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Offshore Banking Jurisdictions

The list of offshore banking jurisdictions and offshore financial centers continues to expand as tax competition and globalization continue to fuel demand for international low tax banking solutions. Here is a brief look at the recommended banking jurisdictions by Sterling Offshore.

Isle of Man Banking
Jersey and Guernsey Banking
UK Banking
Luxembourg Banking
Austrian Banking
Swiss Banking
Liechtenstein Banking
"Offshore" Financial Centres
Asian Banking

EU Banking

Over the last few years, EU banks have benefited from measures aimed at liberalizing trade and business practices such as the Single Passport System. Other measures crafted to create tax and information sharing hegemony amongst all of the member states such as the EU Savings Directive 2005 were not as welcomed by some of the traditionally popular banking jurisdictions. The EU Savings Directive 2005 is explained in more detail in another section, but let us briefly discuss the positive impact of the Single Passport System.

“Single Passport System”

The single passport system essentially allows banks from one member EU country to open branches in other EU countries whilst maintaining their internal policies and regulations and adhering to the banking laws of the home country of the bank. Banks in popular jurisdictions such as Isle of Man, Switzerland, Lichtenstein, Luxembourg, and Austria have been taking advantage of this and opening branches in other EU countries.

Isle of Man Banking

Isle of Man began to lose some of its appeal as a tax haven following the EU Savings Directive and other international agreements it had signed for the exchange of information; however, in 2006 the Government made a move that has catapulted Isle of Man near the top of the banking world. They reduced the corporate tax rate from 10% to 0% for both resident and non-resident companies rendering much of the information exchange provisions meaningless. Its tax haven status along with the jurisdiction’s AAA rating, excellent communications infrastructure and highly skilled employment base makes Isle of Man one of the top tax havens and overall premier banking jurisdictions in the world.

Isle of Man is a well established offshore banking jurisdiction with most of the largest international banks having a presence or even their main operations based there. Isle of Man offshore banks are often utilized as the regional headquarters to the UK market with many of the large London institutions, such as those operating in the Knightsbridge District, actually operating as branches of the Isle of Man headquarters. This is mainly for privacy and tax advantages afforded to the clients and the banks themselves.

Isle of Man banks offer a wide array of services including both private banking and commercial/business services. Many international companies requiring sophisticated credit card processing and other business support services often choose an Isle of Man bank. Several of these Isle of Man banks also offer a variety of investment vehicles and private banking services to international clientele. Sterling Offshore generally recommends our Isle of Man banking partners for business and commercial accounts. We also recommend them for private banking in certain circumstances.

Jersey and Guernsey Banking

Jersey and Guernsey banks were amongst the first to market to foreigners in the early stages of what is now the modern offshore banking industry. Both are still utilized for offshore banking; however, many of their banks are actually headquartered in Isle of Man with the Jersey offshore banks and Guernsey offshore banks largely being utilized as branches or representative offices. Many of the processes, services and even communications are actually being routed through Isle of Man so we generally just recommend an opening an offshore Isle of Man bank account if choosing amongst these jurisdictions.

UK Banking

London is the biggest financial center in the world and obviously the banking options and level of service is amongst the best in the world. While banking secrecy laws in UK may not match those of many other jurisdictions, UK bank accounts for structures set up elsewhere still offer reasonable privacy. Additionally, funds transferred to and from a UK bank account will draw less suspicion than from jurisdictions labelled as "tax havens".

Luxembourg Banking

Many are surprised to learn that Luxembourg is the second largest banking jurisdiction in Europe (behind the UK) and the largest private banking country in Europe. Although not as rich in history or as well known to laymen as Switzerland, Luxembourg banks have gained enormous popularity over the years; especially since 1980 when it solidified its long history of favorable taxation and banking secrecy into law. Since that time, managed fund assets have grown from $3 billion to $1.85 trillion, 2238 managed funds in all, at the end of 2006. Total assets held by banks amounted to $1.1 trillion of that figure.

