For many individuals and businesses, offshore banking is the ideal way to diversify assets and protect wealth, whether they are safeguarding assets for future generations, retirement planning or starting an international business. Offshore banking varies from one jurisdiction to the next, and not all services are right for everyone. Staying ahead of trends in offshore banking can help you decide what is right for you.
Here are seven of the biggest trends in offshore banking today:
1. FinTech Improvements
FinTech, or financial technology, is improving at a staggeringly quick pace and will have an impact on all types of banking, including offshore. Offshore banks are already making great strides to improve their online banking capabilities. In decades past, some offshore bank account holders established accounts and then made minimal movements with their assets. Today, however, it is easier than ever before to take total control over your holdings, and that is true whether your bank is right in your neighbourhood or halfway across the world. As long as you have access to your smartphone and an internet connection, you can transfer money, pay bills, and check the balance of your offshore accounts. FinTech has made online offshore banking safer and more accessible.
2. Emphasis on Asset Protection
There is a myriad different reasons to bank offshore, with a reduction in taxation remaining the priority for many individuals and businesses. Offshore banking destinations like Belize help to make that possible. However, there is also a growing emphasis on a different financial priority: asset protection. As litigation abounds in countries such as the United States, many recent converts to offshore banking are pursuing this option as a way to get peace of mind about their assets.
3. E-commerce Moving to Offshore Banks
Roughly 25 per cent of the world’s population shops online. In fact, E-commerce is now responsible for almost 14 per cent of all global retail sales. This is a trend that is expected to grow, and it may have a considerable impact on the popularity of offshore banking. With E-commerce, there is no need to be tied to a specific location. With this in mind, it makes sense to have business bank accounts that are located in the ideal location for corporate privacy, maximum financial protection, and greater banking privacy. Thanks to legislation offering perks to International Business Companies, offshore banking in Belize is especially popular for thriving E-commerce businesses.
4. All Eyes on Blockchain
Over the past few years, there has been a growing focus on cryptocurrencies. Although major players like Bitcoin are not necessarily the strong currencies that some had hoped for, there is no question that the technology behind Bitcoin is going to have an impact on offshore banking. Blockchain technology is what makes cryptocurrencies like Bitcoin function properly. Data about the currency is available publicly, but it is also protected and encrypted. This technology is already working its way into modern financial practice, and it will very likely have an impact on the way offshore banks of the future operate.
5. Changing Tax Rates and Structures
Offshore banking can often lead to lower tax rates. However, that is not a universal truth. Around the world, many countries are adjusting their tax rates for both the general public and for businesses. This can narrow margins and make it harder to determine where you should ultimately be banking. In Australia, for example, taxes are very high, which means that banking in Australia just isn’t competitive when compared to nearby Pan-Asian nations. That might change, as there is a shift in average taxation around the world. At the same time, however, offshore banking centres are taking all that information into consideration and showcasing how account holders can benefit. Fortunately, destinations like Belize still offer such impressively low or even non-existent tax rates so it continues to make sense to move money over to offshore banks here when possible.
6. Focus on Privacy
Privacy is a hot-button issue for just about every financial sector. With every hack or data leak, users become increasingly concerned about who has access to their information. Offshore banks who can offer a greater guarantee of privacy will continue to become more successful and popular with account holders and with international corporations. Banks are employing new methods and tactics to be better guardians of the data they aim to protect. At the same time, they are working in tandem with government agencies that strive to safeguard privacy. That doesn’t mean going against disclosure policies, such as those implemented by FATCA in the USA, but it does mean limiting what information is available to the public and what users have to disclose when they open a bank account or start a business.
7. Increased Customer Care
With an increasing number of offshore banking options available, customers are looking for a more personalised approach. In response, some offshore banks are going to extremes to accommodate customers and tailor their services to the unique needs of global bankers. Customers don’t just want a set range of services. They also want to be able to communicate with bank employees, understand international tax laws, and learn about how to incorporate an offshore business. The banks that stand out today and, in the years to come, will be the ones that offer this personalised approach to offshore banking.
Taking Advantage of Offshore Banking Trends: Belize or Panama?
These trends reveal that offshore banking is growing. Considering the idea of establishing a presence in an international location means finding the ideal country to use as a foundation for your offshore effort. While there are many options, two that deserve close scrutiny are Belize and Panama.
Here are some key points to ponder before settling on the spot to establish your IBC.
One of the primary reasons to establish a business offshore is to operate in an environment with a generally stable and healthy economy. Both Belize and Panama tend to come out ahead of a number of offshore options. On the surface, there may not seem to be much difference on this front. However, depending on the business model that you plan on establishing, Belize may edge out Panama. Part of that has to do with the relatively stable economy. Even during the last major recession, the economy in Belize sustained minimal impact compared to a number of other western countries.
