New Search

If you are not happy with the results below please do another search

103 search results for: puerto rico

41

Best Top Tier Banking Licenses

/in , , , /by

I usually write about mid-tier or lower-tier international banking licenses. In the middle of the market, we have the US territory of Puerto Rico with Bermuda coming up fast.  In this post, I’ll look at the top-tier banking jurisdictions. 

If you enjoy the following article, you might also like to review the differences between Puerto Rico international banking license and a US banking license. See US Banking License vs. Puerto Rico International Banking License and Process to Apply for a US Banking License. 

Introduction to the Best Top Tier Banking Licenses

There are many factors to consider when choosing the best jurisdiction to set up a new international bank. Some of the most important factors include:

  • Regulatory environment: The regulatory environment in the jurisdiction should be stable and predictable. The bank should also be subject to the same regulations as other banks in the jurisdiction.
  • Taxation: The tax laws in the jurisdiction should be favorable to banks. The bank should also be able to take advantage of any tax breaks or incentives that are available.
  • Infrastructure: The jurisdiction should have a strong financial infrastructure. This includes a well-developed banking system, a reliable telecommunications network, and a stable political environment.
  • Cost of doing business: The cost of doing business in the jurisdiction should be reasonable. This includes the cost of setting up the bank, the cost of operating the bank, and the cost of complying with regulations.

Some of the best jurisdictions to set up a new international bank include:

  • United Kingdom: The UK has a stable regulatory environment, favorable tax laws, and a strong financial infrastructure. The cost of doing business in the UK is also reasonable.
  • United States: The US has a large and sophisticated financial market. The US also has a strong regulatory environment and favorable tax laws. However, the cost of doing business in the US can be high.
  • Singapore: Singapore has a stable regulatory environment, favorable tax laws, and a strong financial infrastructure. The cost of doing business in Singapore is also reasonable.
  • Hong Kong: Hong Kong has a stable regulatory environment, favorable tax laws, and a strong financial infrastructure. The cost of doing business in Hong Kong is also reasonable.
  • Switzerland: Switzerland has a stable regulatory environment, favorable tax laws, and a strong financial infrastructure. However, the cost of doing business in Switzerland can be high.

Ultimately, the best jurisdiction to set up a new international bank will depend on the specific needs of the bank. The bank should carefully consider all of the factors listed above before making a decision.

In addition to the factors listed above, there are a few other things to consider when choosing a jurisdiction to set up a new international bank. These include:

  • The bank’s target market: The bank should choose a jurisdiction that is attractive to its target market. For example, if the bank is targeting high-net-worth individuals, it may want to set up in a jurisdiction with a favorable tax regime.
  • The bank’s business model: The bank’s business model will also affect its choice of jurisdiction. For example, if the bank is planning to offer a wide range of financial products and services, it may want to set up in a jurisdiction with a well-developed financial infrastructure.
  • The bank’s risk appetite: The bank’s risk appetite will also affect its choice of jurisdiction. For example, if the bank is willing to take on more risk, it may want to set up in a jurisdiction with a less regulated financial system.

By carefully considering all of the factors listed above, banks can choose the best jurisdiction to set up a new international bank.

Detailed Review

When setting up a new international bank, choosing the right jurisdiction can be a daunting task. The decision involves a complex balance of regulatory environments, political stability, economic strength, tax benefits, and market opportunities. This article will explore some of the most favorable jurisdictions for establishing an international bank, based on these criteria.

1. Switzerland

Switzerland has long been known as a global banking center due to its robust financial regulations, political stability, and strong privacy laws. These factors make it an attractive jurisdiction for setting up a new international bank. Swiss banking regulations are stringent, ensuring a high level of trust and integrity within the banking system. Despite recent changes towards more transparency, Switzerland still provides a high level of confidentiality for its banking clients.

Switzerland is known for having a highly-regulated banking system, with strict capital requirements that must be met before a bank can begin operations. To start a bank in Switzerland, an applicant is required to follow the regulations laid out by the Swiss Financial Market Supervisory Authority (FINMA).

One important aspect of this regulatory framework is capital adequacy, which refers to the amount of capital a bank must hold in order to conduct business without encountering financial difficulties. Swiss banks are required to maintain a minimum capital ratio of 8% of risk-weighted assets, which is one of the highest ratios in the world. This means that a bank must have at least CHF 20 million (approx. USD $22,300,000 million) in capital to start operating in Switzerland.

The required amount of capital can vary depending on the size and complexity of the bank, as well as the types of products and services it offers. Some banks may also be subject to additional capital requirements if they engage in riskier activities, such as investing in securities or engaging in foreign currency transactions. In addition, a bank’s capital requirements may be adjusted over time based on changes in its risk profile or other market conditions. Overall, the high capital requirements in Switzerland reflect the country’s commitment to maintaining a stable and secure banking system.

2. Singapore

Singapore’s strategic location, coupled with its well-regulated banking industry, makes it a compelling choice for banking institutions. The country’s political stability, coupled with a strong and resilient economy, makes it an attractive destination for new banking ventures. Singapore’s banking sector is characterized by a strong regulatory framework, which has helped it maintain its reputation as a safe and secure place for banking activities.

3. Luxembourg

Luxembourg has emerged as a significant player in the international banking scene, thanks to its strong regulatory regime and attractive tax laws. The country has a favorable business environment, characterized by political stability, a strong economy, and a strategic location in the heart of Europe. Luxembourg is particularly attractive for banking institutions that are interested in investment banking and wealth management.

4. Hong Kong

Hong Kong’s strong financial services sector, strategic location, and robust regulatory regime make it another top choice for establishing a new international bank. The region serves as a gateway to the lucrative Chinese market and other Asian economies, providing vast market opportunities.

5. Cayman Islands

The Cayman Islands are known for their favorable tax regime, with no direct taxation on banking institutions. They offer a stable political environment and a strong legal framework based on English common law. The jurisdiction has a robust regulatory framework for its banking sector, ensuring financial stability and integrity. The Cayman Islands are a particularly popular choice for banks looking to cater to international clients and offshore businesses.

The Process of Applying for a Top-Tier Banking License 

Please note that this is a generalized guide and the specific requirements and processes can vary significantly based on the jurisdiction and regulatory authority. Please contact us for a quote and additional information at info@premieroffshore.com. .

Applying for a banking license is a complex and rigorous process, requiring detailed planning, preparation, and documentation. This article will outline the general steps involved in obtaining a banking license, with emphasis on the need for a detailed business plan and financial model, proof of funds, and background reports for all investors, officers, and directors. Please note that the process can vary based on jurisdiction and specific regulations of the banking authority in question.

1. Preparing a Detailed Business Plan and Financial Model

A comprehensive business plan is a fundamental part of the banking license application. This document should outline the strategic direction of the bank, the types of services to be offered, the target market, and the proposed operational structure. Key aspects to include are:

  • Mission and Vision: Define the purpose of the bank and its future aspirations.
  • Products and Services: Detail the specific banking products and services the institution plans to offer.
  • Market Analysis: Provide a thorough analysis of the target market and competitive landscape.
  • Operational Plan: Describe how the bank will function operationally, including the technology and infrastructure to be used.
  • Management and Organizational Structure: Detail the proposed organizational hierarchy, roles, and responsibilities.

A robust financial model accompanies the business plan. This model should forecast the bank’s financial performance for at least the next three to five years, taking into account various scenarios and risk factors. It typically includes projected income statements, balance sheets, cash flow statements, and key financial ratios.

2. Proof of Funds

Applicants must demonstrate that they have sufficient capital to establish and operate the bank. This involves providing proof of funds, typically in the form of bank statements or other verifiable documents. The minimum capital requirement varies depending on the jurisdiction and type of banking license.

3. Background Checks

Regulatory authorities require comprehensive background checks for all investors, officers, and directors involved in the proposed bank. These checks aim to ensure that the individuals have a clean record, are of good character, and have the necessary qualifications and experience. The checks typically involve:

  • Criminal Background Checks: To ensure the individuals have no criminal history.
  • Credit Checks: To verify the financial integrity of the individuals.
  • Qualifications and Experience Checks: To confirm that the individuals have the necessary skills, qualifications, and experience to effectively manage a banking institution.

4. Application Submission 

Once the business plan, financial model, proof of funds, and background checks are complete, the banking license application can be compiled and submitted to the relevant regulatory authority. The application will also need to include other documents, such as incorporation documents, internal policies, and procedures.

5. Review and Approval

Following submission, the regulatory authority will review the application, which could involve further inquiries or requests for additional information. If the authority is satisfied with the application, they will grant the banking license. This process can take several months to over a year, depending on the jurisdiction and the complexity of the application.

Obtaining a banking license is a rigorous process, requiring meticulous preparation and due diligence. It’s essential to seek expert advice and assistance throughout the process to ensure that all requirements are met and the application is as robust as possible. While the process may be time-consuming and challenging, it’s a crucial step toward establishing a successful banking institution.

Conclusion

The choice of jurisdiction for setting up a new international bank depends heavily on the specific needs and strategy of the banking institution. Other factors such as the target market, the nature of banking services to be offered, and the bank’s risk tolerance also play a role. The jurisdictions mentioned above offer a blend of regulatory stability, market opportunities, and favorable business environments, making them top choices for establishing a new international bank.