Luxembourg Banking Laws and Regulations

Luxembourg does not use the term “offshore” in any of its legislation, regulations or anything describing its company forms. The key to typical “offshore” tax status for Luxembourg business lies in the various forms of “holding companies”, collective investment vehicles and investment funds outlined in legislation such as the 1929 Holding Company, Milliardaire Holding Company, Financial Holding Company, SOPARFI, Fond Commun de Placement, SICAV, SICAF and SICAR. Going into detail about each would be beyond the scope of this section, but these basically provide several options for favorable tax status for both resident holding and investment companies as well as non-resident companies. Individuals holding accounts with Luxembourg banks and financial institutions are also exempt from local taxation on capital gains, dividends and interest unless they reside in one of the EU member countries.

One potential negative to banking in Luxembourg is their agreement to begin information exchange with the EU by 2009 as a result of the EU Savings Directive 2005; however, for individual clients not residing in any of the countries affected by this Directive and non-resident corporate clients, Luxembourg taxes will likely be non-applicable to you allowing you to bank there with no local tax obligations. As always, it is advisable to seek the counsel of your tax professional to identify your status.

Luxembourg Banking Services

Most of our discussion of Luxembourg has focused on investing and this is generally the only use for which we recommend Luxembourg to our clients. Luxembourg does offer commercial banking services for non-resident businesses; however, there are more favorable options such as Isle of Man for most of these customers. Luxembourg is suitable for clients seeking private banking and investment services or for large businesses that may have an interest in establishing a physical presence in Luxembourg.

Austrian Banking

Austrian banks have a rich history dating more than 200 years. Austrian banks offer a variety of services; however, for foreign individuals and non-resident legal entities they are probably best used for private banking or for commercial entities looking to conduct business in the booming Eastern European market. Austrian banks have had a presence in Eastern Europe for over two centuries, but they have been rapidly expanding there as well as in Central and Southeastern Europe since 1990. This was a bit of a gamble at the time, but the gamble has paid off as many of these economies are among the fastest growing in the world.

Banking secrecy is enshrined in the Austrian Constitution. This secrecy can only be lifted by an Austrian Court Order for the purpose of investigating a criminal case or one involving criminal tax fraud (forgery of documents). Tax evasion reaches the “criminal” threshold when the evaded tax amount is 75000 Euro or the foreign currency equivalent. While just slightly less appealing than the Swiss laws, Austrian banking secrecy is still very solid by international standards.

Austrian banks are regulated by the Bankwesengesetz (The Banking Act) of 1994.

Austrian banks are slightly less expensive and a much lower profile option to Swiss banks. They offer solid private banking services as well as a few specialized products. We generally recommend Austrian banks for commercial entities conducting business in Eastern Europe and private banking clients, but we do have one bank in particular who offers specialized products to US and Canadian clientele.

Swiss Banking

Swiss Banking History

Swiss banks and Swiss banking secrecy have their roots dating back more than 300 years. Swiss Banks have long been famous for their privacy, security and superior private banking services. Indeed, Swiss banks have proven themselves many times throughout history to be both secure and committed to the privacy of their clients. In fact, it was attacks on Swiss banking secrecy promulgated by Hitler in 1931 as well as French leftists looking to uncover account information regarding French Aristocrats in 1932 that caused the Swiss Parliament to codify the Swiss banking code into the Banking Law of 1934, which still governs today.

Swiss Banking Laws and Regulations

The Swiss Banking Law of 1934 is a comprehensive piece of legislation which is still the basis for the current legal and regulatory structure governing the Swiss banking industry. One of the most important components of the Banking Law of 1934 was a provision which criminalized violators of banking secrecy. It is important to note that Swiss banking secrecy cannot be lifted by tax authorities or for requests made by treaty partners for information requests relating to possible tax evasion. Tax evasion is only considered an administrative offense in Switzerland. Swiss banking secrecy may only be lifted in cases of serious criminal matters such as crimes relating to tax fraud, money laundering, drug trafficking, weapons smuggling and terrorist financing.

In line with internationally adopted practices, Switzerland has adopted mutual legal assistance treaties and cooperates with foreign governments on matters relating to “serious crimes” such as criminal tax fraud (falsifying or forging documents), money laundering, drug and weapons trafficking and terrorist financing. Although many in the offshore world see this as a potential sign of weakness and a harbinger of things to come, our view is that this is ultimately good for Switzerland and its image. Switzerland is not likely to allow this to be abused by foreign tax authorities. As mentioned earlier, tax evasion is only an administrative offense in Switzerland and thus does not rise to the necessary level of “serious crime” required to cooperate with foreign governments on these matters. They have also elected to reject the information exchange option of the EU Savings Directive, instead opting for the withholding route and preserving the privacy of their banking clients.

Switzerland’s storied history of privacy and neutrality is still alive and well today. Privacy and neutrality remain cornerstones of banking laws and regulations. Accordingly, Switzerland has refrained from applying for entry into the EU and it has rejected most attempts by the EU to impose itself and infringe upon Swiss Independence.

Swiss Banking Institutions

Over 500 licensed bank and securities dealers operate in Switzerland holding approximately 35% of the world banking deposits. These range from major international banks to smaller Swiss private banks. The options vary from small independent Swiss banks to large international banks, the two largest of which UBS and Credit Suisse hold over 50% of Swiss banking deposits. For a variety of reasons, but mainly due to international pressure placed on these two institutions by the USA and UK (where they have a substantial presence), we do not recommend either of these Swiss banks to our clientele seeking private banking.

Swiss Banking Services

Swiss banks provide a variety of services but are best known, and indeed probably best utilized, for private banking and wealth management for high net worth clients. Swiss banks offer access to every international market and nearly every type of investment imaginable, all supported by some of the brightest financial minds in the world. The preferred Swiss banking partners of Sterling Offshore certainly fit this description.

Liechtenstein Banking(We are not currently recommending Liechtenstein due to recent developments)

Liechtenstein banks are similar to Swiss banks but on a smaller scale. There are only sixteen Liechtenstein banking institutions and a few of those are actually branches of Swiss banks. Twelve of the banks were granted licenses within the last four years.

Other than obviously being smaller and having fewer institutions, Liechtenstein shares many similarities with Switzerland including being an independent state outside of the EU.

Liechtenstein Banking Laws and Regulations

Liechtenstein banking laws and regulations closely resemble those of Switzerland. For instance, tax evasion is also considered an administrative matter and not a criminal offense. Liechtenstein only has one Mutual Legal Assistant Treaty and that is with the United States. It is important to note that this treaty does not include probes into matters concerning possible tax evasion since this is not considered a criminal matter.

After a couple of high profile money laundering cases earlier this decade, Liechtenstein implemented a law which increased internal regulation and auditing while also allowing for a process where foreign governments may request assistance into criminal matters. The foreign government must petition the Liechtenstein Court to have the authorities conduct an investigation. There is an appeal process allowing the accused party to possibly thwart the investigation. These are generally only for tax fraud (falsifying or forgery of documents), money laundering, terrorist financing, weapons smuggling and drug smuggling and other serious criminal offenses. For anyone concerned that this is a harbinger of things to come, the ruler of the Principality, Prince Alois told Bloomberg News in 2006 that Liechtenstein banking secrecy is “very firmly anchored” in Liechtenstein. He went on to say that any measure to change this or water down existing Liechtenstein banking secrecy laws would likely be rejected if put to a referendum to the people.

Liechtenstein Banking Services

Liechtenstein banks are most noted for their private banking facilities and indeed offer sophisticated, individualized services for clients. Access to international markets and a host of investment instruments are available. Investment income on non-resident accounts is not liable to local taxation. Commercial banking is generally not available and/or practical for foreign companies.

"Offshore" Financial Centres

In addition to those discussed previously, many other tax haven jurisdictions remain popular for banking including the British Virgin Islands (BVI), Cayman Islands, Belize, Panama, Bermuda, etc. For basic banking services, Barclays (Seychelles) is a fine institution and one that we often establish along with a Seychelles IBC.

Asian Banking

More recently, the Asian banks have made a strong push into the offshore banking realm with both Hong Kong and Singapore gaining in popularity. Both of these require the company to be established in the jurisdiction. Additionally, company incorporation is generally more expensive with more restrictions than other popular jurisdictions.

Sterling Offshore continually researches the offshore banking sector in order to advise clients on the best jurisdiction and bank for their particular needs. New agreements between countries are being signed regularly affecting international depositors to the institutions. We monitor these agreements and work closely with our partner banks to provide timely and accurate information concerning the offshore banking world to our clients.