Offshore merchant accounts are merchant accounts managed by overseas banks, which businesses may use to process payments done by UK customers, through international gateways. Taking advantage of looser national banking controls and requirements, these accounts are an option for high-risk businesses, new businesses with little credit history, or for tax optimisation purposes.
Whether the advantages of such accounts may or may not offset their intrinsic disadvantages requires a case by case review. If the procedure to open an offshore merchant account may seem a bit complicated, there are many banks which can arrange such a service for UK-based customers.
Advantages and disadvantages
Although these accounts have more benefits than just taxation-related ones, they also suffer from some very real disadvantages.
Advantages of offshore merchant accounts
Offshore merchant accounts, because they are managed overseas, are necessarily more flexible than others on many aspects:
- Multiple global currencies and payment gateways are almost always supported out of the box;
- Businesses with poor credit history will have more chances to be accepted...
- ... as will high-risk businesses, such as businesses within the gambling, adult entertainment or pharmaceutical industries;
Finally, tax-related advantages are considerable, as businesses using such accounts may end up paying as little as zero tax on revenue collected from sales operated through the account.
Disadvantages of offshore merchant accounts must not be overlooked:
- Some providers will require official representatives of the business to physically travel to their jurisdiction to open the account;
- It will sometimes be required to actually incorporate a company within the jurisdiction of the provider, which banks or their partners can arrange, at a heavy fee;
- Transaction rates will usually be higher than those of domestic merchant banks;
- The reputation of businesses using these accounts may suffer;
- Legal risks: in case a dispute arises between the business and a foreign bank, and even more so if the bank is located in a tax haven, it will be much harder to find a settlement.
Guidelines for opening an offshore merchant account
Opening an offshore merchant account has become much easier, but it’s still quite harder than opening a domestic one. The good news is that there are now many offshore merchant banks providing this service to UK businesses.
Typical procedure and points to watch
Usually, all the procedure to open the account can be done online, although some jurisdictions require a trip of the company representative or of a proxy.
Typical documents which will need to be submitted include:
- Annual sales volume;
- Annual processing volume;
- Average transaction amount;
- History of merchant transactions.
Businesses should pay extra attention to the following:
- Reputation of the provider;
- Read all the fine print;
- Enquire how their national bank will react when they learn the business is also using an offshore bank.
Offshore merchant account providers
Reliable providers include: