Why is it impossible to open an account in a EU bank’s for offshore?

Recently, offshore companies were a great financial solution for many entrepreneurs. his was due to a number of reasons, including the absence or reduced taxation, complete confidentiality of beneficiaries, lack of accounting and financial records, etc. However, with the beginning of the active phase of deafschorization, all advantages of offshore companies began to decline, and problems with business conduct through them became more and more. Under the influence of regulatory bodies, many countries have made changes to legislation aimed at preventing erosion of the tax base. The international community takes all measures to ensure that each offshore zone brings its legislation into line with international standards. The regulatory impact affected not only the tax aspects of conducting business offshore, but also the banking sector. If earlier, opening an account for an offshore company in a European bank was not a problem, today it is actually not possible for a number of reasons.

Reasons for refusal of European banks to open accounts for offshore companies

1. Spoiled reputation of offshore companies on the international arena

With the beginning of global de-offshoreization, the European Commission, as well as the specially created intergovernmental organization FATF, began to create black and gray lists of so-called “uncooperative” jurisdictions. This term refers to countries whose legislation can create conditions for laundering illegal funds. Among such conditions, the following can be distinguished:

• Gaps in the regulation of the financial sector (for example, when making transactions to accounts in such countries, there is no proper authorization, that is, documents about the source of the funds are not requested).
• Imperfect legislation of the country (for example, closed registers of beneficiaries, due to which it is impossible to establish the owner of the company).
• Obstacles in international cooperation (legislative refusal to transfer financial and other information to international organizations, etc.).

Since European banks are regulated by the relevant banking/financial legislation, operate according to the obtained license and are the objects of financial monitoring, they are obliged to comply with all prescriptions in working with their clients. In particular, not to serve companies from offshore jurisdictions that are on the black/grey lists of the EU, FATF. This situation become due to their bad reputation, offshore companies fall under the high risk category. As a result, banks that work with such companies may suffer reputational damage and even lose their license.

Note that this applies not only to offshore companies, but also to EU companies that work with offshore companies. Thus, the compliance procedure provides for notification to the bank about future partners from whom funds will be deposited into the account, and if these partners are from black/gray lists, the probability of opening an account is significantly reduced.

2. KYC procedure

Before opening a corporate account, every company must go through a compliance procedure, which involves submitting a package of documents to the bank. Among them, company registration documents, identification documents of the beneficiary and his CV are required as a standard. And if earlier this procedure was simple, now it is one of the most problematic stages.

First of all, banks require confirmation of substance (real presence) in the country of company registration, that is, the presence of an office, local employees. At the same time, offshore companies, as a rule, do not conduct activities on the territory of the country, and accordingly, they cannot provide supporting documents, such as a lease agreement, office payment receipts. However, even if a company decides to rent an office to complete the KYC procedure in a bank, it may acquire the status of an offshore zone resident and will be required to pay all local taxes. As a result, all the advantages of the so-called classic offshore lose their meaning.

Secondly, European banks prioritize companies that pay taxes in the country of registration, keep accounting records and annually submit financial statements. In addition, when opening an account, the bank may request a financial or audit report of the company for previous years. Such a requirement completely puts offshore companies in a hopeless situation, since they do not pay taxes, and the reporting of such companies is currently minimal and involves only keeping accounting documents at a registration agent.

Also, due to the fight against money laundering, European banks require documents confirming the source of funds of the beneficiary of the company, for example, a tax declaration, documents confirming the sale of immovable/movable property and others. The bank will not serve clients whose funds do not have confirmation of the legality of their acquisition.

In general, nowadays, banks are focused on local customers who can confirm their connection with Europe, actually do business in the country of registration, and even better – in the country where the bank account is opened. Foreign, non-resident companies are assessed as risky in the eyes of banks, and offshore companies are categorically unacceptable.

An alternative option for offshore companies

Based on the above information, it is actually not possible to open an account at a European bank. The solution of this problem can be payment systems with financial/banking licenses, which provide almost the same range of services as traditional banks. Note that they are also required to follow the KYC procedure and verify each client, according to international standards. Even more, many payment systems also do not work with offshore and blacklisted countries. However, the market of payment systems today is so extensive that every company can find its ideal option by first contacting specialized specialists.

Thus, the registration of companies in the offshore zone requires a detailed consideration of all the nuances. The era of classic offshores is coming to an end, instead there are many obstacles in doing business through them. The impossibility of opening an account in European banks deprives the offshore company of the opportunity to fully work with EU partners and use reliable financial services. Today, there remains an option of a corporate account in the payment system, although the prospect of its existence is also not stable.