  

Bancor issued its own tokens and raised about 390,000 Ethers (a crypto-currency that competes with Bitcoin) in its initial coin offering. That’s $147 million spread over 11,000 buyers. According to Bancor’s website, this is the second-largest fundraising campaign in the blockchain industry.

Bancor will hold 20% of its tokens in reserve to ensure liquidity. They’ll convert what they need to dollars to use it as any startup does, for operating costs and to grow the business.  The investor hopes the value of the business, and thus the value of their tokens, will increase.

Of course, the investors are taking a risk that Ethers will go down in value. But, that’s the crypto game. Also, the tokens can be revalued and linked to any crypto or FIAT currency the investor chooses, providing the buyer a hedge or FX option not available in other investments.

Bancor is new and not yet available to the public. There are operating ICO platforms in China and one ready to launch in the United States. However, the US market will require SEC and Reg D compliance. Click here for an article from Wired on the topic.

Here’s why an ICO is the perfect way to capitalize an international bank: In an ICO, investors don’t get equity in the venture, nor do they lend money… they speculate on the future value of the tokens they buy.

So, in theory, the transaction doesn’t need to be reported to the bank’s regulators. No due diligence from the regulator, no background check, and none of the headaches associated with selling equity in an internationally licensed bank.

In order to minimize your disclosure requirements, I would add two caveats:

  1. Have your international banking license, or at least your preliminary offshore banking license / permit to organize, in hand before announcing any intention to issue an ICO.
  2. Form a holding company that owns the cryptoshares of the bank and sell tokens from that entity. This corporation might be registered in a jurisdiction different from where the bank is licensed and modeled after a US bank holding company.

In most  jurisdictions, you’ll receive a preliminary international banking license before you’re allowed to go live. The costs to secure this license are relatively low. Once it’s issued you can go out and raise capital.

For example, you’ll get a permit to organize from Dominica with $1 million in capital and about $100,000 spent on a business plan and legal services. You’ll get a preliminary license from the US territory of Puerto Rico at about the same cost, but don’t need to put up the corporate capital ($550,000) until you’re ready to launch.

The permit to organize is a preliminary license from the government that indicates their willingness to issue a full license once you comply with certain requirements. A permit to organize allows you to incorporate your company, hire employees, lease space, set up your IT, and raise capital using the word “Bank” in your company’s name.

Moving from the permit to the full license is a mechanical process because the government has already approved your people and your business model. Securing the permit before you raise money eliminates much of the risk for the investors.

Because of the liquidity and privacy afforded investors, and the relative ease and reduced costs for the bank, I believe an ICO is the most efficient method for international banks to raise capital.

And cryptocurrency and blockchain are natural extensions of the modern offshore bank. From correspondent banking to the transfer of FIAT currency, blockchain is where it’s at for offshore banks.

See, for example: Correspondent Banking Powered By Machine Learning And Using Blockchain

I hope you’ve found this article on how to raise capital for an offshore bank helpful. For more on setting up an international bank or raising capital, please contact me at or call (619) 483-1708.

Puerto Rico Bankruptcy

How to benefit from Puerto Rico’s bankruptcy

The US territory of Puerto Rico is going through some tough times and will enter bankruptcy in the next few months. Puerto Rico is set to become the largest bankruptcy case in the history of the American public bond market. Here’s how you and your business can benefit from Puerto Rico’s bankruptcy.

Puerto Rico plans to file bankruptcy on $123 billion of debt owed by the government and its public corporations. Most is owed to bondholders and public employee pension systems. The bankruptcy is an attempt to deal with creditors while keeping public services going and will likely mean a 60% haircut for bondholders.

By comparison, Detroit’s bankruptcy was for $18 billion — one-ninth the size of Puerto Rico’s. Puerto Rico has a long way to go to reach the largest bankruptcy in history. Greece owed $220 billion in bailout cash when it defaulted.

Bottom line: Puerto Rico is in financial crisis… there’s blood in the streets… now is the time to make money!

Now is the time to setup a business in Puerto Rico.

Because of these financial woes, Puerto Rico is offering a number of tax holidays to new businesses. If you move a service business to Puerto Rico, and hire 5 employees on the island, you’ll cut your business tax rate to 4% on Puerto Rican sourced income.  

EDITORS NOTE: On July 11, 2017, the government of Puerto Rico did away with the requirement to hire 5 employees to qualify for Act 20. You can now set up an Act 20 company with only 1 employee (you, the business owner). For more information, see: Puerto Rico Eliminates 5 Employee Requirement

Just about any business that can provide a service from Puerto Rico to companies and persons outside of Puerto Rico will qualify for this tax deal. This includes banks, brokerages, investment advisors, internet marketers, call centers, technical support, and most online business.