I hope the following has been helpful. For a detailed quote and information specific to a particular jurisdiction, please contact us at info@premieroffshore.com 

42

Setting Up an International Bank in Bermuda

/in , , , , , , /by

In this post, I’ll explain why I believe Bermuda is the best jurisdiction for an international bank in 2024 and what’s required to build an international bank in Bermuda. This is a relatively new jurisdiction, with only one completed case as of this writing. But, I expect big things from Bermuda and for them to compete with Puerto Rico for the top spot in international bank licenses. 

Bermuda Poised to Become Significant Financial Center with Coinbase and Jewel Bank

Bermuda is poised to become a significant financial center in the wake of the announcement that Coinbase, the largest cryptocurrency exchange in the world, is setting up a new office in the island nation. Coinbase’s decision to establish a presence in Bermuda is a major vote of confidence in the jurisdiction’s regulatory framework and its commitment to innovation.

In addition to Coinbase, Bermuda is also home to Jewel Bank, an international crypto bank that is licensed by the Bermuda Monetary Authority (BMA). Jewel Bank’s presence in Bermuda provides a safe and secure platform for institutional investors to access the cryptocurrency market.

The combination of Coinbase and Jewel Bank in Bermuda is a major development for the island nation and its financial services sector. These two companies represent the cutting edge of the cryptocurrency industry, and their presence in Bermuda will help to position the jurisdiction as a leading global hub for crypto finance.

Coinbase

Coinbase is a cryptocurrency exchange that was founded in 2012. The company is headquartered in San Francisco, California, and it has over 56 million users worldwide. Coinbase offers a variety of services, including the purchase, sale, and storage of cryptocurrencies.

In January 2023, Coinbase announced that it would be opening a new office in Bermuda and received the license in April of 2023. The office will be staffed by a team of engineers, compliance professionals, and customer support staff. Coinbase’s decision to establish a presence in Bermuda is a major vote of confidence in the jurisdiction’s regulatory framework and its commitment to innovation.

Jewel Bank

Jewel Bank is an international crypto bank that was founded in 2018. The company is headquartered in Bermuda, and it is licensed by the BMA. Jewel Bank offers a variety of services, including the custody of cryptocurrencies, the issuance of crypto-backed loans, and the provision of crypto-related investment products.

Jewel Bank’s presence in Bermuda provides a safe and secure platform for institutional investors to access the cryptocurrency market. The company’s custody services are regulated by the BMA, and its crypto-backed loans are backed by physical gold. Jewel Bank’s investment products are designed to provide exposure to the cryptocurrency market without the need to hold cryptocurrencies directly.

The Future of Finance in Bermuda

The combination of Coinbase and Jewel Bank in Bermuda is a major development for the island nation and its financial services sector. These two companies represent the cutting edge of the cryptocurrency industry, and their presence in Bermuda will help to position the jurisdiction as a leading global hub for crypto finance.

Bermuda has a number of advantages that make it an attractive destination for crypto businesses. The jurisdiction has a stable political environment, a strong legal system, and a well-developed financial infrastructure. Bermuda is also a member of the Financial Action Task Force (FATF), which is an international organization that sets standards for combating money laundering and terrorist financing.

The arrival of Coinbase and Jewel Bank in Bermuda is a major step forward for the jurisdiction’s financial services sector. These two companies will help to attract other crypto businesses to Bermuda, and they will help to position the jurisdiction as a leading global hub for crypto finance.

Bermuda: An Excellent Jurisdiction to Set Up an International Bank

Bermuda is a British Overseas Territory located in the Atlantic Ocean. It is a popular destination for international businesses, including banks. The Bermuda Monetary Authority (BMA) is the regulatory body for banks in Bermuda.

There are several reasons why Bermuda is an excellent jurisdiction to set up an international bank. These include:

  • Stable and politically independent jurisdiction

Bermuda is a stable and politically independent jurisdiction. It has a long history of democracy and rule of law. This makes it a safe and secure place to do business.

  • Strong legal system

Bermuda has a strong legal system based on English common law. This provides businesses with a high level of legal certainty.

  • Well-developed financial infrastructure

Bermuda has a well-developed financial infrastructure. This includes a sophisticated payments system, a deep pool of capital, and a highly skilled workforce.

  • Member of the Financial Action Task Force (FATF)

Bermuda is a member of the Financial Action Task Force (FATF), which is an international organization that sets standards for combating money laundering and terrorist financing. This demonstrates Bermuda’s commitment to fighting financial crime.

  • Low tax rate

Bermuda has a low tax rate. This can save businesses money on their tax expenses.

  • Professional and experienced regulator

The BMA is a professional and experienced regulator. It is committed to ensuring that banks in Bermuda are safe and sound.

Overall, Bermuda is an excellent jurisdiction to set up an international bank. It offers a number of advantages, including a stable political environment, a strong legal system, a well-developed financial infrastructure, and a low tax rate.

Requirements to Set Up a Bank in Bermuda

Bermuda is a British Overseas Territory located in the Atlantic Ocean. It is a popular destination for international businesses, including banks. The Bermuda Monetary Authority (BMA) is the regulatory body for banks in Bermuda.

To set up a bank in Bermuda, you must meet the following requirements:

  • You must be a company incorporated in Bermuda.
  • You must have a minimum paid-up capital of $10 million.
  • You must have a board of directors that is composed of at least three Bermudian citizens or residents.
  • You must have a management team that has experience in the banking industry.
  • You must submit an application to the BMA and meet all of the BMA’s requirements.

The application process for a bank license in Bermuda can take several months. The BMA will review your application and conduct an on-site inspection of your proposed bank. If the BMA approves your application, you will be granted a bank license.

Once you have a bank license, you can begin operating your bank in Bermuda. You will be subject to the BMA’s regulations and supervision. The BMA is responsible for ensuring that banks in Bermuda are safe and sound.

If you are considering setting up a bank, Bermuda is a good option to consider. The BMA is a professional and experienced regulator, and Bermuda offers a number of benefits for businesses. You’ll find it an excellent alternative to Puerto Rico.

Contact Information

For more information about setting up a bank in Bermuda, you can review the Bermuda Monetary Authority website at: https://www.bma.bm/. We will be happy to assist you to form an international bank in Bermuda. For more information, please contact me at info@premieroffshore.com.

In this post, I’ll explain why I believe Bermuda is the best jurisdiction for an international bank in 2024 and what’s required to build an international bank in Bermuda. This is a relatively new jurisdiction, with only one completed case as of this writing. But, I expect big things from Bermuda and for them to compete with Puerto Rico for the top spot in international bank licenses. 

Bermuda Poised to Become Significant Financial Center with Coinbase and Jewel Bank

Bermuda is poised to become a significant financial center in the wake of the announcement that Coinbase, the largest cryptocurrency exchange in the world, is setting up a new office in the island nation. Coinbase’s decision to establish a presence in Bermuda is a major vote of confidence in the jurisdiction’s regulatory framework and its commitment to innovation.

In addition to Coinbase, Bermuda is also home to Jewel Bank, an international crypto bank that is licensed by the Bermuda Monetary Authority (BMA). Jewel Bank’s presence in Bermuda provides a safe and secure platform for institutional investors to access the cryptocurrency market.

The combination of Coinbase and Jewel Bank in Bermuda is a major development for the island nation and its financial services sector. These two companies represent the cutting edge of the cryptocurrency industry, and their presence in Bermuda will help to position the jurisdiction as a leading global hub for crypto finance.

Coinbase

Coinbase is a cryptocurrency exchange that was founded in 2012. The company is headquartered in San Francisco, California, and it has over 56 million users worldwide. Coinbase offers a variety of services, including the purchase, sale, and storage of cryptocurrencies.

In January 2023, Coinbase announced that it would be opening a new office in Bermuda and received the license in April of 2023. The office will be staffed by a team of engineers, compliance professionals, and customer support staff. Coinbase’s decision to establish a presence in Bermuda is a major vote of confidence in the jurisdiction’s regulatory framework and its commitment to innovation.

Jewel Bank

Jewel Bank is an international crypto bank that was founded in 2018. The company is headquartered in Bermuda, and it is licensed by the BMA. Jewel Bank offers a variety of services, including the custody of cryptocurrencies, the issuance of crypto-backed loans, and the provision of crypto-related investment products.

Jewel Bank’s presence in Bermuda provides a safe and secure platform for institutional investors to access the cryptocurrency market. The company’s custody services are regulated by the BMA, and its crypto-backed loans are backed by physical gold. Jewel Bank’s investment products are designed to provide exposure to the cryptocurrency market without the need to hold cryptocurrencies directly.

The Future of Finance in Bermuda

The combination of Coinbase and Jewel Bank in Bermuda is a major development for the island nation and its financial services sector. These two companies represent the cutting edge of the cryptocurrency industry, and their presence in Bermuda will help to position the jurisdiction as a leading global hub for crypto finance.

Bermuda has a number of advantages that make it an attractive destination for crypto businesses. The jurisdiction has a stable political environment, a strong legal system, and a well-developed financial infrastructure. Bermuda is also a member of the Financial Action Task Force (FATF), which is an international organization that sets standards for combating money laundering and terrorist financing.

The arrival of Coinbase and Jewel Bank in Bermuda is a major step forward for the jurisdiction’s financial services sector. These two companies will help to attract other crypto businesses to Bermuda, and they will help to position the jurisdiction as a leading global hub for crypto finance.

Bermuda: An Excellent Jurisdiction to Set Up an International Bank

Bermuda is a British Overseas Territory located in the Atlantic Ocean. It is a popular destination for international businesses, including banks. The Bermuda Monetary Authority (BMA) is the regulatory body for banks in Bermuda.

