An offshore structuring strategy can be one of the best things you do for your business.
There are lots of reasons why structuring your company in an offshore jurisdiction could make sense for you.
We’ve covered many of these benefits in past articles, including asset protection and tax efficiency. But beyond choosing which country to pursue offshore structuring, you also need to take into consideration all the other implications this can have for taxes, revenues, payments, and more.
The problem is, people always seem to make the same critical mistake. And sadly, even hiring a professional won’t necessarily save you. Read on to find out the fatal error offshore businesses and entrepreneurs keep making…
When you set up a new company, chances are you’re going to make every effort to ensure that it’s perfect. You will take every step necessary to ensure that you’re getting the most efficient structure to benefit yourself, your customers, and your suppliers.
But often times, critical aspects are overlooked in offshore structuring. And when it comes to offshore companies, that weakest link, without fail, is the company’s “banking stack” – a.k.a corporate bank accounts, payment processors, and banking relationships.
Banking is the backbone of your company. It dictates your operations, how safe your funds are, and how easily you can actually do business and accept payments.
If your banking and payment processing solutions are unpredictable, prone to periodic freezes or closure, require absurd amounts of documentation to support transactions, have painfully high fees, or constantly reject incoming or outgoing transfers – that’s a huge problem for your business.
If you lose customers or can’t accept payments, your business loses money. And if you have to spend significant time dealing with banking issues and payment problems, your business isn’t growing.
If your bank account doesn’t work, nothing works. Your ability to manage cash flow, generate profit, and accept payment all rely on your banking arrangements functioning seamlessly – without constant headaches, freezes, and technical failures.
This is why it’s so important to consider the banking side of your business first, before moving forward with offshore structuring. If you don’t, it can be problematic later on. Or worse, you might find yourself with a corporate structure you can’t even set up a bank account for at all.
Lawyers, accountants, and other experts are generally helpful when it comes to setting up your business. They can introduce you to the most tax-efficient structures and will be able to give specific advice based on your personal situation and the objectives you have for your business.
But there’s a problem: they aren’t banking experts. They aren’t entrepreneurs. They don’t have long-standing banking relationships. So, they’re clueless when it comes to determining the best banking and payment solutions for your business.
Sure, they can be invaluable when navigating legal issues and tax systems, but they don’t have the right mix of knowledge to sort out out banking and payment processing logistics for your business.
Picture the typical conversation you’d have with a corporate service provider in setting up a company…
You: “How should I structure my business?”
Them: “I would recommend setting up a company in the British Virgin Islands.”
Now, the most important thing you’ll want to ask yourself is: “why is this service provider recommending this structure in this jurisdiction?”. Is it because this is genuinely the best structure for your situation? Or is it because they only offer companies in this jurisdiction?
This doesn’t discount the fact that a BVI structure might be the best choice for your business in theory. But in practice, a BVI company is going to have a very hard time opening a bank account (if it can open one at all). And without a bank account and payment processor, your new (expensive) structure is going to be useless for your business.
Instead of accepting the recommended structures at face value, simply click the chat button below and speak with one of our analysts to confirm whether there are any banking options available for the proposed business. This will tell you if there are any options that fit your needs.
The main reason offshore companies struggle to open bank accounts is because their corporate structures start with the country of incorporation, which is wrong.
You see, most people seek out legal advice and accountants to identify the best jurisdiction for tax purposes and don’t make a banking a priority. Banking is something most people mistakenly think that they can just figure out later, after the company is set up. This is the wrong approach.
It’s a common mistake to only consider jurisdictions for offshore structuring based on the tax rates, legal framework, or tax treaties. But you really need to think ahead and consider the operational realities (and limitations) if you were to have a business registered there.
This is why it’s so important to determine your banking and payment processing needs first and work backwards. Banking is the glue that holds all the other pieces of your business together.
If you’re thinking about offshore structuring, identifying the banking solutions that you will need for your business to be successful is the first step.
Likewise, if you already have multiple companies, try the exercise below for one of your existing business to see if you have the best structure possible.
Think about where you will be sending payments to, receiving payments from, what currencies you’ll use and how you need to receive them (i.e. credit cards, wire transfers, cash payments, e-wallets, payment processors, etc.).
Now consider the services that you need to receive from a bank: Will the bank accept and send payments to and from the countries that you’ve listed? How about in the currencies you require? And will they allow you to integrate with the required platforms and payment processors?
This quick and simple exercise will help you identify your banking needs. And, it will help guide you to the best corporate structuring options as well.
Take a look at the banks that align with the banking needs that you identified when answering the questions above. Do those banks accept companies from the Panama or BVI? How about a Cook Islands Trust or a Nevis LLC?
If yes, great. But if not, you should look at the companies and jurisdictions that those banks do accept. Otherwise, you might end up with an expensive shell company that you can’t even open a bank account for.
After all, it’s easy to sketch out a list of potential jurisdictions to setup a company in. But determining the banking and payment solutions that match up with those jurisdictions is the difficult and time-consuming piece of the equation.
For this reason, first determine your banking needs, then choose the top jurisdictions where you can access those banking services. After that, you can start the process of choosing which corporate structuring options can access banking in those countries while also meeting your other objectives, such as taxes, privacy, asset protection, and other business considerations.
You can have the best company in the lowest tax jurisdiction, but if you can’t open a bank account or accept payments for that structure, it’s worthless.
Don’t waste thousands of dollars and make this offshore structuring mistake. Start with the most important component, your banking and payment processing requirements, and then work backwards.
Having the right banking stack determined before opening setting up a company is critical. It can make the difference between a company with a viable bank and an expensive useless company.
If you want to access the offshore banking world for you or your business, we can help. Get started with account opening and find the best international banking solutions for company now, join GlobalBanks Insider and you can cancel anytime. Click the link below to learn more.
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