It’s no secret that political struggles can have a direct impact on the economy. Upheavals in the political arena can also spill over into the laws and regulations that govern banking and the operation of offshore arms of international companies. The good news is that both Panama and Belize are considered to offer stable political environments. Since becoming independent on September 21, 1981, Belize has demonstrated the ability to consistently maintain a democratic style of government. Elections are known to be transparent and peaceful. The transfer of authority from incumbents to newly elected is generally seamless. These facts bode well for establishing your IBC in Belize. Since 1994, Panama also has a reputation for fair and honest elections. Operating as a constitutional democracy, the political stability is one of the reasons why the country is so popular for establishing IBCs.
The Tax Situation
Understanding the type of taxes that your IBC will owe is important. Even if the taxes seem low individually, a collective of several different taxes could add up to a tidy sum over the course of the year. To that end, make sure you know what sort of taxation is involved, especially as it relates to tax on income earned outside the country, capital gains taxes, dividend taxes, and stamp duties on the transfers of corporate shares or other assets.
You’ll find that an IBC established in Panama will be exempt from most of these taxes. That helps to keep the obligation simple as well as lower overall. Projecting those savings will help you determine if the remaining tax obligation is within what you consider reasonable.
Action taken by the National Assembly in Belize has changed a few things for IBC owners. Passed in December 2018, the new legislation means that IBCs are no longer exempt from paying taxes. Paying local business taxes, as well as stamp duties now applies to companies in most industries. There is also the need to file annual returns.
Keep in mind that business taxes in Belize are based on net income rather than generated revenue. Depending on how your business is structured, the amount of taxes owed could be minimal.
The Entry Process
Panama makes the entry process simple for any IBC owner. Registration requires no more than one shareholder holding a single share in the company. That one share must have a value equal to or exceeding a worth of US$100.00. Annual fees are also low, and you’ll find that the registered agent fees are equal to or better than in other offshore locations.
Belize also has a simple entry process for IBC owners. The International Business Companies Act of 1990 ensured the steps necessary are easy to follow. It’s recommended to hire a local agent who can prepare the application, double-check the financial data you provide, and verify the data regarding your directors and shareholders is up to date.
The agent can also ensure your Declaration of Ownership, along with supporting documentation, meets government standards. That includes making sure the relevant documents are notarized. Provided that all is in order, It’s not unusual for applications and supporting documentation to be approved in a single business day. That paves the way for paying the first year’s registration fee and establishing corporate bank accounts with a local bank.
Lower Exchange Risk
One of the benefits of offshore IBC operations is enjoying the advantages of a lower rate for currency exchange. On this front, you’ll find Belize and Panama to be two of the best choices. Both countries make it easy to utilise the US dollar as the basis for exchanges. In Belize, you can also make use of Belize currency for exchanges in the event that the rate is more favourable than the US dollar.
The Quality And Quantity Of International Trade Agreements
Panama offers the benefit of international trade agreements with both the United States and the European Union. This provides a wide array of possibilities for any IBC established within the country.
The trade agreements that currently apply to Belize are in compliance with the World Trade Organization. Many are established through the nation’s participation in the Caribbean Community and Common Market (CARICOM.) Bi-lateral trade agreements also exist between Belize and El Salvador, Cuba, China, the UK, Austria, and the Netherlands.
Protection For Your IBC’s Privacy
Protection of tax and other proprietary data is something that many offshore locations offer. Some provide more protection than others. You’ll find that Panama does not make the names of owners or shareholders available to the public. Sharing financial data outside the narrow scope defined within Panama’s laws is considered a criminal offence.
In like manner, Belize protects proprietary data from access by the general public and, in many cases, foreign authorities. In terms of financial information, the country does cooperate with tax agencies related to the country where the company’s main operation is located, but the depth of that information is limited.
Minimal Language Barriers
In Belize, English and Spanish are both used commonly which makes the process of doing business relatively simple.
Spanish is the most commonly used language in Panama. However, many in the business and financial sectors also utilise English. This also tends to make language less of a barrier in terms of managing business transactions.
Which country is right for your IBC? Compare these factors, as well as the trends in offshore banking and regulations including beneficial owner requirements, the number of directors and other officers required for registration, and the difficulties involved with establishing corporate bank accounts. It won’t take long to weigh all the factors and come up with the choice that’s best for your financial needs.
Luigi Wewege is the Senior Vice President of Caye International Bank in Belize, a FinTech School Instructor and Published author of The Digital Banking Revolution.