There are several reasons why Bermuda is an excellent jurisdiction to set up an international bank. These include:

  • Stable and politically independent jurisdiction

Bermuda is a stable and politically independent jurisdiction. It has a long history of democracy and rule of law. This makes it a safe and secure place to do business.

  • Strong legal system

Bermuda has a strong legal system based on English common law. This provides businesses with a high level of legal certainty.

  • Well-developed financial infrastructure

Bermuda has a well-developed financial infrastructure. This includes a sophisticated payments system, a deep pool of capital, and a highly skilled workforce.

  • Member of the Financial Action Task Force (FATF)

Bermuda is a member of the Financial Action Task Force (FATF), which is an international organization that sets standards for combating money laundering and terrorist financing. This demonstrates Bermuda’s commitment to fighting financial crime.

  • Low tax rate

Bermuda has a low tax rate. This can save businesses money on their tax expenses.

  • Professional and experienced regulator

The BMA is a professional and experienced regulator. It is committed to ensuring that banks in Bermuda are safe and sound.

Overall, Bermuda is an excellent jurisdiction to set up an international bank. It offers a number of advantages, including a stable political environment, a strong legal system, a well-developed financial infrastructure, and a low tax rate.

Requirements to Set Up a Bank in Bermuda

Bermuda is a British Overseas Territory located in the Atlantic Ocean. It is a popular destination for international businesses, including banks. The Bermuda Monetary Authority (BMA) is the regulatory body for banks in Bermuda.

To set up a bank in Bermuda, you must meet the following requirements:

  • You must be a company incorporated in Bermuda.
  • You must have a minimum paid-up capital of $10 million.
  • You must have a board of directors that is composed of at least three Bermudian citizens or residents.
  • You must have a management team that has experience in the banking industry.
  • You must submit an application to the BMA and meet all of the BMA’s requirements.

The application process for a bank license in Bermuda can take several months. The BMA will review your application and conduct an on-site inspection of your proposed bank. If the BMA approves your application, you will be granted a bank license.

Once you have a bank license, you can begin operating your bank in Bermuda. You will be subject to the BMA’s regulations and supervision. The BMA is responsible for ensuring that banks in Bermuda are safe and sound.

If you are considering setting up a bank, Bermuda is a good option to consider. The BMA is a professional and experienced regulator, and Bermuda offers a number of benefits for businesses. You’ll find it an excellent alternative to Puerto Rico.

Contact Information

For more information about setting up a bank in Bermuda, you can review the Bermuda Monetary Authority website at: https://www.bma.bm/. We will be happy to assist you to form an international bank in Bermuda. For more information, please contact me at info@premieroffshore.com.

43

Opening a Bank in St. Lucia

/in /by

The best “pure offshore” offshore bank license jurisdiction in 2022 is St. Lucia. Here’s what you need to know about opening an offshore bank in St. Lucia, including the capital, operations, correspondent accounts, etc.  If you’re thinking about opening a bank in St. Lucia, this is a must-read. 

I say that St. Lucia is the best “pure offshore” bank license jurisdiction because the most popular jurisdiction for the last few years has been Puerto Rico. However, opening a bank in Puerto Rico means dealing with the US Federal Reserve and US regulators. If you want to be offshore and provide products that are not permitted by US banks, then St. Lucia is where you want to be.

For example, banks in Puerto Rico are prohibited from providing brokerage and investment services, as are all US banks. Like many European jurisdictions, banks in St. Lucia are not limited to providing custody services only.

Also, the US limits the countries from which you can accept accounts. In general, clients from Russia, Bulgaria, Cuba, Venezuela, etc. are persona non grata in Puerto Rico. If your business is focused on restricted nations or nationals, you’ll need to look at St. Lucia.

For example, let’s say you wanted to open a trade finance bank that supports trade within Eastern Europe, including Russia. Such a bank should be based in St. Lucia and modeled after Euro Exim Bank (for example), which is in St. Lucia.

 

Here’s what you’ll need to open a bank in St. Lucia: 

  1. The capital required is $2.2 million. Of this, $300,000 is held in a CD in St. Lucia and the balance can be in your operating account or your correspondent bank. The fact that $1.9 million can be placed at your correspondent is a major advantage, as correspondent accounts always require owner capital.
  2. A detailed business plan covering operations, marketing, where your clients will come from, and your compliance manuals (such as Human Resources, AML, and KYC)

The business plan is a document written specifically for regulators and is the heart of the application. Unlike a standard business plan that is used to raise money, this one is written for the regulators. Its purpose is to convince the Financial Authority that you will be a good steward of the bank and that you won’t bring risk to the island (reputational or otherwise). 

It’s also important that your business plan be specific when discussing your business model, target market, and marketing plan. Regulators want to know where your clients will come from and that your group has the expertise necessary to perform due diligence on these clients. 

For example, if your team is from Mexico, and your target market is Russia and China, they will want to know what makes you qualified to research and approve account applications coming from these countries? 

The business plan should also detail your plans in St. Lucia. Where will you set up your office, what core system will you use, and how many people will you employ on the island? Regulators want to know that you will be bringing some jobs to their country.

While it’s not necessary for all of your employees to be in St. Lucia, I suggest that you should base compliance and operations here. Sales, marketing, and support might be in a lower-cost country. For my thoughts on this see Where to set up a Bank Call Center.

  1. Third-party background reports and audited personal and corporate financial statements are required from all officers, directors, shareholders, and investors in the bank.

Everyone listed in the business plan, and everyone putting money into the project, must be approved by regulators. This means that they all must provide three years of audited financial statements and a background report from a third-party investigator such as Kroll. Only reports from companies pre-approved by regulators will be accepted.

The purpose of the three years audited statements is to prove to regulators where the money came from to start the bank. You may not use borrowed funds and must disclose the source of all investments/funding during the startup phase of the bank.

Note that, after the license is granted, you need only disclose and have approved investments where the shareholder will have more than 10% ownership or control of the bank. If you sell less than 10%, you generally do not need regulator approval, but this only applies after the license is issued. 

Another workaround is that you can sell conditioned options after the license is issued. You can sell an option that entitles the investor to more than 10% of the voting shares of the bank, so long as it includes a clause where the transfer of the shares is conditioned on the approval of regulators. These inventors will need to go through due diligence when they wish to convert their options into voting shares.

Once the application package is approved, the processing time in St. Lucia is typically 6 to 12 months depending on their workload and how much you want to push them to work quickly. Also, the quality of the application and the nationality of the shareholders will impact the approval time.

I hope you’ve found this article on opening a bank in St. Lucia to be helpful. For more information on opening a bank in St. Lucia or Puerto Rico, please contact me at info@premieroffshore.com. I will personally write your business plan and handle your license application. 

44

How Much Money do I Need to Set Up an Offshore Bank

/in /by

In this post, I’ll consider how much money you need to set up an offshore bank. This will consider multiple jurisdictions in the Caribbean, which are the traditional offshore banking centers. These are Puerto Rico, St. Vincent, and Dominica. 

First, a few comments on why I’ve chosen these jurisdictions. The reason for Puerto Rico is simple enough – this island has been the center of the offshore banking industry since 2015. 95% of the new licenses and acquisitions are in Puerto Puerto Rico, and it’s the only jurisdiction with 40 new applications pending. The bottom line is that Puerto Rico is where all the demand is in 2021 and 2022.

All of this attention on Puerto Rico has meant the demise of other quality jurisdictions such as the Cayman Islands. It’s been a few years since this island has issued a new license and it has lost about 45% of its banks over the last few years. The primary reasons are the high cost of compliance with US FATCA (does not apply in Puerto Rico), costs of CRS (does not apply in Puerto Rico), and the difficulty of finding and maintaining correspondent banking relationships (not a problem in Puerto Rico). For more on this, see The Decline of the Cayman Islands Offshore Banking Empire.

Then there are the “low cost” offshore bank licenses such as Comoros or Gambia. The bottom line with these licenses is that you might get a license, but you won’t be able to do much with it. It’s nearly impossible to open a correspondent account for a low-quality offshore bank license. And, if you do get an account, it will be an EMI in the UK or similar, with high costs and which is very inefficient… it’s not going to function as a bank. For more on this, see Scams in the Offshore Bank License Market.

Finally, we can skip countries like Belize and Nevis who have not issued a new license in years. Yes, these are quality banking jurisdictions, but they are not issuing licenses. So, they don’t make it onto this list of how much money you need to set up an offshore bank. 

This leaves us with options such as Dominica and St. Lucia. These are one or two levels below Puerto Rico, but they serve a purpose in the offshore banking industry. If you don’t want to deal with US regulators, you open up shop in St. Lucia. If you can’t afford St. Lucia, you go to Dominica. 

 

Puerto Rico Offshore Bank License Costs

From 2013 to 2016, I was writing articles proclaiming Puerto Rico to be the lowest-cost offshore bank license. That was true then, but not for 2022. For one of these old posts, see Lowest Cost Offshore Bank License is Puerto Rico.

In years gone by, you could spend about $110,000 to get a license that would require only $550,000 in capital… a $300,000 CD, and $250,000 paid-in capital. And, a few years back, applicants were being approved with this amount of capital.

For a new license applicant looking for approval in 2022, the capital required is much higher. You will need at least $2.5m in paid-in capital, plus the same $300,000 CD. Also, the more paid-in capital you have, the better. An applicant with $5 million will be viewed more favorably than one with $2 million… and this is very important in a competitive environment. For more on the capital requirements in Puerto Rico, see Puerto Rico Bank Capital Requirements.

