How Can I Open a Merchant Account for My Offshore Company?

Many companies often operate in several countries simultaneously, making and accepting not only by bank transfer, but also using credit cards, payment systems, and electronic money. Often the question of how to combine finances from different sources, linking them to the company and regulating assets together, arises. In this case, a merchant account can help.

When it comes to international corporations, a merchant account for an offshore company requires in-depth exploration of certain points regarding the location of the website server, the country of business incorporation and tax residency. Let’s figure out how you can open an offshore merchant account in the post-pandemic era.

How Does a Merchant Account Work?

Merchant account implies three types of credit card payments:

1. Contact payments, made with a physical card using a POS terminal. This method is the simplest and most familiar, it is convenient for making payments in restaurants, stores and any other institutions. 
2. Contactless payments, when transactions are carried out using protected channels, via phone or Internet.
3. E-Commerce payments, possibly the most interesting growth area in the current circumstances.

If your business is related to Internet commerce (goods and/or services) then a merchant account will greatly simplify the system of settlements with your customers. This payment option is also in demand with offshore companies that have business contacts with several jurisdictions without being physically present at the place of receiving and/or sending money.

Advantages of Merchant Account

Why does a merchant account for an offshore company and any foreign company for that matter become increasingly popular? There are several obvious advantages, including the following:

• No currency controls, and transactions can take place in any convertible currency;
• Dynamic Currency Conversion (DCC) so you can bill in the local currency of the cardholder and receive your settlement in your local currency.
• The right choice of the country of incorporation can help reduce the tax costs;
• Quick access to the international markets;
• Making payments is convenient for customers;
• High level of the company’s competitiveness is achieved thanks to a wide range of opportunities;
• Merchant account works in the 24-hour mode which erases geographical boundaries between the sender and the recipient.

It’s important to know that such an account can be opened for a legal entity only, and all incoming funds are automatically transferred to the company’s business account. Briefly, the merchant account is a communication channel between the main bank and its customers/partners. 

Types of Merchant Accounts

What are the types of merchant accounts for companies involved in e-commerce?

1. Direct account that is linked to the merchant bank.
2. Local account that is formed in the country of incorporation of the legal entity.
3. Offshore account that is opened outside the country of the company’s residence.

Depending on the terms and conditions offered by a financial institution and the type of payment, money from the merchant account may not be credited to the business account immediately, but is deposited before the transaction is settled.

General Requirements for Opening a Merchant Account

In order to open a merchant account to accept Internet payments, you need to make three steps:

1. Prepare your company for opening a merchant account. In this case, it means setting up a business, opening a settlement account with one of the banks, and launching a corporate website which is a must. The website must be compliant with merchant requirements of card associations such as Visa and MasterCard.
2. Collect the documents for opening a merchant account in an offshore or foreign jurisdiction:

• information about the business;
• the estimated turnover of funds;
• currency to be used for settlements;
• Bank statement;
• answers to certain questions, etc.

3. Integration is the final step where the technical and financial part of the agreement (the form of payments in the website, API, the receiving acquiring bank) is agreed upon. 

Some entrepreneurs mistakenly think they can reduce their tax burden by opening a merchant account. In fact, a merchant account has a direct link to the business bank account and has absolutely nothing to do with tax planning. 

To gain an offshore tax advantage, you should register your company in a tax advantaged offshore jurisdiction. Panama, Belize and Hong Kong are currently good locations for this. 

Offshore Company Merchant Account Opening

What should you know about offshore merchant accounts or accounts for companies incorporated offshore? Based on recent changes in international legislation, legal entities, especially those from low-tax jurisdictions, are facing issues such as the local substance requirements and information disclosure on all transactions. Our experts can advise you on the matter.

Should you wish to open a merchant account for an offshore company, you must meet three simple conditions:

1. Your company must have a compliant website.
2. You will have to confirm (if necessary) your financial license, for example, for Forex, or gambling activities.
3. You must have a business account with an acquirer such as one of the banks, neobanks or payment systems that are ready to service merchant accounts in the declared currency. 

Requirements for offshore companies to open a merchant account

Post pandemic, more financial institutions are offering a service of accepting payments via online platforms or cards. When applying for opening an offshore merchant account, be prepared to answer a few questions from the payment provider:

• The Visa/Mastercard rules for corporate clients require a MCC code, similar to a SIC code. In this case, the legal entity must give a comprehensive answer regarding the company, its target customers, the type of goods and/or services provided and the substance of the corporation at the place of registration (staff, goods and warehouse space, physical office address, and so on).
• Another rule of providers says that the business must be managed on behalf of a real owner only. You will have to provide the beneficial owner’s personal information, as well as confirm the work experience, unless it is a new startup.
• Education data, for which it is sufficient to provide a link to a Linkedin profile or a CV.

If you still have questions or need to open an offshore merchant account, the experts of our portal are ready to provide advice and assistance. Our contact details are shown here, or simply email  in**@***********rt.com.