If your business is portable, and requires at least 5 full time employees, you should consider relocating to Puerto Rico. For more see: Puerto Rico is the Top Offshore Business Jurisdiction for Americans.

EDITORS NOTE: On July 11, 2017, the government of Puerto Rico did away with the requirement to hire 5 employees to qualify for Act 20. You can now set up an Act 20 company with only 1 employee (you, the business owner). For more information, see: Puerto Rico Eliminates 5 Employee Requirement

In addition to online and portable service businesses, the following licenses qualify a 4% tax holiday guaranteed for 20 years:

And here’s the killer: Individuals who spend 183 days a year or more in Puerto Rico, and qualify as residents under Act 22, have a zero percent rate on passive income. Dividends from your Act 20 company are tax free, as are capital gains on assets acquired after moving to Puerto Rico. For more, see: Who is a Resident of Puerto Rico for US Tax Purposes.

Move your business to Puerto Rico and get tax deferral at 4%. Move you and your business to Puerto Rico and get tax free!

Puerto Rico is offering some amazing tax deals to businesses and high net worth individuals. The purpose of these tax deals is to bring employment to the island. The reason these tax deals exist is that Puerto Rico desperately needs jobs.

That is to say, Puerto Rico is making you an offer you can’t refuse because they’re broke… because Puerto Rico is in bankruptcy… because there’s blood in the streets.

And these offers from Puerto Rico come with a number of guarantees and protections. Yes, you’re investing in a distressed territory, but you have the protection of the US government and the guarantee of the Puerto Rican government.

As a territory, Puerto Rico is a hybrid. The island is exempted from US Federal tax law and free to create it’s own tax code. At the same time, most other Federal laws apply, such as employment, FDIC, etc.

Only Puerto Rico can offer these tax deals to US citizens because only Puerto Rico is exempted from the US tax code. Of the territories, only Puerto Rico has built a business friendly tax code.

Banking in Puerto Rico

Federal tax law applies to all US owned business abroad and all American citizens and green card holders living in foreign countries. Only American’s living in Puerto Rico are exempted from US Federal tax. For a comparison of Federal income tax of American’s abroad and Puerto Rico’s tax deal, see: Panama vs. Puerto Rico.

Yes, Puerto Rico is in bankruptcy, but their banks are protected by US law. Puerto Rico won’t go the way of Cyprus because all of their local banks are FDIC insured. There’s no risk of the government seizing the assets of depositors.

  • Local banks that accept deposits from Puerto Rican residents are required to have FDIC. Offshore banks licensed under Act 273 generally don’t apply for FDIC coverage.

And the state of banks in Puerto Rico is irrelevant to you. There’s no requirement to hold your income or retained earnings in Puerto Rico. The only requirement for retained earnings is that they remain inside a Puerto Rican corporation.  

So, form a Puerto Rican company and open a bank account in the United States. You can hold your cash at your favorite US bank with zero risk from Puerto Rico.

That is to say, a Puerto Rican company can open an account anywhere in the US. You can take your company documents into any Wells Fargo, Bank of America, or Citibank and get an account opened in a matter of minutes. While it’s impossible to open a US account for an offshore corporation, a Puerto Rican company is treated just like a structure from Delaware or Nevada by US banks.

20 Year Tax Holiday Guarantee

More importantly for a business seeking stability in Puerto Rico, your 4% tax holiday is guaranteed for 20 years. No matter how the political winds blow, your tax deal can’t be reviewed or revoked by the government of Puerto Rico. Even if the law is amended or repealed, you’re golden.

And only the government is locked in. So long as you have 5 employees in Puerto Rico and comply with the rules, you’re guaranteed a 4% tax rate on your Puerto Rico source income. If you want to walk away, you can shut down at any time without penalty.

As to a change in the law, once your company is set up and your tax deal approved, a change could be a great thing. I often tell clients that they should hope the law is repealed. When that door closes, the acquisition value of their Puerto Rican business will increase significantly.


Puerto Rico is offering you a tax deal you can’t refuse… and a deal that can’t be matched by any foreign country. For more information, please contact me at or call us at (619) 483-1708  for a confidential consultation on moving you and/or your business to Puerto Rico.

offshore bank license

The 8 Components of an Offshore Bank License

When building a new offshore bank, you need the following 8 components: The business plan, the capital, the people (board of directors, management, and employees), the computer systems, the compliance system, the license, a correspondent account, and a tax plan. These are the 8 components to negotiate an offshore bank license and set up a new international bank.

These 8 components are somewhat unique to offshore banking. Because you’re entering a licensed and highly regulated industry, building a new offshore bank requires you develop each of these areas to the satisfaction of your licensing board.

