With the increased regulation of Brokerage businesses onshore smart Brokers the world over (including Forex Brokers, Stockbrokers, Options Brokers and more) are looking to (or should be looking to) reincorporated Offshore ie in a much less regulated environment.
Why?
1. Fewer rules: Means less time/money lost on admin and reporting
2. Greater trading freedom: Means you can offer better margin terms to your clients
3. Ease of Set up: It’s a lot easier to obtain a broker’s license “Offshore” than it is Offshore
4. Less Set up cost: Means more money available to develop your business
5. Tax Benefits: Most Offshore Financial Centres offer nil or very low tax operating environments for Brokerage Businesses
Generally speaking if you intend to invest or trade other people’s money that is a licenseable activity.
But it is possible to perform such activities without a license in some of the jurisdictions we’re working with (See below for details).
That being said if you are prepared to consider going down the licensing road that would be most wise as it will deliver you a much wider range of banks (and brokers/fund managers) to choose from.
NON-LICENSED OPTIONS
In terms of the non-licensing road there are 3 specific options worthy of consideration:
1. If your main aim is to be a middle man between the Investor and the actual Trader you could set up a “White Label Brokerage”. This could be done via incorporating a basic International Business Company (eg a Belize or Seychelles or Nevis or Dominica IBC); or
2. Alternatively you could set up a Private (non-licensed) Closed End Fund. A Private Closed End Fund is a Limited Company that offers shares to a set number of investors who committ to invest for a minimum investment period. At the end of the agreed investment period the investor can either withdraw his capital or reinvest for a further period; or
3. Another possibility is to utilise an IBC which could be contracted to trade an investor’s money in the broker’s account under Power of Attorney (this is sometimes known as a PAM Account). In this scenario the Trader is given a Power of Attorney which enables him or her to trade (but not withdraw) the investor’s money. The Trader and the Investor also enter in an agreement whereby the Trader agrees ti trade the investors funds and in return is permitted to charge the investor an agreed percentage of profits payable periodically;
Re the above options cost will be anywhere from $900 to $8,000 depending on what kind of structure you require.
Note if you/your client are just going to be an Introducing Broker (ie where you refer clients to a broker and the broker pays you some kind of introductory commission) you should not need any kind of special license.
LICENSED OPTIONS
If you wants the widest choice of banks, broker and fund managers you could/should also consider setting up/obtaining:
1. An IBC + Broker’s License in Belize; or
2. An IBC + Broker’s License in Seychelles (known in Seychelles as a “Dealer’s License); or
3. An IBC + Broker’s License in BVI; or
4. A Panama Financial Services Company; or
5. A Licensed Private Fund in Seychelles
Prices for the above range from $US7,500 to $25,000.
See below info re Option 1 ie Belize Broker’s Licenses Over the next few weeks we will provide info re options 2,3,4 and 5 inclusive.
BELIZE BROKERAGE LICENSES
With this license, the company will be able to accept funds from the client to trade.
Here’s what you need to know:
1. Company Details – IBC:
• Share Capital must be at least $100,000
• Bearer shares are strictly prohibited. Registered shares only.
• No nominees permitted
2. Application Procedure:
1. The applicant must open an account at a bank in Belize.
2. The applicant must deposit $100,000 in a bank in Belize, and leave it unencumbered for the duration of the license.
3. The applicant must complete IFSC application form.
4. The applicant must complete the biographical affidavit
5. Applicant submits biographical affidavit, company documents, proof of deposit, and application fee of $500 to IFSC through our handling.
3. Requirements:
a. Business Plan
i. Financial projections for the next 5 years
ii. Complete description of activities, including markets
iii. Description of organizational structures, and details on executive team
b. Bank account in Belize (ii – v required of each shareholder, director, beneficial owner, signatory)
i. Completed bank application form
ii. Notarized copy of passport
iii. Bank reference
iv. Professional reference
v. Utility bill
c. Additional info on principals:
i. A curriculum vitae or a brief summary of applicants experience in forex
4. Payments to IFSC:
a. Application fee of $500 (as mentioned above)
b. Annual license fees:
i. $5,000
ii. Annual fees are due and must be paid by Jan 1 each year.
5. Timeframe:
1. Company formation – 1 day
2. Bank account approval: Upon receipt of approved application forms and KYC documents (scans ok to initiate) – 3-4 weeks
3. Bank account funding: From approval, we wait for the bank account to be funded. Then the bank will confirm the deposit. This time varies depending on how quickly the client sends the funds.
4. When the funds are received and confirmed, the IFSC may take up to 4 weeks to grant the license.
6. Fees:
The cost of obtaining a Broker’s license in Belize would be as follows:
• Incorporation of IBC (with capital of $100,000) : $ 1,500
• Our fee for handling the application: $ 3,500
• Bank account in Belize: $ 500
• Yearly local representative fee: $ 4,000
• Government application fee : $ 500
• Government license fee, yearly: $ 5,000
HOW TO USE AN OFFSHORE COMPANY FOR ONLINE TRADING
Online Trading is an activity which lends itself well to Offshore Corporate Structuring.
No matter whether you trade forex or metals or commodities or oil/petroleum or futures or options an Offshore Corporate Structure can assist you to mimimize the amount of tax you would otherwise have to pay at home.
To summarise how it would work is:
• You set up a zero tax International Business Company (“IBC”)
• The IBC opens an account with a Broker
• You are appointed as the IBC’s authorised trader (ie you place the buy and sell orders on behalf of the company)
• For all intents and purposes the IBCs trading profits are generated in a nil tax environment tax free/offshore (ie provided the IBC is structured properly)
• When you need some living/spending money the IBC pays you a wage, or consulting fees or a commission (eg a percentage of trading profits generated)
• That living/spending money can be paid to your local bank account (which means it would be assessable income wherever you are ordinarily resident for tax purposes though you should also be able to claim a sizeable amount of allowable deductions eg for home office, car, equipment, insurances, travel, stationary etc etc to reduce the amount of your “taxable” income at home)
• If you don’t want the authorities to know how much money you are earning by way of wages you could use an anonymous ATM or Debit/VISA card to withdraw your wages from an Auto Tele Machine
• The majority of trading profits could be reinvested Offshore potentially tax free.
