Offshore Merchant Accounts and Panama Ecommerce Solutions

Access our online Merchant Account Application.
Panama bank direct merchant credit card account.

E-Commerce can provide you with a good opportunity to set up an internationally based business. Such a business can be operated at arms length from your own home (high tax) jurisdiction or from anywhere in the world. Depending on what is being sold, an e-commerce business is the ultimate portable venture.

To take advantage of the e-commerce opportunity for tax optimization purposes, you need to set up an offshore corporation that you neither own nor control. This then can be your platform for an international business with great tax benefits.

A few of the basic ingredients would therefore include:

1. An a "non-controlled" IBC and a bank account in a tax haven country.
2. Web hosting in a country other than your own.
3. Credit card merchant account - outside your home country - and preferably directly with a bank also in a tax haven country.

To make this arrangement even more secure, you should also ensure that whatever product or service is being provided is also based in, or distributed from, an "offshore" location. Consequently, there is no literal business activity taking place on your home territory. Even better, you can employ people offshore. What you want to achieve is a genuinely international business, one outside your own tax jurisdiction.

The corporate structure (IBC) forms the basis for this strategy as it provides you with the legal framework for doing business. The web-hosting location adds another layer of protection and enhances your international location. The third element of the strategy is your merchant account, by which you are authorised to debit people's Visa / Mastercard (and others).

Getting a merchant account in your home country should not be difficult but that is not the best option. You need a merchant solution that is outside your jurisdiction. Why? Because the proceeds of all sales should bypass your own country's banking system. Remember, this is an "international" business you're setting up, so you need an international payment solution.

To activate your international merchant account, you need the services of a bank or clearinghouse.  The latter is a third party service that will allow you to bill using their merchant status, although many e-commerce business will qualify for their own bank-direct merchant account where the billing will be in their name.  As you would expect, this type of service costs more that one in your country of residence.

Most domestic merchant accounts will require a 2.5%-3% discount rate which is the percentage they take of your turnover. However, with an offshore merchant account the discount rate is higher. You can expect to pay anywhere from 4% to 12% dependant on the average ticket size. The higher rates would be for the riskier businesses.

Your sales proceeds (less discount and reserve) will be wired to your offshore corporate account or if are fortunate enough to hold a bank direct account then the deposits will be made directly into your regular bank account which you will also have with that bank. If you are selling information services - then it's even easier, as you can have the actual information located offshore as well. What that means is that you have no trading base in your home country. You have no operations, no stock, and no transactions - nothing. You can also contract with third party fulfillment companies anywhere in the world to ship your product / service, and many will provide you with credit card payment options as well. Drop shipping is also a very commonly used option since you will have no inventory costs to consider, although many merchant credit card processors may require you to ship from your own stock.

That leaves just one thing. What about the money you make and how do you get it back onshore without tax liability? The clandestine way of course, is to use a non-associated offshore card to draw funds from an ATM but this is neither a long-term solution nor one we would recommend, especially if you need to show some income to justify your lifestyle.

The easiest solution is to treat this e-commerce business as a secondary income stream and build up an offshore nest egg. However, if this were indeed your primary income, then you would need to repatriate funds at some stage. This "drawn" income would be taxable in your home country (and you'd need to have proper paperwork to justify this income) - leaving undistributed profits to accumulate offshore.

For instance, let's say that you are selling a magazine. The company publishing this magazine would be the IBC and all the accompanying business arrangements already discussed would be in place. You may be contracted as the editor of this magazine - and therefore receive remuneration accordingly. That income would be taxable in your home country - but would not represent the full profit picture of the company as a whole. The balance of your profit would be retained offshore.

Implementing a turnkey E-Commerce business:

Sovereign Management & Legal can assist you in all the steps to set up an e-commerce business based virtually or physically here in Panama.  We would always recommend a direct bank merchant processing relationship, if possible, and Panama has some banks that specialize in e-commerce merchant accounts.  Your credit card transactions are deposited into a regular bank account that is also opened in the same bank.

We also work with several clearinghouse credit card processors that will work with almost any type of business including start-ups with the exception of pornography. They will wire payments into any bank account you designate and they have no problems with “virtual” offshore e-commerce businesses without a physical commercial location. Once your structures have been set up we can assist you with the setting up of a bank account to receive payments from the credit card processor.