A new offshore bank obviously needs all the same things any startup would, such as a solid business strategy, sales, money, experienced people, etc. This article is on the 8 components an offshore bank required which are different from a standard business.

The Business Plan

An offshore bank requires a very detailed business plan. The business plan is the heart of the license application and should include audited financials from the parent company or accounting and tax records from the beneficial owners.

The plan should also include 3 to 5 years of projections broken down by business unit. These projections should cover use of funds, risk and liquidity ratios, reserves, break-even analysis, etc. across all divisions of the bank.

The bottom line is that the business plan must convince the regulator that the applicant is of fine character, has the requisite experience, has a well thought out and funded plan, and understand the risks and compliance requirements of operating an offshore bank.

Each of the next 7 components of a startup offshore bank must be described in great detail in the business plan. Again, remember that the business plan must convince the regulators, auditors, and licensing board that you and your team are qualified to operate a bank and won’t cause trouble for the jurisdiction.

The Capital

All offshore bank licensed require a minimum amount of capital to comply with the statute. In Dominica, the required capital is $1 million on deposit in the government bank. In Puerto Rico it’s $250,000 of paid in capital plus $300,000 on deposit with the government.

Those two jurisdictions typically issue licenses with the minimum amount of capital under the law. Other countries require much more cash. For example, Belize law allows for a license with $1 million, but experience tells me that you’ll need $3 million to $5 million to get an offshore banking license.

Then there are the larger jurisdictions that negotiate capital on a case by case basis. For example, a subsidiary of a bank from a major jurisdiction can get an offshore license in Panama with around $5 million in capital. If you don’t have a major license already, then you’ll need a Class A license from Panama and about $25 million in capital.

When selecting the best jurisdiction, you should first consider the capital required. This will usually narrow down your search significantly. But, as you can see, knowing the capital requires experience and not just a review of the law as written.

The People

Your business plan should include the resumes of your key personnel and your board of directors. Both of these groups must have extensive experience in banking. Presumably your management and employees will be locals (residents of the country where you get your license).

It’s also important that your board of directors include one or two locals. The licensing authority will look upon your team more favorably if it includes professionals with a solid track record in your country of license. These board members should have experience in banking law and/or compliance.

At a minimum, you’ll want to handle account openings, KYC and AML, correspondent banking, and compliance in the same country that issued your license. Many banks in small jurisdictions put support and trading / investment management in larger countries such as Switzerland or Panama.

Thus, your country of license should be large enough provide a sufficient number of quality employees. While Dominica and St. Vincent might be fine for banks with 4 or 5 employees, there’s no way to build a staff of 200 there.

Puerto Rico is a country of 3 million and any US citizen can move to the island and work legally. No matter the size of the business, you’ll find quality employees on the island… and, if you can’t find them, you can import them.

The largest offshore bank on the island has over 400 employees and the next has about 180.  The banks in Puerto Rico are larger than all of the competitors in the Caribbean combined excluding Cayman. I expect Puerto Rico to surpass Cayman in two years.

Where your staff is located will play a major role in determining the tax costs of your bank. See Tax Considerations below.

The Computer Systems

The foundation of your operation will be the computer system. The IT system for an offshore bank will handle KYC and AML, compliance, background checks, account openings, transfer, document management, etc. All of these modules will be looked at carefully by the government regulators before they allow you to “go live” with the business.

The core system and compliance modules are typically the largest startup cost for a new offshore bank. Most clients spend $100,000 to $1 million on their IT system. The largest quote I’ve seen in 2017 was from Terminos for $3.5 million.

A typical IT implementation will take 3 to 6 months. Once the provisional license is granted, the IT system will be what will delays your launch. Get to work on this while you’re building your business plan and you’ll get to market much quicker.

The Compliance Systems

The compliance system will be built around your IT system. From there, you can build an in-house team or outsource compliance monitoring to a local law firm.

Basically, all the operational risk of an offshore bank comes from a possible failure of your compliance program. If you run afoul of the money laundering rules, know your client requirements, or FATCA / OCEF reporting, you’ll be fined and shut down faster than you can blink. Either your licensing board will get you or your correspondent partner will kick you out of the system.

No matter your jurisdiction, government regulators will watch your compliance program very carefully. Any error will be dealt with swiftly and without a second chance.

The reason regulators monitor compliance so carefully is that a major error by one bank can bring down the entire country’s banking system. For example, back in 2015, Bank of Belize was shut down by US regulators. As a result, all of the banks in Belize lost their correspondent partners because none of these banks wanted anything to do with Belize. The entire system was tainted by one allegation against one offshore bank.

