The foreign exchange (forex) market is decentralized and without a central trading floor. However, that does not mean that it is not regulated. Congruent to other financial markets regulation like banking, insurance, and equities, countries are continually revising and tightening forex rules to close any loopholes.
In the sections below, this article will seek to compare between European forex license and Offshore forex licence.
|Category||Europe license||Offshore license|
|1. Jurisdiction||Most common jurisdiction to obtain a forex broker license||– Cyprus
– British Virgin Islands (BVI)
|Forex Regulation||A standard set of rules and regulations apply to all EU member states under the Markets in Financial Instruments Directive (MiFID II)||No standard rules apply to all Each jurisdiction has its own regulations E.g. USA (CFTC and NFA) Japan (FSC Japan) Australia (ASIC)|
|Impact of jurisdiction regulation for a forex brokerage|| – A higher standard for regulatory reporting
– More Transparency
– A greater degree of credibility
– Elimination of deposit bonuses
|Obtaining a forex license depends on the difference of many factors E.g. minimal capital deposit, strict reporting requirements, the cost to operate, etc.|
|2. Tax||Corporate tax rate||>0 %||Mostly 0 %|
|Capital gains tax rate||None||None|
|Withholding tax rate on dividends paid overseas||>15%||None (With exception of Belize – 15%)|
|Withholding tax rate on interest paid overseas||0%||0% (With exception of Belize – 15%)|
|Available tax incentives||Yes||No|
|Access double tax agreements||Yes||No (With exception of Seychelles)|
|Is GST/VAT registration mandatory?||Yes||No|
|3. Time||Average time to obtain licence||4 – 6 Months||2.5 – 3 Months|
|4. Director & Shareholder||Do we need to appoint a resident director or shareholders?||Yes||Yes (Except Seychelles)|
|Is experience required for directors?||Yes||No (With exception of Bahamas and Mauritius)|
|Minimum number of directors||2||1 (With exception of Mauritius, BVI, and Seychelles – 2 required)|
|Minimum number of shareholders||2||1 (With exception of Jersey and Bahamas – 2 required)|
|Are individual and corporate shareholders allowed?||Yes||Yes|
|Is the public register of shareholders and directors required?||Yes||No (Except for the Bahamas)|
|5. Capital requirement||Minimum amount of cash assets & equivalent?||100%||None (With exception of Mauritius – 10% of liabilities)|
|Minimum amount paid-up capital for the licence||50,000 Euro||30,000 – 200,000 USD|
|6. Entity/Company||Can the company issue derivatives?||No||No|
|Time taken to set up the company||3-4 weeks||1-2 weeks|
|Is office premise required?||Administrative Office||No|
|7. Instrument Traded||Is other financial instruments allowed?||No||No|
|8. Financial requirements/
|Is annual financial statement required?||Yes||Yes (With exception of Bahamas and Belize)|
|Is a statutory independent annual audit required?||Yes||No (With exception of Mauritius and BVI)|
|9. Overall||Bulgaria has the lowest corporate tax in the EU and monthly license fees far lower compared to other EU countries. Cyprus has a globally recognized jurisdiction for FX trading in Europe Malta has the ability to ‘passport’ to all EU member states.||Belize has no taxes required to pay regardless of where income is earned. BVI has an established history of financial services regulation and also relatively low corporate taxes. St. Vincent has one of the most confidential jurisdictions for company incorporation.|
The process of applying for forex licence is not only tedious and time consuming, failing to fulfil certain requirements will caused the licence to be revoked. Depending on the country you are applying for, there are different set of complications and challenges. In addition, regulatory policies in offshore jurisdictions varies. Hence, it is recommended to contact our team of advisors for guidance in determining the region that best fits your brokerage’s requirements.
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Contact Desfran today.