By Matthew Sumner
We’ve been promoting the use of low-tax jurisdiction corporate structures for over 10 years now, and have seen the full evolution of the industry from the “race to the bottom” price war, to the fallout of FACTA & CRS, now the implementation of economic substance and the most alarming yet, “Global Minimum Taxation Rate”.
What was the impact of all these on the clients who were using offshore structures?
Let's start with the obvious.
- Disclosures to their country of tax residence, and likely some hefty tax bills & fines.
- Clients taking their affairs back “onshore” as their home country made maintaining the use of offshore structures too burdensome and costly.
- Increased use of outsourced staff, and office spaces to create substance.
All of these challenges were most likely faced by your American and European clients, but NONE of these problems were faced by Chinese clients except the beginning of the automatic exchange of information.
However, China only recently has begun chasing tax evaders, and primarily on their own turf.
We expect domestic tax evaders to be the first to feel the pain, as can be seen in this article by The Diplomat.
Okay, so I guess you’re wondering, what is the real problem the Chinese are facing when using Offshore Companies?
The issue stems from how the Chinese used offshore companies, to begin with.
In the ’90s, there was a huge boom of Chinese setting up BVI companies and then opening accounts in Hong Kong with names like Standard Chartered, HSBC, etc.
These companies were set up largely as offshore trading companies, and to park some money outside Mainland China since China has strict capital controls.
Back then, Hong Kong’s financial system was almost entirely separated from Mainland China and Chinese nationals could easily show up and have accounts opened with freshly minted BVI, Cayman, and other traditional offshore companies.
That all changed post-2008 when the big banks were slapped with huge fines, and their compliance costs went through the roof.
Ever since then, it's been a game of cat and mouse to get a functioning account in Hong Kong, and now the same is happening in Singapore.
This is especially true for the Chinese, as these banks fear the wrath of big government regulators, especially the ones right next door.
In recent years, Chinese clients themselves have become even wearier in using Hong Kong as the financial information flow between Mainland China and Hong Kong is on the rise.
In almost all cases, existing offshore companies and new offshore companies will either have their accounts shut down or new applications simply refused by the banks domiciled in Hong Kong or Singapore.
As a result of these banks giving Chinese clients the “cold shoulder”, many Chinese have stopped opening new offshore companies or shut down existing ones as they no longer have banking relationships.
The #1 problem in the market right now is the lack of banking partners, and it's the reason why I say “Chinese intermediaries don’t care about offshore companies.” For most Chinese, an offshore company without a bank account is useless.
Does anyone smell an opportunity here?
Most of you reading this aren’t from banks, but the solution should be obvious to you by now.
If you can bring a list of banks with reasonable account balance requirements (100k or less) to pair with your corporate services offering, there is a huge market!
To further highlight this, on November 24th-25th, 2021 we held the 11th Annual Asia Outbound Summit in Shanghai.
On average, other sponsors received 30+ direct inquiries from intermediaries. Whereas our banking partners and corporate services partners received on average around 150! (That's around 50% of the attendance on those days).
That is real, finger on the pulse, market feedback.
So let's get to the point. If you want to make your corporate & fiduciary services offering attractive, you need strong banking partners.
Where can you get it?
Asia Outbound.
I’ll give you the resources that I’ve compiled by visiting dozens of countries in-person to solve this very problem, for free.
It's my gift to you.
All you have to do is click here to book a call and I’ll connect you with several banking partners we have that will open accounts for existing and new offshore companies.