It took months for these banks caught in the crossfire to get new banking partners. To this day, it’s very difficult for a Belize bank to find a correspondent partner. See: Belize Banks Under Attack by US Government.

For these reasons, your business plan must explain your compliance program and procedures in great detail. Also, your employees and board of directors must have significant compliance experience.

Once your preliminary license is granted, building a solid compliance program will be your first priority. All processes and procedures must be in place, and everyone trained in the IT system, before you board even one client.

The License

Regardless of what their law says, very few counties will grant international banking licenses to startup banks. For example, Panama and Cayman will only issue offshore licenses to banks that already have a license from a major jurisdiction.

If you have a license from the US or Germany, you can easily get a license in Cayman Islands. Cayman’s reasoning is that your bank is already highly regulated in your home country, so their regulators don’t need to worry about you too much.

If you have an existing license, you can get an offshore license from Panama with $5 million. If you want to start a new bank in Panama, you can form a Class A bank with $25 million in capital.

The most active jurisdictions for offshore bank licenses are Puerto Rico and Dominica. For a comparison of these two options, see: Best Offshore Bank License Jurisdictions in 2017

Of course, there are others in Europe and less active jurisdictions in the Caribbean. I would avoid African nations and Vanuatu. You’ll never get a correspondent account from those countries.

Once you’ve selected your jurisdiction and prepared your business plan, you can apply for your preliminary license.

Preliminary Offshore Bank License: The preliminary license, sometimes referred to as your “permit to organize,” allows you to incorporate a company using the word “Bank” in the name. It also allows you you to hire employees, buy your IT system, and do all of those things necessary to begin to operate the business.

Once your systems and people are in place, you send notice to the regulator that you’re ready to launch. The government will audit your systems and procedures. If they pass, you’ll receive your offshore bank license or permit to operate.  

Offshore Bank License: The second step in the licensing process is to take the bank live and begin to board on clients. The operational license will require you provide audited statements to the regulator each quarter. Now is the time to hire an outside auditor.

The Correspondent Account

The life blood of an offshore bank is its correspondent account. The correspondent account allows you to hold money and transact through the facilities of a larger bank. Ask any experienced offshore banker what’s the most important component of their business and every one will answer, “the correspondent account, obviously!”

For example, if a bank in Dominica want’s to hold accounts in US dollars, they need a US correspondent banking partner. The US partner has US Fedwire capabilities and is authorized to transact in US dollars.

Likewise, if you want to hold accounts in Swiss Francs, you need a Swiss correspondent bank. An offshore bank will need a separate correspondent account for each currency it wishes to hold.

And its the correspondent account that will require the most capital. While you can negotiate a license from Dominica with $1 million, no USD correspondent will open an account with that small of a deposit. I doubt you can get a correspondent account with less than $5 million… and $12 million is the preferred size.

These accounts are also the bane of the offshore banking industry. Any slip in compliance, or attention from the US government, can mean the loss of your correspondent account. When that happens, your bank is basically out of business and unable to send and receive funds.

The exception to the correspondent account dilemma is a license from Puerto Rico. As a bank licensed in a US territory, a bank in Puerto Rico has an easier time setting up and maintaining a US correspondent partner.

Also, if the bank so desires, it can apply to the Federal Reserve for a primary account. In that case, a Puerto Rico bank would eliminate the need for a USD correspondent account. In fact, such a bank structured in Puerto Rico could offer correspondent services to other offshore banks.

I’m not saying Puerto Rico is always the best solution. If you don’t mind being subject to US anti-money laundering rules, Puerto Rico is great. If you want to do business without US oversight, then Dominica or elsewhere might be better.

I caution you from jumping to conclusions in this regard. Always remember that your US correspondent bank will require you to comply with all US regulations. If you want to be completely free of US compliance costs, you must get a license from a very small offshore jurisdiction and not hold US dollars or transact n US dollars. Only then will you avoid US correspondent banking issues.

Tax Considerations

Most offshore banking jurisdictions won’t tax the your corporate profits. Instead, they charge a large annual license fee. For example, Cayman charges $85,000 per year to maintain an international banking license.

In contrast, Puerto Rico charges a 4% rate on corporate profits and a $5,000 annual fee.

The tax benefits of operating an offshore bank are substantial. But you’ll need a solid tax plan to maximize the value of these tax deals.

Let’s say you set up a bank in Dominica and hire 3 people on the island. Then you open office in the UK and hire 23 people. Obviously, most of the work to generate customers and income is coming from the UK while Dominica is just the licensing jurisdiction with a few people doing menial tasks.

In that case, the UK will want to tax the majority of your income at 21%, leaving only a small fraction tax free in Dominica.

The same goes for Puerto Rico. Let’s say you have 5 employees on the island, which is the minimum allowed under the law. Then you open an office in Florida with 50 employees.