I also suggest that the amount of work that goes into an application for 2022 is much more intense than it was in 2016. Be ready to spend $300,000 to $350,000 to present a solid package to regulators and to complete your necessary background reports. 

 

St. Lucia Offshore Bank License Costs

Below Puerto Rico in terms of the value of the license is St. Lucia. Only those who do not want US oversight or have extensive experience in the offshore space should apply for this license. Of the pure “offshore” banking licenses, St. Lucia is clearly the best option.

The capital required for St. Lucia is $2.2 million paid-in capital, including a $300,000 CD. This CD is held at a local bank on the island and will be used to pay creditors should the bank go under (same as Puerto Rico). For the regulator’s website, click here.

The regulators in St. Lucia are working hard to improve the image of their offshore banking industry. Thus, the application process is quite difficult and fees are high. Expect to spend about the same amount for a license in St. Lucia as you would in Puerto Rico.

There are quality banks in St. Lucia, some of which are very profitable. One of the best operated is Euro Exim Bank. Also, there are subsidiaries of Puerto Rico banks in St. Lucia, such as StateTrust International Bank. For a list of banks, see International Banks Regulated Entities.

 

Dominica Offshore Bank License Costs

Finally, a step below St. Lucia is Dominica. There are 18 offshore banks licensed in Dominica, most of them are quite small and they are typically specific use banks. For a list see the Financial Authority’s website.

The minimum capital in Dominica is $1 million, which is currently the lowest in the industry (again, I don’t count countries such as Comoros). And, if you’re a qualified applicant with a clean history, you’ll be approved with this amount of paid-in capital.

Of course, the issue is that you’ll need significantly more cash than this to open correspondent accounts. So, your minimum capital required will depend on the requirements from your partner banks. But, again, you’ll be approved with this amount of money, which can be important to someone raising money after the license is issued. See Offshore Bank License Checklist for more information (regulator’s website).

 

Conclusion

While Puerto Rico is the market leader, there are sold business cases where St. Lucia or Dominica makes sense. For more information, and for a quote to set up a bank in one of these countries, please contact me at info@premieroffshore.com. 

45

Bank Accounts for Expats

/in /by

One of the most difficult aspects of life as an expat is banking. This is especially true for Americans who are persona non grata at most banks around the world. Plus, we have trouble opening and maintaining our US accounts if we are not in the country often. Here’s what expats need to know about opening offshore bank accounts in 2022.

The same is also true for non-US persons and all manner of expats. Unless and until you have full residency in your new country, it will be difficult to open a bank account there. And, even when you do have permanent residency, your choice of banks will be limited. 

Then are the expat nomads. Those who move from country to country without putting down roots or obtaining a permanent residency visa. For this group, opening a bank account will be nearly impossible.

I fall into this third group. I travel for a living and reside in Mexico without a residency visa. As I’m in the city of Tijuana, which is a border town, a visa is not required. However, I’m unable to open a bank account in Mexico. 

I’ve had to return to the United States to deal with banking issues three times in the last year and a half. And, until I got to the states, I was unable to send or receive wires.

First, Wells Fargo closed my account because they figured out that I was not living in the US. I flew home and transferred my account to BBVA USA, which worked great. They had an excellent online system and branches in Mexico.

Then, BBVA USA sold to PNC. Their basic online system did not allow wire transfers and it took a huge amount of effort to move to their Pinnacle platform. I spent hours on the phone and had to travel to my branch twice to deal with these issues. Then, the wait to set up the new system was 2 weeks.

So, where can we expats open bank accounts? What online bank will accept us? What banks are fully digital and will never require an office visit?

The answer is the international banks in the US territory of Puerto Rico. These digital-only banks are focused on global clients. They can accept clients from anywhere in the world and will not ever require an in-person visit. 

And it does not matter what passport you have (in most cases, anyway). These international banks are built to serve a global clientele. I also suggest that these banks are the most secure and best capitalized in the offshore space because they must follow US rules on capitalization. 

  • Banks in Puerto Rico follow US rules on restricted countries and sanction lists. They generally don’t accept clients from Russia and Cuba, for example. 

These international banks focus on a specific market, industry, or region. For example, Standard International Bank is focused on transactions with and clients from China. There are 13 IBE licenses and 52 IFEs in Puerto Rico, for a total of 65 international banks. For more on the number of banks, see How Many International Banks are there in Puerto Rico.

Note that this post refers to international banks in Puerto Rico and not the local banks. Local banks can open accounts for residents of Puerto Rico. International banks can open accounts for anyone in the world except for persons and companies in Puerto Rico. That is, international banks are prohibited from competing in the local market.

You’ll find that these international banks each have a specific focus. Here are my recommendations for banks for expats (in no particular order).

Facebank: The largest international bank on the island in terms of the number of clients. Excellent service and focused on Latin America. No English website is available.

Bancredito: An International bank and wealth management group for larger accounts. Unique offerings for AMEX black.

Stern Bank: A global bank for business and trade finance. This is the top business bank on the island.

Euro Pacific: An international bank focused on investing, trading, and custody of assets including gold. This is the only bank that integrates with Metatrader. The last time I checked, they do not accept US clients.

Bancolombia: The international division of the large Bancolombia group. Specialized in transactions with Colombia.

Zenus Bank: The newest of the international banks and the one with the best technology. This bank focused on personal and business accounts, along with the most efficient FX and cross-border payments. 

Italbank: Specialized in global accounts for persons from Latin American and Europe, especially in Italy and persons from Venezuela that are resident abroad. Their tagline is “An American Bank for Latin America.”

I suggest that Puerto Rico has become the best, and possibly the only, choice for expats. If you want to move funds to a digital bank, give Puerto Rico a look. You’ll need to do your due diligence to find a bank that fits your needs, as they are all very different, but once you’re set-up, transacting will be more efficient.

I hope this post has been helpful. My specialty is setting up international banks. For information on opening a bank in Puerto Rico, please contact me at info@premieroffshore.com. 

46

Updated List of Tax Information Exchange Treaty Countries for 2021

/in /by

The United States has updated the list of countries with which it has a tax information exchange agreement. This is a list of countries that share bank account information with the US IRS to ensure global tax compliance of US persons. The US also shares information with foreign governments to ensure global tax compliance.

That is to say, this is a list of countries with which the US shares bank account information. If you are not an American, and you have a US bank account, your account information is not private. This is the 2021 updated list of tax information exchange treaty countries.

The first section of the list below indicates which countries have tax treaties with the United States. In most cases, this list indicates which countries will provide information upon request. The same goes for information from the United States… the country must usually file a formal request… thus, the inquiry is part of a major investigation.

The second part of the list indicates which countries have an automatic exchange of bank account interest income.  If your country is on this list, it means that your bank reports your interest income to the IRS and the IRS automatically gives that information to your home country.

The additions to the 2021 updated list of tax information exchange treaty countries are as follows: 

Chile has finally given up the fight and entered into a tax treaty with the United States. This is a standard treaty and not one that includes the automatic exchange of interest income information.

In addition, Singapore and the Dominican Republic have agreed to the automatic exchange of interest income information. Note that Singapore and the Dominican Republic are now listed in both sections, standard tax treaties and the automatic exchange of information.

I should note that, just because the IRS can get information about your foreign accounts, it does not mean that they can levy those accounts (take money from your foreign bank account). In most cases, the IRS can only seize assets in Canada and the UK. 

Also, if your foreign bank has a branch in the United States, the IRS can seize money from the foreign branch. For example, if you have an account at HSBC in Hong Kong, the IRS can issue a levy notice to HSBC in New York, which compels the New York branch to get your money and give it to the IRS.

If you would like to see a standard tax treaty, have a read through the United States Model – Tax Treaty Documents.

These treaties give a major advantage to offshore banks in the US territory of Puerto Rico. Per § 3(I) of the sample treaty, and most if not all US treaties, the territory of Puerto Rico is exempted from these tax information exchange agreements. Thus, banks in Puerto Rico do not need to disclose account information to foreign governments. 

To clarify, international banks in Puerto Rico do report to the United States IRS, but this information may only be used to tax US persons. It is not to be provided to foreign governments, something that the OECD and CRS  have been fighting for years without success. 

I also note that, unlike US banks, it’s relatively easy for non-US persons to open a bank account in Puerto Rico. There are several banks on the island that will open an account online and through their mobile app. These are fintech banks focused on international markets.

It’s difficult for non-US persons to open accounts at US banks. Because of regulators from FDIC, US banks are for US persons. However, FDIC does not apply to banks in Puerto Rico and these international banks can accept clients from anywhere in the world. 

In fact, banks in Puerto Rico can open accounts for anyone anywhere in the world, including US residents and citizens. The only limitation is that international banks in Puerto Rico can’t compete with the local banks and thus can’t provide accounts to companies or persons located in Puerto Rico. 

  • Of course, banks in Puerto Rico must follow all US rules and may not provide accounts to persons from sanctioned countries or individuals on sanctioned lists.

For more on the stats of international banks in Puerto Rico, see How Many International Banks are there in Puerto Rico.

For information on setting up a bank in Puerto Rico, see Start a Bank in Puerto Rico in 10 Steps.

To clarify, banks in Puerto Rico do not provide any extra privacy or protection to US persons. The rules for US persons in Puerto Rico are the same as it is at any US bank. The benefits described above apply to non-US persons who wish to keep their accounts private. 

