Best Offshore Bank License in 2017
21 February, 2017
The best offshore banking license in 2017 is from the US territory of Puerto Rico. Puerto Rico offers the lowest cost and most efficient offshore banking license available in 2017 and it comes with a tax holiday guaranteed for 15 years.
Puerto Rico is the second largest offshore banking jurisdiction in the Caribbean after Cayman Islands. Cayman had 196 active banks as of June 2015. This compares to about 50 offshore banks operating from Puerto Rico. Puerto Rico has more licensed offshore banks than all of the other Caribbean islands combined.
Puerto Rico is a very active offshore jurisdiction. They're aggressively pursuing hedge funds, high net worth investors, and active businesses with friendly tax rates and an efficient business climate. This article will focus on the offshore banking law, Act 273. But there's also Act 73, Act 20 and Act 22, and a host of other tax holidays available.
In fact, it's possible that Puerto Rico's tax holidays might be the last deals open to Americans once Trump's changes to our tax code are implemented. For a discussion, see: Puerto Rico might be the last tax haven standing after Trump.
Here's why the best offshore banking license in 2017 is from Puerto Rico under Act 273:
- Lowest capital requirement
- No FATCA or offshore compliance
- Lowest operating costs
- Lowest annual renewal fee
- Right to apply for US residency and citizenship through the EB-5 program
- 20 year tax holiday
- Easy access to US correspondent banking
Where most offshore banks require $3 to $5 million in capital, you can open up in Puerto Rico with $550,000. Of that, $250,000 is paid-up capital and $300,000 is cash held at the central bank as a bond.
That is to say, an international licensed bank in Puerto Rico under Act 273 requires capital of $300,000 to held by the financial authority or in a bond (as stated in the Act: $300,000 financial guarantees acceptable to OCFI). Authorized shares are to be at least $5 million. Of this, only $250,000 must be paid-in.
As to US compliance requirements, none of them apply to bank accounts held in Puerto Rico. That means no FBAR, foreign asset statements, or other headaches for your clients
An offshore account in Puerto Rico is the most efficient option for US citizens. It's also very attractive for foreign investors looking to live, work, invest and do business abroad.
A bank licensed in and operating from Puerto Rico is the lowest cost offshore bank available. Costs of labor is lower than any US state and most competing jurisdictions such as Cayman, Cook Islands, Dominica, etc. The same goes for office and other overhead.
The annual license fee in Puerto Rico is $5,000, which compares to $85,000 in Cayman Islands. All government and operating costs in Puerto Rico are a fraction of Cayman Islands and lower that all other competitors.
As a US territory, Federal immigration law applies. This means that foreign investors in an Act 273 offshore bank in Puerto Rico can qualify for the US EB-5 visa program with an investment of $500,000 or $1 million. This investment must create 10 new jobs in the bank.
- As of this writing, the EB-5 limits are $500,000 and $1 million. It's expected they'll increase, and possibly double, under President Trump.
An offshore bank in Puerto Rico, licensed under Act 273, will pay 4% in corporate income tax. That tax holiday will be guaranteed for 15 years. A domestic bank in Puerto Rico would pay about 30% in corporate income tax without the holiday.
And it get's better. There are a number of tax breaks available to an Act 273 bank. For example, full property and municipal license tax exemptions, 6% income tax rate on distributions to PR resident shareholders and a 0% tax rate on distributions to non-PR resident shareholders, are available to offshore banks licensed in Puerto Rico.
Then we come to correspondent accounts. Securing a correspondent banking partner has become the bane of small offshore banks around the world. As FATCA and other compliance requirements push up the costs of maintaining correspondent accounts, smaller international banks have been left out in the cold. They're too small for Wells Fargo and Bank of America to deal with and they can't afford the fees charged by others.
It's this inability to get correspondent banking accounts that makes it so difficult to utilize a newly licensed offshore bank. Sure, you can get a license from Dominica with capital of $1 million now what? No one will open a correspondent account for a new bank with $1 million in capital. In most cases, you'll need $8 to $12 million before anyone will take you seriously.
Because Puerto Rico is a US territory, and these foreign compliance rules don't apply to a bank from a US territory, an Act 273 bank will have a much easier time securing a USD correspondent partner than one from Dominica, St. Lucia or Belize.
Let's get down to business...
An offshore banking license in Puerto Rico allows you to provide financial services to other international financial institution, persons and businesses outside of Puerto Rico. "Financial services" are any service which is generally accepted in the banking industry of the United States and Puerto Rico including:
1. Accept deposits and borrow money from non-residents of PR.
2. Accept deposits and borrow money from certain government institutions
3. Place deposits in any PR bank and foreign banks organized in PR.
4. Make loans to non-residents of PR. Issue letters of credit to non-residents or PR.
6. Issue letters of credit for export activities to both PR resident and non-residents.
7. Discount money orders and bills of exchange to non-PR residents.
8. Invest in securities and stocks as well as PR government bonds exempt from tax
9. Carry transactions in any currency and gold or silver and foreign currency trade.
10. Underwrite and trade notes and debt instruments issued by a non-PR residents
11. Engage in trade financing of import and export of raw materials and finished goods.
12. Act as a fiduciary, executor, administrator, registrar of stocks and bonds, custodian, trustee, agent and any other fiduciary capacity with non-residents of PR after obtaining a special permit from the government.
13. Acquire and lease personal property on behalf of non-PR residents.
14. Buy and sell security outside of PR on behalf of non-PR residents.
15. Act as a clearinghouse of instruments of foreign persons
16. Organize and manage international financial entities not related to residents of PR.
17. Lend or guarantee loans originated in some governmental institutions.
18. Purchase sub-standards non-performing loans from a PR bank.
19. Establish branches outside PR in the continental USA or in other foreign country.
20. Provide the following services:
a) Asset management.
b) Management of alternative investments.
c) Management of private capital.
d) Management of hedge funds
e) Management of pools of capital
f) Administration of trusts
g) Management of escrow funds for non-residents of PR.
As you read through the list above, remember that an Act 273 bank can't provide services of any kind to persons in Puerto Rico. This is an international license that requires you do business with clients outside of the territory.
In order to qualify for the tax holiday under Act 273, the law states you must have a minimum of 4 employees in Puerto Rico. I suggest you start with 5 to 7 employees to bring Act 273 in line with the more recent Act 20 requirement and smooth negotiations with the government.
Remember that the purpose of all of these tax holidays is to grow the economy and bring employment to Puerto Rico. Your application should focus on what benefits you will bring to the island.
I hope you've found this article on why the best offshore banking license in 2017 is from the US territory of Puerto Rico. If you would like to discuss this matter further, you can reach me at email@example.com or call us at (619) 550-2743. We will be happy to assist you to secure a banking license and build your operations in Puerto Rico.
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