The US government will want to tax the income generated by the Florida workers at 35%, leaving a small bit left over for Puerto Rico to tax at 4%.

Your global tax plan is important during the startup phase because you want to maximize income in the low tax jurisdiction and minimize income in high tax countries.  Thus, when you select your country of licensure, it must be one large enough to provide a sufficient number of quality employees and allow for growth in coming years.

If you all you require is 5 to 10 employees, and don’t plan to grow much past this number, a license from Dominica, St. Vincent, St. Lucia, or elsewhere is fine. If you’ll need 50 employees, you’ll need to look to a larger jurisdiction such as Puerto Rico.

If you do incorporate in Dominica, you might also consider a Panama Financial Services License. This will allow you to hire employees to manage your bank remotely and maintain your tax free status.


I hope you’ve found this article on the 8 components of an offshore bank license to be helpful. For assistance in licensing and building an offshore bank in Dominica, Puerto Rico, or elsewhere, or in negotiating a correspondent account for an existing bank, please contact me at or call us at (619) 483-1708. Our team has over 100 combined years of experience in offshore banking and we’ll be happy to help you structure your bank.

international financial entities in puerto rico

International Financial Entities Licenses in Puerto Rico

An International Financial Entities licensed in Puerto Rico under Act 273 is one of the most powerful international banking and financial services structures available. As the rules continue to tighten around offshore transactions, offshore tax benefits are reduced under President Trump, and the US increases FATCA and other regulations, expect more financial services companies to move to an International Financial Entities license in Puerto Rico.

This International Financial Entities in Puerto Rico can offer all manner of international banking, brokerage, investment management, and financial services from Puerto Rico to clients outside of Puerto Rico. Below I will detail all of the services which may be provided by this structure.

In order to qualify as an IFE in Puerto Rico under Act 273, you must hire 4 employees on the island (I usually advise clients hire 5). Then you set up an office, submit a very detailed business plan to the banking regulator, and negotiate the terms of your license.

Once approved, you will be eligible for a 20 year tax holiday on all income earned by your International Financial Entity in Puerto Rico. You will pay a 4% tax rate on all corporate profits earned by the business.

That is to say, the corporate tax rate on Puerto Rico sourced income in your IFE will be 4%.

You will also get full property and municipal licenses tax exemptions and a 6% income tax rate on distributions to PR residents. Dividends to non-PR residents will be tax free. Likewise, dividends paid to residents of Puerto Rico who qualify under Act 22 are tax free to the IFE and to the receiving party.

An IFE in Puerto Rico must be capitalized with a minimum of $550,000. Of this, $300,000 is placed on deposit with a local bank as a surety. The balance of $250,000 is your minimum corporate capital. Total authorized shares of your International Financial Entities in Puerto Rico must be $5 million (but only $250,000 of this is paid-in).

The largest firms structured under Act 273 as a International Financial Entities in Puerto Rico are international banks. For an article on this topic, see: Lowest Cost Offshore Bank License is Puerto Rico

The IFE license not limited to international banks. Family offices, insurance companies, investment advisors, hedge fund operators, currency traders, and others all operate under Act 273 as an International Financial Entities in Puerto Rico. For this reason, Act 273 is the most powerful financial services license available today.

Here’s a list of the services an Act 273 International Financial Entity licensed in Puerto Rico can offer:

  1. Accept deposits, including demand deposits and interbank deposits (or otherwise borrow from banks outside of PR and other IFEs)
  1. Place deposits with banks outside of PR and other IFEs.
  1. Make, procure, place, guarantee, syndicate, or service loans.
  1. Issue, confirm, give notice, negotiate or refinance letters of credit provided both the client and the beneficiary requesting the letter of credit are not residents of Puerto Rico.
  1. Discount, rediscount, deal or otherwise trade in money orders, bills of exchange, and similar instruments, provided that neither side of the transaction is a resident of Puerto Rico.
  1. Engage in any banking transaction permitted by Act 273 in the currency of any country, or in gold or silver, and participate in foreign currency trades.
  1. Underwrite, distribute, and otherwise trade in securities, notes, debt instruments, drafts and bills of exchange issued by a firm outside of Puerto Rico and purchased by a client of the IFE who is not a PR resident.
  1. Engage in any activity of a financial nature outside of Puerto Rico which would be permissible for a bank licensed in the United States.
  1. If the International Financial Entity licensed in Puerto Rico gets an additional license, it may act as a fiduciary, executor, administrator, registrar of stocks and bonds, property custodian, assignee, trustee, attorney-in-fact, agent, or in any other fiduciary capacity.
  1. Acquire and lease personal property.
  1. Buy and sell securities outside of Puerto Rico.
  1. Provide investment advice to persons outside of Puerto Rico.
  1. Act as a clearinghouse in relation to financial contracts or instruments of persons who are not residents of Puerto Rico.
  1. Organize, manage, and provide management services to international financial entities such as investment companies and mutual funds. This is the section of the law used by hedge funds to manage master / feeder structures set up in Cayman with feeders in the US and Cayman.
  1. Dedicate itself to provide the following Services:
  • Asset management,
  • Management of activities related to the investment of private capital,
  • Management of hedge funds and high-risk funds,
  • Management of pools of capital,
  • Administration of trusts utilized for converting different types of assets into securities (such as REITs),
  • Management of Escrowed  fund for persons who are not residents of Puerto Rico.
  1. Engage in any other activities approved by the Commissioner.
  1. With the Commissioner’s prior approval, establish branches outside of Puerto Rico. This includes the United States and foreign countries.