I hope you’ve found this article on the 2021 updated list of tax information exchange treaty countries to be helpful. For more information on opening accounts in Puerto Rico, or on setting up a bank on the island, please contact me at info@premieroffshore.com. 

 

47

Where to Live in Tijuana

/in /by

In this post, I’ll consider where to live in Tijuana. I assume you’re an American that’s looking for a change of pace, or you’ve set up a business in Tijuana to leverage the lower cost of labor. With that in mind, here is where I suggest you live in Tijuana.

By way of background, I’m an American whose lived in Tijuana for the last 4 years. I’ve also lived in Puerto Rico, Panama, and the Dominican Republic. I hale from San Diego, California. While it took over a year to get used to, I now say Tijuana is my favorite city. 

For more of a business focus, check out this post: Where Should I Hire Offshore Employees

To be upfront, the cost of living is not that low in Tijuana. If you want to live well, then it’s going to cost because there are so many executives and others doing the same. 

We have an expression in this business: your cost of living goes down the further you get from the United States. Tijuana is a 20-minute drive from Downtown San Diego. And, the fact that you can walk or drive across the border is a great benefit which makes life and business so much easier. 

But, this comes at a cost. While restaurants are about half the price of San Diego for the same quality, you should expect to spend $1,500 to $3,000 a month for housing. I’m currently paying $2,500 a month for a two bedroom a great building with spectacular views. 

 

So, where should you live in Tijuana as an American? 

Let’s first narrow down the options by sticking to the areas of the town which are safe and popular for gringos and expats. Those would be New City, a development near the border crossing, and the areas of La Cacho, Rio, Chapultepec (this is a large area and I’m focused on the section in front of and behind the golf course), near the sports stadium (Las Palmas or Hipodromo), and two or three buildings in downtown.

The majority of expats and executives live in New City. This is a 4 building complex that just got one of the best food courts in the city. It’s a safe place to be and gives you easy access to the US border by foot or car. For more, see New City.

 

 

While I’ve visited New City many times, and think about moving there each year, I can’t bring myself to do it. I think the prices are a bit high for what you get and I moved to Tijuana to live in Tijuana. When you live in New City, you’re living in an expat community on the border.

While I’m certainly in the minority on this point, New city is just not for me. To many expats and not enough local flavor, But, if you’re new to living outside of the United States, and you don’t speak Spanish, this might be the place to begin your journey.

My favorite part of town is La Cacho. It’s a 25-minute walk to downtown, a 35-minute walk to the border crossing at PedWest, and a much quieter area with less traffic than Rio and Chapultepec. The buildings I recommend are Cosmopolitan Residence, Highpoint Living, Arboleda Residence (with an excellent outdoor social area), Condos Angular, and ICON. 

 

 

I live in Cacho because it’s very safe and walkable. The most walkable buildings listed above (those closest to restaurants) are Cosmopolitan and Angular. The restaurants in the area are excellent and it doesn’t get so crazy busy as the places in downtown and Chapultepec. Of course, the type of people in La Cacho and Chapultepec are VERY different from those downtown.

If you’re on a budget, you might consider the Eazy Living locations in Rio and downtown. When I first came to Tijuana, I spent a year in Eazy Living (yes, spelled correctly) downtown. I went with this location for the low price as I was splitting my time between San Diego and wasn’t sure I wanted to commit full time to Tijuana. 

If you want to be downtown, you might also consider Siete by Cosmopolitan, Edificio Revolución 1764, and LOFT Revolución.

In front of and behind the golf course, there are many safe and gringo friendly apartment buildings. If I were to live in that area, I would go for a building near the main street as walking from behind the golf course is quite a hike. 

 

 

My suggested buildings in this area are Greenview (older building but a classy crowd), Sayan Campestre (the newest and fanciest tower in Tijuana with apartments well over $1 million USD), Life by Cosmopolitan, and, moving just past the golf course, Link Residencial and Adamant Hipodromo. 

 

 

In Rio, the most interesting project is Cosmopolitan City Center, scheduled to be completed in 2023. In the meantime, I recommend the following buildings in Rio and along the main street, Agua Caliente. 

 

 

I hope you’ve found this guild on where to live in Tijuana to be helpful. You might also take a read through this post on how to select a city for a call center and where to set up a call center for an international bank.  Both recommend Tijuana and Santo Domingo, Dominican Republic.

For more information on setting up a business in Tijuana or the Dominican Republic, please contact me at info@premieroffshore.com. 

 

49

Scams in the Offshore Bank License Market

/in /by

I’ve been in the offshore banking industry since 2003 and I’ve never seen the number of scams in the offshore bank license market as I have in 2021. The offshore bank license market is filled with scammers and fraudsters. 

Even respected websites like DealStream have many listings that are scams. Websites like DealStream allow anyone to post an advertisement for a business for sale. Some are paid posts and some are free. While DealStream does a good job evaluating posts, adding “trust badges,” and removing scams, a few still get through. 

For example, this post advertising a Crypto-fiat Bank w/System and License. For a mere 490,000 Euros, you can be the proud owner of a fully operational bank. When I contacted the seller, I got their pitch and was told that I could buy a bank in Canada or Estonia for this amount, my choice! 

More specifically, “Canada or Estonia ready license 50k. An online system with source code 200k. Connection to cards and bank accounts 200k. So total is 450k.” 

Of course, anyone in the know will laugh at this offer. A Canadian bank license would be worth many millions of dollars… and an offshore bank license from Estonia would sell for a million dollars. I also note that Canada does not even offer an “offshore” bank license. 

When I called the seller on this, they said the license is not a bank but a Money Service Business. Quite the bait and switch if you ask me. 

Then there are all the offers for Comoros offshore bank licenses on the web and on DealStream. When I Google “Comoros bank license,” I get page after page of offers to sell an offshore bank license from this esteemed jurisdiction.

So, why is an offshore bank license from Comoros almost always a scam? Even assuming that the offers are legitimate, and they have some backdoor to the government that will give you a license, why should you avoid a Comoros bank license?

It’s simple: an offshore bank license from Comoros is useless. In most cases, the best you can hope for when you buy an offshore bank license from Comoros is a piece of paper saying you’re a bank… Now what?

You’ll need to open correspondent accounts at a bigger bank to be able to operate. Smaller banks need relationships with larger banks before they can hold client money, send and receive wires, or operate in the most basic sense. Without a correspondent bank, your bank in Comoros is useless. 

And when you go to open a US dollar correspondent account at a US bank for your offshore bank licensed in Comoros, they will laugh at you. No sizable or quality bank will open a correspondent account for a bank licensed in Comoros. 

I do see offers where the sellers promise to get you a correspondent account… after you pay them the full amount, of course. These usually turn out to be money service businesses or EMI accounts that won’t operate as real bank accounts. Not to get into the weeds here, but a small bank is useless without a quality correspondent relationship.

I get calls all the time from people that have fallen for the Comoros bank license scam asking for help finding a correspondent bank. I tell them there’s nothing I can do for them. 

My suggestion is to stay away from any company offering offshore bank licenses from Comoros. If they’re willing to sell this piece of useless paper, then what does this say about the rest of their offerings?

EDITOR’S NOTE: DealStream has thousands of quality listings and does a good job ranking posts. This article is merely pointing out a few that are suspicious. 

In my experience, the quality websites marketing or discussing offshore bank licenses are as follows: 

  1. LowTax.net is a great source for news and information about the international banking and offshore corporate industries. The site tends to focus on Europe and is a news site that also allows advertisements. Premier has a few articles on this site from years back. 
  2. KPMG is a world-class accounting firm with great free resources on international banking. Many of their articles are focused on European banks and larger clients.
  3. BankLicense.pro is the best site for information on offshore banking licenses. It focused on the US territory of Puerto Rico and the top Caribbean jurisdictions. 
  4. Price Waterhouse Coopers is a major accounting firm with strong expertise in bank formation and compliance.
  5. Mundo Expert is a site that brings hundreds of experts from different disciplines together to offer their international business and formation services. 
  6. Each government has a website detailing its laws, requirements and listing the valid bank licenses. The top offshore banking government websites are OCIF in Puerto Rico (Spanish only), CIMA in the Cayman Islands, the ECCB for banks in the Eastern Caribbean, such as St. Lucia, and the US Federal Reserve for rules and regulations for Puerto Rico and US correspondent banking providers.

I’ll leave you with this thought on avoiding scams in the offshore bank license market: The very smallest legitimate license will sell for $3 million to $5 million USD. Then you’ll need corporate capital of $2 million to $5 million depending on the jurisdiction. If you’re looking for a low-cost offshore bank license, you’re going to get scammed.

I hope this article on scams in the offshore bank license market has been helpful. For more information on obtaining an offshore banking license, please contact me at info@premieroffshore.com. I will be happy to assist you to set up a new bank or acquire an existing one.

50

Where Should I Hire Offshore Employees

/in /by

I’m often asked, where should I hire offshore employees? That amounts to the same question as, where should I set up my offshore business? Where should I set up my outsourcing business that requires a number of employees? When asked where I should hire offshore employees, here’s the trick I’ve learned. 

Step 1 is to use Uber or Didi over a number of days in the city you’re thinking about opening up shop in. Are the rides cheap and are there many cars available? This will almost always tell you whether there are employees available in the city and whether the population is hungry for work. 

For example, in the United States and Puerto Rico, the cost of Uber is very high and the number of drivers has declined significantly during the pandemic. This is because the government is paying their bills and unemployment seems to be an unlimited resource in America. Thus, there is little incentive to work. 

