In November 2019, the people’s Bank of China issued a notice in Hebei Province, Zhejiang province and Shenzhen City to pilot large-scale cash management trials. This involves the imposing of cash management requirements on public accounts of at least 500,000 yuan and private accounts of at least 100,000 yuan in Hebei, 300,000 yuan in Zhejiang, and 200,000 yuan in Shenzhen.
This has led to speculations that bank accounts will likely be scrutinised more thoroughly, resulting in more rigorous monitoring of single and multiple transactions in the accounts. In addition, bank accounts with large transaction amounts and unusual transaction frequency of high-risk industries will be marked for future reference, extra scrutiny, and tracking purposes.
With the recent drastic change in the domestic bank regulatory environment, what are the measures to manage your assets wisely? Currently, the most effective way that presents both financial and legal advantages is via offshore accounts. The following will outline both the financial and legal advantages of offshore accounts as well as the process and purpose of operating an offshore bank account.
Why do companies or individuals need to open an offshore bank account?
Offshore accounts, also known as OSA accounts in the financial industry refers to bank accounts opened by depositors outside their country of residence.
Generally, individuals open offshore accounts to facilitate funds transfers or for the purchase of overseas financial products. For enterprises, foreign exchange trading and overseas investment needs are a few of the purposes of offshore accounts formation.
Benefits of offshore banking
The accessibility to bank internationally has opened many opportunities for individuals or businesses. Holding an edge over the traditional banking system, offshore banking can offer the following advantages:
1. Freedom on the allocation of funds
Non-Resident Accounts (NRA) are less subjected to foreign exchange control and have lesser restrictions on funds transfer and tend to steer clear of high supervision.
2. Preferential deposit rates
Preferential interest rates offered by foreign banks may be higher compared to domestic banks for same deposit amounts while still allowing flexible access to their deposits.
3. No interest tax on deposits
Deposits to and withdrawals from offshore accounts are exempted from interest tax in China.
4. Cost and Time Efficient
Offshore accounts offer the ease of receiving and making payment through foreign exchange and tend to operate at a lower cost than traditional banking Additionally, it helps to speed up the turnover of domestic and foreign funds, allowing funds to be optimally utilised
Funds received by offshore accounts belongs to the income of the overseas entity instead of your domestic business. This helps to maximise tax efficiencies as there would be no capital gains tax or other taxes on the income generated. Assuming a company has a high business volume abroad and if an offshore account is used to collect payments, the company can adopt a tax-efficient arrangement which can greatly benefit the company’s future development.
How do companies open offshore accounts?
It is widely known that opening an offshore account is the first step in your overseas investments and a prerequisite for convenient foreign exchange settlements and services. However, the lack of a physical presence while opening an offshore account has been a pressing issue and it is even more so now with stricter border controls in place due to the Covid situation. Having said so, below are some countries which offers opening of overseas bank accounts safely without the need to be physically present:
1. Hong Kong (SAR)
Hong Kong is one of the top choices to open an offshore account. Its quick account opening cycle coupled with easy allocation of funds between multi-currency accounts makes banking matters a breeze. Some common fund transfer channels include counter processing, cash withdrawal, credit card, online banking, and wire transfer.
2. United States
Opening an overseas account in the United States is a prominent choice for dollar asset allocators. By opening a US bank account, individuals or businesses can effectively allocate assets in dollar, reducing the risk of foreign exchange volatility. In addition, US bank accounts typically earn more interest compared to domestic rates. Even though the rates are lower than they used to be, some tax-free interest is still better than none.
Singapore is renowned for its sound financial system and well-regulated banking infrastructure and as such, offshore accounts are assured to be secure. Be it holding onto foreign currency reserves, hedging and foreign exchange rate risk management, or investment and wealth management and asset preservation, Singapore tops the list for individuals or companies opening bank accounts overseas.
Information required to open a bank account
After the incorporation of the company, the opening of a bank account would follow as to better facilitate fund management. Figure 1 lists some common bank account opening information and requirements.
Many misconceptions still exist about offshore banking. Fallacies such as offshore banking being illegal, and the services are only exclusive to the super-wealthy are inaccurate. The fact is that offshore banking is completely legal and can be seen as a strategy to protect assets even for small medium enterprises. This approach however requires meticulous planning due to differing regulations in separate jurisdictions. Moreover, the process can be complex and acts as a hindrance to offshore bank account opening. Therefore, it is always wise to consult professionals before commencing to open a bank account overseas.
Spearheaded by one of the world’s leading management teams, our team of seasoned experts stationed in more than five cities across the globe, dedicated to offering customised bank account opening services with much ease and grace.
As a partner who grows with your business, Desfran provides a suite of business solutions which include new market entry consultancy services, new market requirements like business incorporation and registration, bank account opening, marketing and branding services, and regulatory compliance, all of which can all be fulfilled through Desfran’s bespoke solutions. We continuously stay on top of trends and movements in the financial industry to help your business grow by identifying, maximising your business potential while providing comprehensive customised solutions.
Contact Desfran today.