Section 15 above is commonly used by family offices. The clause “dedicated to” means you may only engage in these activities and will thereby be subject to reduced compliance.

For more on operating an investment fund from Puerto Rico, see: How to operate an investment fund tax free from Puerto Rico

Note that an International Financial Entities in Puerto Rico is prohibited from doing business with persons or businesses in Puerto Rico. Therefore, all of the above are limited to persons outside of Puerto Rico. An Act 273 IFE can do business with Puerto Rico’s Development Bank and its Economic Development Bank.

I hope you’ve found this article on the International Financial Entities of Puerto Rico licensed under Act 273 to be helpful. For more information on setting up an IFE in Puerto Rico, please contact me at or call us at (619) 483-1708.

You might also find my articles Puerto Rico’s Act 20 to be helpful, as well as a comparison between offshore tax planning and Act 20.

For more on Puerto Rico’s Act 273 vs a traditional offshore banking license, see: Top 5 Offshore Bank License Jurisdictions for 2017. For my post on the offshore FinTech, see: Offshore FinTech Bank License.

For more of my articles on the offshore bank licensing and operations, see:

tax planning for payday lenders

International Tax Planning for Payday Lenders

The US tax costs for Payday lenders in the United States is harsh. The interest component of your income is taxed where the borrower is located. This means you get to file returns is every state and deal with a web of complex tax laws.

Then, the portion of your income which is not considered interest, is taxable where you and your business is located. This must be in the United States, so you’re paying 35% corporate tax plus up to 12% in state tax on net profits.

What if I tell you that you can operate in the United States and pay only 4% on the majority of your net profits? That you can get a banking license and operate the business through this entity while still maintaining your 4% corporate tax rate?

That’s exactly what I’m saying. You can setup a fully licensed credit union in US territory Puerto Rico and make loans throughout the United States. Then you structure an Act 20 company in Puerto Rico to service the loans, which is taxed at 4%. The credit union breaks-even or makes a small profit for its members, but the bulk of the income moves to the Act 20 company.

This structure will allow a large payday lender to exchange their 40% US tax rate on corporate profits for a 4% tax rate in Puerto Rico.

Puerto Rico is the ONLY jurisdiction such a tax deal can be had. If you set up offshore, US Federal tax laws apply to your US owned business. Plus, it’s nearly impossible to make loans into the United States from abroad.

Puerto Rico is unique. It’s a US territory, so US Federal laws apply. This means that forming a payday loan company in Puerto Rico is equivalent to forming the company in any US state… with one major exception… taxes.

Section 933 of the US tax code exempts any income earned in Puerto Rico from US taxes. A business operating from Puerto Rico pays only Puerto Rican taxes, not US Federal income taxes.

For this reason, Puerto Rico can offer payday lenders a deal. Setup your company here, negotiate an Act 20 business license, hire at least 5 employees on the island, and your Puerto Rico sourced income will be taxed at 4%.

To clarify: You will still pay US income tax on the interest component. It’s the business component of your corporate profits that are taxable in Puerto Rico at 4%. To qualify for this 4% rate, the work to generate those corporate profits must be done from Puerto Rico.  

Here’s how you might allocate income between interest income / US source income and corporate income / Puerto Rico sourced income taxable at 4%:

Some tax experts take the position that the interest component of payday loans should be about the same as that of a junk bond. That’s a rate of around 6% to 10% per year.

However, payday loans often have an effective cost to the borrower of 200% to 600% per year. The average cost of a payday loan that rolls over a few times is 400%.

Thus it can be argued that US source income taxable where the borrower is located is 10% while the balance, 390% is Puerto Rico sourced income.

In very rough numbers, a payday lender might be able to move 98% of their income out of the Federal tax system and into the more favorable Puerto Rico tax regime. This will reduce your tax rate from 40% to 4% on any Puerto Rico sourced income.