And we see this proven out over several industries. Nearly every restaurant I visit in California is looking for employees. Several had to eliminate lunch service because they simply couldn’t find the workers. 

The same is true of sales, retail, and call center jobs. It’s difficult to fill these positions in the United States. Some drive Uber because they can stop after the maximum allowed income they can earn before reducing their unemployment benefits. But, many will not take a part-time or full-time job until these subsidies end. 

As most of these employees are renters, the fact that many are in rent forbearance in the US means that they have zero incentive to work. I recently stayed at an AirBnB for 30 days. It was a rental and I learned that the person had been in forbearance for over 12 months. They were taking in $3,000 a month in sub rent and paying zero to the building owner.

So, what does this have to do with the question of where should I hire offshore employees? Simple: if the government is subsidizing your target worker, you can’t compete. Laziness and getting something for free will always trump what you’re willing to pay or a fair wage.

Using the Uber test, you’ll find that cities like Tijuana, Mexico, and Santo Domingo, Dominican Republic are excellent for employee-driven businesses. Both of these locations have cost-effective Didi and Uber services and employees are readily available at a reasonable cost. 

Conversely, Cancun, Mexico fails the Uber test. While this is in part due to a lack of workers, it’s also a sign of corruption and other issues beyond the scope of this article. But, suffice it to say, the Uber test shows that Cancun should be avoided.

Step 2 is to look for cities with a number of bilingual call centers. If the city has a few thousand bilingual seats over multiple call centers, you know that you’ll be able to find quality bilingual employees. By offering a little better wage and better working conditions, you will attract more workers than you can use. 

Likewise, if the city does not have many call centers, it’s unlikely that people focus on English as a second language in school. There may be many job seekers, but very few will have the level of English you require. 

The rule of thumb is that the further south you move from the United States, the lower your costs will be but the more difficulties you will have in finding quality English speakers. This proves out true even in massive cities like Mexico City. 

For this reason, one of the best cities in the world to hire offshore employees is Tijuana, Mexico. Costs are a fraction of its neighboring city of San Diego, California where the minimum wage is now $14 per hour and going to $18 in a couple of years. In Tijuana, bilingual call center jobs pay $500 to $1,200 a month, with the average being about $900 per month.

Other benefits include the ability to easily commute to or from San Diego, access to US stores and tech, using US banks to operate, and the possibility of hiring US persons to train or work full time in TJ to support the local staff. None of this is feasible when your city is a flight rather than a 30-minute drive from a major US city.

My second choice for a city based on call center coverage is Santo Domingo, Dominican Republic. Also, Santo Domingo is the first choice for those on the East Coast while Tijuana is more efficient for those on the West Coast. 

There are over 50 call centers in Santo Domingo and the city’s educational system focuses on English. Many younger graduates or college students work in call centers. You’ll also find experienced managers and reasonable access to technology. 

Average call center salaries in the Dominican Republic are about half of those in Tijuana. However, the industry is competitive and you will pay a premium for quality English speakers. 

Note: The salary ranges from the link above include a large percentage of Spanish-only workers.

One interesting benefit of the Dominican Republic is its proximity to the US territory of Puerto Rico. Many American entrepreneurs have moved their businesses to Puerto Rico for tax savings. There are also many international banks opening on the island. These businesses can see significant cost savings by moving some of their services to the neighboring island, the Dominican Republic.

To be clear, I’m not suggesting that these cities are only good for call centers. I’m saying that these cities are the best for all offshore businesses where you require a bilingual workforce. I’m merely using call centers as an indicator of the number of English speakers available.

I hope this article on where should I hire offshore employees has been helpful. I believe the Uber test, along with the call center test, will give you a good indication of a city’s workforce availability and English proficiency. 

If you would like to hire us to set up a business in Tijuana or Santo Domingo, please contact me at info@premieroffshore.com. I will be happy to represent your company in these cities and build out your division or business in an efficient manner.

51

How to Calculate the Foreign Earned Income Exclusion

/in /by

In this post, I’ll describe how to calculate the foreign earned income exclusion. This is meant as a general guide for calculating the FEIE and I assume that most will either use a software program to calculate the foreign earned income exclusion or hire a professional to prepare their complex tax return.

Before we get to calculating the foreign earned income exclusion, we should first determine if you need to bother. When should you use the foreign earned income exclusion?

First, I note that you must file a return and calculate the foreign earned income exclusion on Form 2555 to get the benefit of the exclusion. Just because you will pay zero tax with the exclusion, it doesn’t mean you are not required to file. 

In fact, the FEIE is the only tax calculation that’s “use it or lose it.” If you don’t file your return and calculate the foreign earned income exclusion, and you’re audited by the IRS, you can lose the exclusion and be forced to pay US tax on your worldwide income, even if you did not or don’t live in the United States. 

Second, you need only calculate the foreign earned income exclusion if your income exceeds the Standard Deduction. If your income is less than the Standard Deduction, then you probably don’t need to bother with the FEIE.

The Standard Deduction for 2021 is $12,400 for a single taxpayer and $24,800 for married filing joint taxpayers. If your income is less than this, you probably don’t need to calculate the foreign earned income excursion, but you probably do need to file a return (if living abroad).

Third, you need only calculate the foreign earned income exclusion if you live in a low or no-tax country. If the country you’re living in has a tax rate higher than or about the same as the United States, then you will use the foreign tax credit and not the foreign earned income exclusion. 

This is because you get a dollar-for-dollar credit for paying tax in a foreign country. So, if your US Federal tax rate is 30% and your tax rate in France is 35%, just use the foreign tax credit to pay zero US tax. 

 

Do I Qualify for the Foreign Earned Income Exclusion?

When it comes to calculating the FEIE, it’s an all-or-nothing situation. You either get to take the full exclusion or none of it. There is no prorated amount (unless you qualify using the 330-day test over two calendar years, see below). That is to say, if you do not qualify, or miss qualifying by even one day, you lose the entire exclusion and 100% of your income is taxable in the United States. 

I should also point out that the foreign earned income exclusion applies to ordinary income, salary, self-employment income, and/or business income. It does not apply to capital gains or passive income. Therefore, this article considers only ordinary income. 

There are two ways you can qualify for the foreign earned income exclusion. 

Physical Presence Test: be out of the United States and in a foreign country for 330 of any 365 day period. This is a simple test… be out of the US for 330 days of 365 and you qualify. However, if you miss it by even one day, you get zero FEIE.

Residency Test: be a tax resident of any foreign country for a full calendar year. This country should be your home and you should put down roots there. It usually means you will file and pay taxes in that country. 

Most clients use the physical presence test during their first year abroad. Then they move to the residency test once they are ready to put down roots. Also, because the residency test requires you to be a tax resident for a full calendar year, it’s much easier to begin your life outside of the US with the physical presence test. 

As stated above, the physical presence test can be taken over any 12 month period. So, it would be possible to use a March to March foreign earned income exclusion. In that case, you would prorate the FEIE for 10 months of 2021 and then 2 months in 2022. 

The FEIE for 2021 is $108,700, which amounts to $9,058 per month, or about $90,580 for the 10 month period. This amount could be doubled if a husband and wife both qualify for the FEIE, both worked in the business, and both took out a salary. 

 

How to Calculate the Foreign Earned Income Exclusion

To calculate the foreign earned income exclusion on salary, be it salary from your own foreign corporation or when you work for someone else outside of the United States, you simply take the exclusion amount and reduce your income by that number.

Again, keep in mind that you either get all or none of the FEIE, so prorating is only an issue when taken over two calendar years. In this section, I’ll assume you are taking the FEIE over only one calendar year. 

So, let’s say you earned $90,000 in 2021 and qualified for the FEIE. You would use form 2555 to report the salary and subtract it from $108,700. You would thus pay zero tax. 

Next, let’s say you earned $208,700 in 2021 from work and qualified for the FEIE. You would subtract $108,700 from $208,700, and pay US tax on the remaining $100,000. 

The bad news is that, when you calculate the tax, you use the tax bracket of someone who earned $208,700 and not the tax bracket of someone who earned $100,000. 

 

Self Employed Persons Reporting on Schedule C

Calculating the foreign earned income exclusion for self-employed persons that are reporting on Schedule C, and not using a foreign corporation, is much more complicated. I will simplify it here, but for more accurate calculations, see the IRS website.

To oversimplify a complex matter, when you report your foreign income on Schedule C, about 50% of your expenses are allocated to the FEIE. That means that the FEIE is reduced by about 50% of your business expenses. 

For example, let’s say your business income is $250,000 and your expenses are $50,000. When you calculate the FEIE, it is reduced by about $25,000, from $108,700 to $83,700. The result is that you can use $83,700 of the exclusion to reduce your taxable income from $200,000 to $116,300. You will pay US tax on this amount. 

Next, you will have to pay Self Employment Tax on your net profit. The FEIE does not apply to Self Employment Tax and thus you’re paying full SE tax on your business profits. The self-employment tax rate for 2021 is about 15.3%. 

Again, these are just “back of the napkin” calculations to help you think about how to calculate the foreign earned income exclusion. I assume that you will be using a software program or a CPA to prepare your complex tax return.

 

Options

The solution to the problem of calculating the FEIE on a Schedule C can be eliminated by forming an offshore corporation. Set up a foreign corporation and open an international bank account. Then draw a salary from that corporation of up to the FEIE amount. 

