Offshore banking licenses should only be obtained from the relevant banking authorities.
An offshore banking license allows the holder to operate a bank in one country that provides services to depositors residing in other countries. The license is issued by the country in which the bank operates, which is not necessarily the country of which the holder is a citizen or resident. These countries typically have low or even zero tax rates, meaning depositors can lower their tax bills by banking there rather than in their own country. However, many countries, including the United States, still require residents to pay taxes on securities in their offshore bank accounts, that is, if tax authorities can prove the existence of such securities.
Many offshore banking license holders are not interested in running a bank as such and do not accept deposits from the public. Instead, they will try to operate a bank that exists solely to manage the finances of a business that they own and manage in their country of residence. This setup can lead to lower taxes and greater privacy, both through legal and illegal methods.
There are two main types of offshore banking license. A general license, often called a Class A license, allows the holder to conduct all types of banking business. A restricted license will limit the holder to the activities specified in the license.
Most countries that offer offshore banking licenses will require an annual fee and paid-in capital. The amounts involved can vary widely, although in virtually all cases the paid-up capital is considerably greater than the annual fee. The fee goes to the country’s government, while the paid-in capital is used as the bank’s operating cash and provides some degree of assurance that the bank will remain solvent and operational.
One of the most important variations between the countries that offer an offshore banking license is their tax approach. Countries that offer a “full compliance” system will cooperate fully with the tax authorities of the countries where the depositors reside. Other countries offer minimal or no cooperation.
Offshore banking licenses should only be obtained from the relevant government authorities. Many older licenses contain a clause stating that the license is transferable, meaning it can be sold to someone else. However, most countries that issue such licenses have laws that prohibit transfers, and these laws override any provision of the license itself. The main reason for this is to ensure that all license holders go through the government verification process.