Now for the kicker: if you’re willing to move to Puerto Rico, and qualify under Act 22, you can withdraw the profits of your Act 20 company tax free.

Also, any capital gains earned on personal investments you make after becoming a resident of Puerto Rico are taxed at zero. That’s right, your personal income tax rate on capital gains is 0% as a resident of Puerto Rico.

To be considered a resident of Puerto Rico, you must spend at least 183 days a year on the island and buy a home there. Basically, you must give up your home base in the United States and move your life to Puerto Rico.

I’ll conclude with a quick note on Act 273 banks.

Those who follow my blog know that I’m a big proponent of Puerto Rico’s offshore bank license, referred to as an Act 273 bank license. This is an excellent option for those looking to setup an offshore bank that doesn’t accept US clients or doesn’t make loans.

The reason Act 273 doesn’t fit the payday loan model is because such a bank would require FDIC insurance and all manner of Federal regulations would apply. Any US bank, even a 273 bank in Puerto Rico, that takes deposits, makes loans, and accepts US clients, must apply for FDIC. This is impossible for most payday lending banks.

A credit union in Puerto Rico is not obligated to apply for FDIC. This is why I recommend the credit union combined with an Act 20 management company for a payday lender looking to redomicile their business to a low tax jurisdiction.

I hope you’ve found this post on international tax planning for payday lenders to be helpful. For more information, please contact us at or call us at (619) 483-17083. 

You might also find this article interesting: How to operate an investment fund tax free from Puerto Rico

The above is a very general summation of complex tax issue and the related sourcing rules. Each payday loan company will have a different taxable rate. I strongly recommend you research this matter carefully and secure an opinion letter from a top firm before making any decisions.

offshore bank license

Top 5 Offshore Bank License Jurisdictions for 2017

There have been big time changes in the offshore bank license industry over the last year. If you’re looking to form an international bank, here are the top 5 offshore bank license jurisdictions for 2017.

In this post, I’m talking about countries where you can get a license… countries that will issue a license to a startup bank.  This is not a list of the largest or most respected banking jurisdictions. It’s a list of countries where you will be approved if you have a solid business plan, an experienced board of directors, and the requisite capital.

My list of the top 5 offshore bank license jurisdictions for 2017 is focused on offshore options where you will get a license and a correspondent account from a reputable institution. Sure, you can buy a cheap license from Africa or elsewhere, but good luck using it.

1. Dominica

The best “pure” offshore bank license is from the Caribbean nation of Dominica. The Commonwealth of Dominica is a sovereign island country and part of the Windward islands in the Lesser Antilles archipelago of the Caribbean Sea. It’s current population is about 75,000 and it’s a member of the Eastern Caribbean group of countries and the ECC banking system.

Dominica is a leader in the offshore banking and second passport industries. Many who establish a bank on the island also buy a passport from Dominica. For more on second passports, see A Second Passport from Dominica.

The reason I have Dominica at the top of my list is that this island is actively seeking new candidates, has a reasonably efficient application process, has a relatively low capital requirement, and banks from Dominica are able to find correspondent banking partners.

The capital required to secure a license on Dominica is only $1 million. That’s the lowest of any reputable offshore jurisdiction.

I should point out that, once you have your license, you will probably need more capital to get a correspondent banking account. It will be difficult to find a partner bank to take on a client with only $1 million in cash. The costs and compliance overhead on correspondent accounts make small clients unattractive.

For more on a bank license from Dominica, see: How to get an Offshore Bank License in Dominica.

2. Puerto Rico

Above, I wrote that the best “pure” offshore license is from Dominica. The best hybrid bank license, and possibly the best overall depending on your objectives, is from the U.S. territory of Puerto Rico.

Capital required is only $550,000. Of this, $200,000 should be paid-in capital to your corporation and $350,000 on deposit with the government.

The costs of formation, licensure and operation in Puerto Rico will be a fraction of the other options on this list. For this reason, the lowest cost offshore bank license is Puerto Rico. For example, the annual license fee in Cayman is about $85,000 compared to $8,000 in Dominica and only $5,000 in Puerto Rico.

Finally, there are no FATCA or U.S. reporting for the bank or the customers of the bank. U.S. citizens can go offshore to Puerto Rico with zero IRS reporting headaches. This is a major competitive advantage and cost savings for an international bank licensed in Puerto Rico.

I’ve listed all the positives as to why you should consider an offshore bank license from Puerto Rico.

The negatives are that your bank will be tied to U.S, government oversight, SEC and other rules, U.S. immigration considerations, and your bank must have a minimum of 5 employees in Puerto Rico.