The FEIE and an offshore corporation work great for those earning $110,000 a year, or a husband and wife netting $220,000. But, what if your income is significantly higher than this? What if you’re taking home $500,000 in business income?

Then you should consider moving to the US territory of Puerto Rico. This island has unique tax deals that are only available in a territory. This is because, no matter in which state you live, you pay Federal Tax. Also, Americans living abroad are taxed by the IRS. But, Americans living in Puerto Rico are only taxed by Puerto Rico. 

If you move a qualifying business netting $500,000 a year to Puerto Rico, your tax rate will be 4%. This amounts to $20,000 in tax paid. This same income using the FEIE results in about $120,000 in tax paid (assuming a 30% blended Federal rate). 

I hope you’ve found this article helpful. For more information on forming an offshore corporation that qualifies to use the FEIE, or on moving to Puerto Rico, please contact me at info@premieroffshore.com. I will be happy to work with you to structure your international plan.

52

2021 Foreign Earned Income Exclusion and Tax Rates

/in /by

The Foreign Earned Income Exclusion is the most important tool expats and Americans living abroad have to reduce their US tax obligations. In this post, I’ll review the Foreign Earned Income Exclusion and explain how and when it can help you save on your tax bill.

In fact, since the Trump tax cuts, the Foreign Earned Income Exclusion may be the only way most expats can reduce their US tax. Because we are no longer eligible to hold business income tax-deferred in an offshore corporation, and all ordinary income is taxable as earned, the Foreign Earned Income Exclusion is the only way business owners can limit our tax exposure (the exception to the rule are those living in Puerto Rico).

Not so long ago, the Foreign Earned Income Exclusion was the trick for those earning around $100,000 a year. For larger businesses operated outside of the United States, we could hold the profits in the corporation in excess of the Foreign Earned Income Exclusion and only pay tax on that ordinary income when it was distributed as a dividend.

With the ability to retain ordinary income in the corporation eliminated, all we Americans abroad have left is the Foreign Earned Income Exclusion.

Before I get into the details, please note that this article is focused on ordinary income earned as a salary or as a self-employed person/business owner living outside of the United States. That is to say, I’m talking about ordinary income here and not passive or investment income.

There are two ways to qualify for the FEIE. You can be out of the United States for 330 of any 365 day period (physical presence test), or you can be a resident of a foreign country for a calendar year (residency test). Most expats use the physical presence test their first year abroad and then move to the residency test after they become legal residents of their new country. Those who don’t put down roots stick with the 330-day rule.

Also, the Foreign Earned Income Exclusion is the most help to those living in low or no-tax countries. If you live in a high-tax country, typically in Europe, you will probably benefit from the Foreign Tax Credit more than you will from the Foreign Earned Income Exclusion.

I should also note that Americans with income in excess of the Foreign Earned Income Exclusion might consider moving to Puerto Rico. US citizens who move to the US territory of Puerto Rico pay only 4%  tax on certain types of business income and 0% tax on passive income earned from investments made after you move to Puerto Rico.

 

Standard Deduction for 2021

I start this area of the Foreign Earned Income Exclusion with the standard deduction. Why? If your income is less than the standard deduction, you probably don’t need to bother with the Foreign Earned Income Exclusion. You might be required to file a US return, but you probably don’t owe much in tax if the standard deduction eliminates most of your ordinary income.

The standard deduction for 2021 is $12,550 for individuals and married couples filing separately $18,800 for heads of household, and $25,100 for married couples filing jointly and surviving spouses.

 

 

Standard Deduction Amounts KPE/IRS

  • For 2021, the additional standard deduction amount for the aged or the blind is $1,350. The additional standard deduction amount increases to $1,700 for unmarried taxpayers.
  • For 2021, the standard deduction amount for an individual who may be claimed as a dependent by another taxpayer remains the same. It is cannot exceed the greater of $1,100 or the sum of $350 and the individual’s earned income (not to exceed the regular standard deduction amount).

 

Foreign Earned Income Amount for 2021

The Foreign Earned Income Exclusion for 2021 is $108,700. This is up from $107,600 for tax year 2020 and $105,900 for tax year 2019. This means that a husband and wife filing joint, where both live abroad and earn ordinary income, might save up to a total of $217,400 in US taxes using the Foreign Earned Income Exclusion in 2021.

Note that the Foreign Earned Income Exclusion is a “use it or lose it” exclusion. If you don’t file, and the IRS audits you, then you will probably not be allowed to use the Foreign Earned Income Exclusion and will pay 100% tax on your worldwide income.

I believe the Foreign Earned Income Exclusion is the only tax exclusion that can be lost if you don’t file. For example, you would be allowed to take the Foreign Tax Credit if you have failed to file, but not the Foreign Earned Income Exclusion.

 

Tax Rates and Brackets for 2021

There are seven tax brackets for 2021. They are: 10%, 12%, 22%, 24%, 32%, 35% and 37% (there is also a zero rate). Here’s how those break down by filing status:

 

Conclusion  

I hope this article on the Foreign Earned Income Exclusion for 2021 has been helpful. As stated above, this is a use it or lose it exclusion. If you are a few years behind on your US tax filing obligations, please contact me at info@premieroffshore.com, and I’ll connect you with one of our international tax preparation experts.

Likewise, if you are being audited for an international tax matter, or your Foreign Earned Income Exclusion is being denied, contact me. I can introduce you to a US tax attorney who is an expert in these matters.

53

10 Reasons to Move Your Business to Mexico in 2020

/0 Comments/in , /by

In this post, I’ll look at the top 10 reasons to move your business to Mexico in 2020. The current government is focused on bringing in new jobs and new businesses to the country. If you’re looking to set up a lower-cost international operation, an outsourcing team, call center, financial services or Fintech company, Mexico should be at the top of your list. 

By way of background, I have operated this business from Panama, San Diego, CA, and Tijuana Mexico. We now have offices in Puerto Rico and Mexico City (in addition to TJ). I’ve been in the offshore industry since 2003 and can tell you from experience that Mexico has become a top tier offshore business jurisdiction. 

If you ignore the political hype between the US and Mexico, you’ll find that the new President is pro-business and cutting red tape right and left to facilitate business in Mexico. This is especially true in Baja California, the state where Tijuana is located and where I chose as my home base. I like to say that we’re on the hard-working and fun side of Trump’s wall. 

Here are the 10 reasons to move your business to Mexico in 2020

Cheap Cost of Labor

Mexico is a top tier business jurisdiction because of the availability of cheap labor. Costs are a fraction of the United States and English is readily available, especially in Baja California. The further south you go, the more difficult it becomes to find low-cost English speakers. 

Note that I say, “low-cost” English speakers are more available in Baja. This is because English is common in the border region. However, if you’re looking for high-level English speakers, such as engineers and PhDs, they are more likely to live in Mexico City and Monterrey than Tijuana. 

The average annual salary for an engineer in the United States is $85,663 dollars. The average annual salary for a mechanical engineer in Mexico is $298,500 pesos or the equivalent of $15,514 US dollars. 

This means that an engineer without a specialty makes almost five times more than an engineer with a specialty degree in Mexico. This is just one of the many professions were salaries are substantially lower. 

You can save a lot of money if you move your business from the United States to Mexico, and thanks to the excellent universities that they have in the country you won’t struggle in finding quality employees for your business. 

Cheap Cost of Living

Living in the United States has become increasingly expensive in the past few years, especially in California. Americans are dropping their dreams of living in a big house with a big garden for living in a small crowded apartment. 

Mexico is a very cheap country to live in. The cost of rent in Mexico is nothing compared to one you can find in the United States. You can live in an excellent apartment for less than $800 dollars a month. I am talking about a two bed and two bathroom place. 

For this reason, it might come as no surprise that many Americans are choosing to live in Mexico, bringing their portable businesses with them or commuting to the United States as necessary. In fact, thousands of Americans live in Mexico and commute to the United States every day. 

This is what I do… live in Tijuana and drive into San Diego or Los Angeles for meetings. If you have a Sentri pass, border wait will be about 15 minutes. If you don’t have Senri, the wait will be hours if you drive. But, you can walk across and take a trolly into the city in a few minutes. 

You’ll find that the number of Americans in Mexico has pushed up the costs of living in cities like Tijuana, but it remains a fraction of San Diego. If you don’t need to commute to the US, the cost of housing and the quality of life is better further south. 

Strength of the US Dollar in the Country 

As I mentioned before, Mexico offers American entrepreneurs the cheap cost of labor, living, and rent, and all of this is very accessible to American entrepreneurs because the US Dollar has been going upwards in the country. 

One US Dollar equals approximately 18.50 pesos and this is probably going to go up. Because of the proximity between both countries, and the economic relationship, movement in the dollar has an impact on the peso. 

Luckily, the American economy has been doing great, meaning that the US Dollar has been very stable in Mexico. The US Dollar is accepted in most businesses around the country and sometimes they will even set their prices in dollars. 

Investing using American currency in Mexico is a great benefit that you won’t be able to find in many countries. What better way to manage your portfolio than to do so with the currency of your own country.

Entry into the Latin American Market 

Mexico is the largest Spanish speaking country in the world and the second biggest country in Latin America. By investing in Mexico you building a base from which you can sell into the Latin American market. 

There are many different treaties between Mexico and many countries in Latin America that are not shared by the United States. If you decide to open a company in Mexico you can use those treaties to your advantage. 

Latin America is a large and great place for an American to expand their portfolio. There are so many opportunities in that market that you won’t be able to find in the United States such as the vast natural resources found here among many other things. 