Panama bank direct merchant credit card processing account:

For existing e-commerce businesses processing at least $20,000 in existing credit card volume we can obtain a merchant account directly with one of the largest banks in Panama. The average rate is typically around 4.5% + 23 cents per transaction but rates will be based on volume, years in business and other factors.  These rates, while higher then domestic, are considerably lower (as much as half) then what you can expect to find with a typical offshore clearing house processor.  Both options however will typically deduct a 10% 6 month floating reserve.  This means that the reserve will be released and paid to you after 6 months has elapsed.

The advantages of this other then the lower rates are:

1. Greater stability – most clearing house payment processors are ultimately dependant on their bank processing relationships which can change causing disruptions.
2. Strict banking privacy – many offshore payment processors and their banks are located in countries with little or no banking privacy.
3. Faster turn around on getting paid.
4. You deal directly with the bank rather then with a separate organization that then deals with the bank.

If you have a start-up operation we would advise starting out with a clearing house processor and after at least 6 months or a year once there is sufficient volume and transaction history, moving to a direct bank processing relationship.

Requirements and procedures for Panama bank merchant account:

1. Complete Bank Merchant Application
2. Present written information about company and product(s):
   
   
   • Articles of incorporation and Certificate of Good Standing.
   • Owner(s)’s copies of passports or I.D. cards.
   • Copy of operational license.
   • Gas, water, or electricity bill with company address.
   • Call center(s) information.
   • Technology (providers, quantity, software, packing)
   • Website (company and registry document).
   • Trade references (provider(s)’s information).
   • Shipment information (shipping company, delivering time)
   • Business Plan (markets, product description, product history)
   • Refund Policy.
   • Financial Statement (most recent balance sheet/Income Statement).
   • Tax returns of the last 2 years.
   • Bank statements of last 3 months.
   • Two Bank References on letterhead addressed to Bank (or attorney / accountant reference letter if only one bank reference available)
   • Two Commercial References on letterhead addressed to Bank (can be issued by providers)
     
     
3. Present written information about gateway(s) and processor(s):
   
   
   • Name(s)
   • Contact person(s)
   • Account registry document
   • Processing history (all transactions including chargebacks and returns for the last 6 months).
   • Monthly Billing
     
     
4. Sign proposal provided by Bank.
5. Sign Spanish & English contracts provided by Bank.
6. Complete and sign account opening forms.
7. Wire funds for accounts agreed on proposal.

For On-line Pharmacy Merchants:

1. Medicine rider duly signed (including name, location, license, and contact person)
2. List of U.S physicians that will issue prescriptions, showing their id numbers.
3. Questionnaire for prescriptions.

Acceptable chargeback rates are 1.0% for Visa & Mastercard separately and credit or returns rate: up to 5.0%.

The information requirements listed above are a little more demanding then what would be required by a payment processor but the following is quite typical for this option:

1. Financial and professional references: Usually a bank and professional reference letter are required to accompany the account opening in the case of bank direct merchant accounts. Requirements vary from solution to solution.

2. Letter Describing Your Business: A letter should be provided with the following information:

• Summary of your business activities.
• Description of products and/or services sold online.
• Jurisdictions your company is currently doing business in.
• Year your company was incorporated.
• Previous or expected business volume (annual revenues, sales, etc.).
• Estimated charge-back percentage.
• Website URL that will be used for selling your product or service.
• Jurisdiction where site is hosted.

3. Prior 6 months of processing statements – if already processing credit card transactions this is most important in order to be able to obtain a preferred rate.

4. Photocopy of passport for all company directors, officers, and legal representatives or signatories of the account.

Whatever option you choose, the principals of our firm have had over 15 years experience in the merchant credit card processing business and can provide you with the right processing platform.

Our fee for facilitating the account opening is only $450 if not already bundled into a package such as our special Panama e-commerce package. Gateway processing integration and set-up fees, depending on the solution will cost around $750 to $1000 for the direct bank merchant account options and expect to pay $500 as an application and due diligence fee.  Clearing house processors typically will charge less with $500 typical and in many cases that can come out of the first processing transactions.  Most banks and processors charge a monthly fee of $75 to $100 in addition to any monthly fee charged by the payment gateway provider.