This low license fee is balanced against your tax costs. If you have 5 employees in Puerto Rico, and qualify under Act 273, your tax rate will be 4%. If you do not meet these requirements, your tax rate will be about 35%.

Immigration can be an issue for some. All employees must be U.S. citizens and you must meet Federal immigration criteria to move to Puerto Rico. If you buy a passport from Dominica you can become a citizen in about 90 days. It’s not so easy to immigrate to the United States.

If you want to run a bank without U.S. oversight, Puerto Rico is not for you. If you want a bank with a solid reputation based on a rigorous compliance and regulatory environment, then give Puerto Rico a chance as a low cost high value hybrid license.

3. Cayman Islands

Puerto Rico is the second largest offshore banking jurisdiction after Cayman Islands. Cayman is the most reputable and highest cost “pure” offshore banking jurisdiction. There are about 70,000 companies registered in Cayman, along with 350 banks and 700 insurance companies. There’s over US $1 Trillion in assets in Cayman banks.

The cost of a banking license in Cayman Island (the fees paid to the government upon issuance) are quite high. They range from $160,000 to $600,000 for a Class A license. Add on to this about $500,000 in legal fees, not to mention auditors and other required professionals, and the startup costs add up quickly.

Also, the vetting process will take over 12 months and a Cayman banking license is notoriously difficult to negotiate. For more on the costs and process, see the Cayman Islands Monetary Authority website.

If you can make it through the gauntlet, you’ll come out the other end with a world class offshore banking license.

4. Belize

The banking law in Belize says an international license requires $1 million in capital and a full license required $3 million in capital. In practice, be prepared  to deposit $5 million for the international license. No one bothers with the full license any longer (which allows you to sell to Belizeans).

If you’d like to do some market research, annual and quarterly reports for all Belize banks are available on the Central Bank’s website. This is a great resource if you’re considering a bank license from Belize.  

The due diligence process in Belize will be a minimum of 12 months (compared to 3 to 4 months in Puerto Rico). Some offshore bank licenses have taken as long as 18 months to complete.

If you are planning to setup an investment management bank, Belize has some of the highest capital ratios in the world (20% in many cases). For this reason, Belize banks are considered safe by depositors.

5. Panama

Panama is a top tier banking jurisdiction with many billion dollar institutions and a well developed regulatory system. If I were to describe Panama in one sentence, it would be “the best offshore bank license when cost / capital is no issue.”

Like Belize, Panama has an international license and a full license. The problem is that Panama won’t issue an international license unless you already have a full license from your home country. For example, if you have a U.S. license, you can get a subsidiary bank license in Panama.

This means that a startup bank will need to open under the full license which is likely to require $24 million in capital. The law says $10 million for a general license and $3 million for an international license, but these values will increase significantly when negotiations begin with the Central Bank.

I should point out that Panama has many different financial services licenses. For example, a bank in Dominica or Belize, that wants to manage client funds in Panama, might apply for a Financial Services license. This would allow you to operate a trading desk and open a correspondent account in Panama without a local license.

Another option in Panama is to set up a Credit Union. Similar to U.S. cooperatives, Panama’s credit unions are savings and loans where each depositor is a shareholder.  Known as “Cooperativas”, Panamanian credit unions are licensed as financial co-op institutions.  They are regulated under Law 17 of 1997 which granted them non-profit tax free standing.

There are hundreds of credit unions in Panama, but most are for employees of one industry or another. For an example of a public cooperativa, see Cooptavanza.

Depending on your business model, it might be possible to set up in Panama with capital of $1 to $3 million as a credit union. The IPACOOP “Instituto Panameno Autonomo Cooperativo regulates all of Panama’s credit unions.  For more informaiton, see:

For more how to accept deposits from clients, and alternatives to an offshore banking license, take a read through Offshore Money Management Business: How to Accept Client Funds and Deposits.

To delve deeper into offshore bank licensing and operation, please review my articles on offshore bank licensing and operation. I’ve been working in offshore banking for over a decade. My recent articles on the topic are:

If you’re considering forming an offshore bank or filing for an offshore banking license, you need to be ready for a lot of red tape, a significant vetting process, and to maintain a sizable deposit with the central bank (your corporate capital).

Countries are cautious when issuing offshore banking licenses. If any bank fails in a small country, it can result in a loss of confidence in the entire system. And, of course, no country wants to risk upsetting the mighty U.S. of A, as Belize did. This little spat shut down their banks for about 6 months.

If you want to enter the offshore banking market today, you need a solid business plan, an experienced board of directors, and an agent to quarterback your application.

I hope you’ve found this review of the top 5 offshore bank license jurisdictions to be helpful. If you’d like more information, please contact me for a consultation at or call (619) 483-1708