Similarities Between the US and Mexico

Culturally, Mexico and the United States could not be more different. Despite this, the way that business is done in Mexico is very similar to how it works in the United States as Mexico adopted many of its practices from the American economy.

It is a blessing for many American investors when they come to Mexico and realize that they do not have to make any changes in their business plan as the business and market strategy tend to be the same. 

The Mexican stock market also works quite similar to how the American does. Even to the point where if there is a drastic drop in Wall Street the whole Mexican stock market will feel the impact. 

Vast Natural Resources

One of the many attractive things about investing in Mexico that you will find is that there are a huge number of vast natural resources in the country. Meaning that you can establish a company in Mexico with the sole purpose of exporting natural resources back to the United States or anywhere else in the world. 

Thousands of American companies are already doing this and are thriving in great ways by doing so. Mexico might have a big number of natural resources, but they lack the machinery to exploit all of these. 

American investment is widely accepted because of this reason, as the country and the company benefit hugely. Just like in the United States a good proposal needs to be approved in order for you to continue operating in the country. 

There are 31 states in Mexico and every one of them has something different to offer depending on your needs. I would recommend a great deal of research before you decide to invest in Mexico’s vast natural resources. 

Promising New Presidency

Two years ago Mexico had a very polarizing presidential election, quite similar to the one that happened in the United States. A great number of Mexicans support the new president and hail him as a hero of change, and others loathe him and consider him the worst thing to happen to the country. As I said, very similar to the United States. 

Mexico’s new president is promoting innovation and the creation of new jobs in the country by cutting red tape and inviting foreign investors to consider Mexico. This has not had the quick reaction that his political party might have hoped for, but it is slowly gaining traction.

Many of the changes will apply to small businesses, new and more efficient structures, and great opportunities for FinTech businesses under the Mexican SOFOM. In my opinion, the best changes are related to financial services, crypto exchanges, money transfer and remittance businesses, etc. 

His presidency is still very young and we will have to wait to see if he fulfills his promises, but right now things are looking bright. His political party does not want to be a one-trick pony so they are doing whatever it takes to please the people of Mexico. Creating new jobs through foreign investment is a great way to have voters on your side. 

Growing Economy

Mexico’s economy continues to grow despite its change in the presidency and the impact that the American economy has on the country. Mexico has been growing at a rate of 0.3% for the past decade. 

That number might seem small, but it gives an insight into what is happening in the country. Small nonrisk investments govern the market at this moment and will continue to do so in the long run. 

Financial institutions all over the country have benefited greatly over the growth of their sector and will continue to do so. If your idea is to start a financial institution outside of the United States I recommend doing it so in Mexico. 

Proximity to the United States

The main reason why you are probably considering to invest in Mexico is because of its location. Mexico is attached to the southern part of the United States share one of the biggest borders in the world. 

Even though the United States has another neighbor, Canada, Mexico is very different in many respects to both of those countries to make it a very interesting and promising option for investment. 

All of the major American Airlines have direct flights to Mexico City so you can be in the country in less than 5 hours, depending on your location. Also, thanks to its proximity to the United States residents of Mexico already know how business is done in America so you will not have to alter your business plan in the slightest. 

From my office in Tijuana, I can walk to the border and be across in 15 minutes. The wait time and the pedestrian crossing is less than 5 minutes on weekdays and less than 30 minutes on weekends. The line to drive across is a different story unless you have a Sentri pass. 

The proximity is a great advantage as you can take care of your business without leaving the United States. It’s also excellent for nearshore outsourcing and those, like me, who need to go to meetings in San Diego and Los Angeles regularly. 

Complete Control 

The tenth reason to do business in Mexico is that you can now have complete control over your operations. In most industries (not including banking or financial services), you no longer need a Mexican partner. Likewise, you don’t need a “bankers trust’ fideicomiso to hold real estate investments. 

For Fintechs and financial services companies operating through a SOFOM, all you need is a local representative. You give them a few non-voting shares and give up no control. This is a great improvement from when a Mexican person had to own 25% to 50% of these businesses. 

It’s become much easier to set up and control businesses in the country. Back in the day, doing business in this country was a real challenge. Ease of business has improved greatly in the last two years and every sign is that this will continue throughout 2020. 

For more on setting up a company in Mexico, see Step by Step Guide to Incorporating a Business in Mexico

For these reasons, and improved quality of life, I have chosen Mexico for my business. I plan to continue to expand and invest in Mexico. I highly recommend this country as an efficient option for international expansion. 

I hope you’ve found this article on reasons to move your business to Mexico to be helpful. For more information, or for assistance on investing in Mexico, contact us at info@premieroffshore.com or call us at (619) 483-1708

54

Changes to the Mexican SOFOM in 2020

/0 Comments/in , , , , /by

Mexican reform is in full stride as the new president implements his programs. Some of these changes affect the Mexican SOFOM. Here’s what you need to know about setting up a SOFOM in 2020. 

Reform regarding SOFOMs in Mexico is likely to pass as most banks and financial institutions have already felt the wave of change coming their way. Whether it is good or bad is for you to decide about changes to the SOFOM in 2020. 

The agency in charge of creating new reforms in the country is called CONDUSEF. The CONDUSEF has in its power the ability to review and to make modifications to contracts involving SOFOMs. 

This is not limited to the way SOFOMs works as a whole, the modifications this government institutions make can even alter the way SOFOMs deal with clients and realize their service among other things. 

Think of CONDUSEF as the constitution of how SOFOMs operate in the country. These 2020 reforms, rules, and regulations only apply to regulated SOFOMs. If your SOFOM is not regulated then you won’t have to worry about this. 

In order for a regulated SOFOM to remain in business in 2020 and beyond, 70% or more of its assets must come from the allowed activities that it is authorized to perform as stated in the bylaws. Such authorized activities will usually include mortgages, financing, factoring, and the approval and issuance of credit. 

If your SOFOM does not generate 70% of its assets from this manner, then the same percentage needs to come from the administration of its portfolio as a way to be considered part of the financial system. That is to say, 70% of its income should come from the management of its assets (such as is the case with an investment advisor or fund. 

When a regulated SOFOM is considered part of the financial system, it can receive tax advantages. An important tax advantage that comes with the SOFOM being part of the financial system is that its credit portfolio will not be included in the calculation of the tax on its assets. 

Another tax advantage that you and your clients can take advantage of if you form a SOFOM is that the interest that you charge to your clients shall not be subject to a value-added tax. VAT is 16% in Mexico, so this is a big deal. 

SOFOMs are one of the preferred ways for foreign investors to begin capitalizing in the Mexican and Latin American markets. These structures have fewer restrictions on how they can operate compared to the US and Europe and are very powerful financial entities within Mexico.

All of the previous restrictions on investments by foreign investors associated with the capital stock of the SOFOMs have been eliminated. One of the many benefits of the reforms whose one of its main goals is to promote foreign investment. 

This is great news as before, foreign investors needed to do a ton of due diligence before they could invest in Mexico, and even when everything was in order their investment was limited. The red tape on SOFOMs was intense and intended to keep foreigners out. 

As of today, a SOFOM can be formed entirely with foreign investments as long as they follow the same protocol a Mexican entity needs to follow to be structured and that they register with the proper government institutions. 

This presents a great opportunity for foreign investors to take advantage of the situation and set up a SOFOM to operate within Mexico. This structure might provide financial services or investment management throughout Latin America. The SOFOM might also operate as a cryptocurrency exchange or money transmission business.

When you establish a SOFOM, you are given the opportunity to register it as a regulated or nonregulated entity. As a foreign investor, you have the advantage of using the nonregulated version as a low-cost financial services entity. The setup costs and operational costs for this entity in Mexico are a fraction of those associated with an international bank in Puerto Rico, for example. 

For the same reason, financial institutions who own a SOFOM or individual foreign investors have the opportunity to offer their clients a lower interest rate on credit and loans. Also, the costs of labor and other expenses will be significantly lower than in competing jurisdictions. For example, see Sample Operating Expenses for an Offshore Bank in Puerto Rico.

SOFOMs are becoming extremely popular in Mexico and I expect this popularity to continue in 2020 as the regime of the new president continues to implement his reforms The CONDUSEF is already preparing for an influx of foreign investment associated with the registry of SOFOMs. 

I hope you’ve found this article on what is a SOFOM to be helpful. For more information, or for assistance in establishing a SOFOM on Mexico, contact us at info@premieroffshore.com or call us at (619) 483-1708

55

How to Live Tax Free as an American

/0 Comments/in , , , , , , /by

Here’s how to live tax-free as an American. If you’re willing to live, work, and invest abroad, it’s possible to live tax-free as an American – legally and without watching over your shoulder for the tax man. First, note that this article is for US persons willing to live and work outside of the United […]

56

US Regulators to Issue First Federal FinTech Bank Licenses

/0 Comments/in , , , /by

US Federal regulators have begun issuing Federal FinTech bank licenses on a very limited basis to the most qualified applicants. I suggest that only the very largest FinTechs will be approved for the Federal FinTech bank licenses, at least in the next year or two. The purpose of the Federal FinTech bank license to allow […]

58

Where to Start a Cryptocurrency Exchange – Crypto Friendly Countries

/0 Comments/in , , , /by

In this article, I will focus on where to start a cryptocurrency exchange in 2018. That is, where to incorporate a new cryptocurrency exchange. Which countries are friendly to startup cryptocurrency exchanges and why you should consider each based on your business model. Countries are not listed in any particular order. You should select your […]