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Non-Bank Financial Companies - Offshore Alternatives

The days when offshore jurisdictions issued bank licenses with minimum requirements are long gone. Now there are strict capitalization and due diligence and relevant experience requirements and the need for a physical office and employees in the jurisdiction offering the licence.

However, there are a number of alternative structures to a bank that can offer services such as deposit taking, payment processing, investing, brokerage and forex trading, and some options do not require a physical office platform in the jurisdiction of formation.

The most popular include New Zealand or Panama Financial Services Companies, but also include options such as Offshore Brokerage Licences in Belize and other jurisdictions, Private Hedge Funds in places such as St. Lucia, BVI etc. as well as Swiss Trust Companies.

Panama Financial Services Company

A popular and the least expensive offshore financial services company option out there. This is an unregulated licenced option suitable for:

  • electronic payment processing
  • e-wallet / e-currency services
  • bullion trading
  • asset management

It earns its status from the Ministry of Commerce which issues the equivalent of a local business licence and tax registration document. It requires a local virtual office as a physical place of business which the local municipality inspector will visit to assess the (modest) local monthly tax dues.

New Zealand Offshore Financial Company

Also known as a Registered Financial Services Providers, these can offer banking, investment and brokerage services to both private individuals and corporations worldwide, with no limitations on the number of customers, amounts on deposit or number of currencies.

New Zealand, having repealed its banking law in 1995, did not replace it with anything new and therefore the normal barriers to entry that exist in other countries simply are not there.

These companies either can operate simply as offshore companies with no special legal status, other than the freedom to offer such services, or it may register on New Zealand’s Financial Services Provider Registry for the additional credibility that this will afford.

However, this will require a local physical office operation and a local manager ideally appointed as a company director, among other requirements.

Vintage Swiss Trust Company

This is an interesting non-regulated alternative to a bank (or, "self-regulated", as the Swiss like to state) and can perform many similar services, so long as it does not refer to itself as a bank.

Through a conversion process, an ordinary aged dormant Swiss shell company that once was in business is transformed into a credible looking trust and financial services company. The main selling points are age (up to 80 years!) and Switzerland.

The fact that, under Swiss law, there is no actual legal definition of a trust company, and that the original company may have been in a completely unrelated business does not detract from how such a company may be skillfully used, capitalizing on the aura that a Swiss financial entity can still project.

They can be molded into a “flagship” type of corporate entity and, along with Swiss administration and banking, can attract all sorts of business opportunities that might be much harder to come by.

Of course none of this comes cheap and, apart from the paid-in capital requirement (CHF 50,000 or 100,000 depending on age), the acquisition cost can be anywhere from US$50,000 to $250,000 with the “ideal” age being pre-1985 due to certain advantages that can be grandfathered in, under older corporate laws.

Local Swiss director and administration required. No special licencing is required for managing accounts of up to 20 third parties, but licencing readily available for higher account volumes.

Offshore Brokerage License

An International Brokerage and Clearing House License, which allows the license holder to engage in activities such as:

  • brokering, issuing and underwriting of securities
  • asset management
  • transaction clearing
  • fund management
  • payment processing
  • currency trading
  • financial advisory

There are many options out there for this, some being quite expensive with local qualified director and office requirements.

Mauritius has been popular for a long time, but they are starting to require a local physical office presence and director. Belize has one of the least expensive options at this time with very low capitalization requirement (only $25K) and no local office or local director requirement.

BVI Closed-End Hedge Fund

A closed-ended fund is unregulated and not covered by the Mutual Funds Act in BVI and are often used as Hedge Funds, Private Equity Investment Companies, etc. The closed-end fund structure consists of a business company limited by shares.

A closed-end fund is different from an open-ended fund (mutual fund) in that investment units are redeemable at the discretion of the fund manager or in accordance with the terms agreed upon with the investors of the fund, rather than redeemable on demand, as in the case of a Mutual Fund.

This means there only can be a fixed number of investment units for sale as with a Limited Partnership. Closed end funds are not subject to the license and supervisory requirements of the FSC.

You may not use the word “Fund” or “Hedge Fund” in the name. Main advantage of this option is a lower entry cost and unregulated status as compared to the typical mutual fund licence options available in BVI, as well as many other offshore jurisdictions. No local physical office or director required.

Mutual Fund (Open-Ended Licence)

Of interest to most of our clients is the lightly regulated Private Fund options, which do not require a third party administrator, as do the Public and Professional funds.

Private Mutual Funds are always limited by the number of investor clients that can be inducted. The normal maximum is 50, with a minimum required investment of $100,000.

However, other newer legislation is leading the way, with St. Lucia offering excellent value, with a 100 maximum clients with a minimum required investment of $50,000.

BVI and the Caymans are more well-known (but expensive) set ups, especially with regards to the annual registered agent charges, which are based on a percentage of the assets under management.

In the lesser-known fund jurisdictions, such as St. Lucia, we are able to negotiate very reasonable fixed fee arrangements that are not percentage based. No local physical office or local directors usually required.

Swedish Credit Union

This was once a very popular option that we used to offer, but has been severely emasculated due to a zealous partnership between the Swedish FI and their tax agency.

There are simply too many restrictions, not only on membership, but also in regards to types of services that can be offered, as well as the maximum member deposit size (not to mention the aforementioned agencies waiting to de-register the entity for almost any perceived infraction).

Although you will still see some formation offers for these on the internet, we strongly suggest you take our word for it, and do not waste your time and money trying to use this as an alternative banking vehicle.

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