Whether it’s a fad or a trend, all banks are moving away from the “exotic” world of offshore banking. Company bank accounts in the Seychelles are no longer of interest to the banking sector and so Barclays Bank, the British offshore juggernaut, has closed its offices in the Seychelles and sent a clear message to its customers: “Tax optimization is fine, but it must be legitimate.”
Barclays began its major account clean-up at the beginning of the year. The bank no longer opens non-resident bank accounts in London and has closed its offshore accounts, notably including Jamaican corporate accounts and other exotic offshore accounts.
Further, we are aware of more than three other banks which are saying “goodbye” to Seychelles companies. Although such companies are not unlawful both Rietumu Bank and Baltikums in Riga, Latvia have recently announced they will no longer accept clients with companies in Seychelles or Belize because of the reputation of this jurisdiction.
BMO, another major bank in the Seychelles, ceased its offshore activities and closed its offices in November 2014 in a move to return to less “high-profile” jurisdictions such as New Zealand or Mauritius.
Faced with countries wanting more and more to deal only with “clean” territories, banks are coming under pressure from regulators who dictate their policy. They are now obligated to refuse clients who do not take care to keep their tax optimization “politically correct”.
What will happen to offshore banking?
Obviously, this development does not reduce the demand for offshore accounts.
Customers with offshore companies in the Seychelles will simply replace the offshore jurisdiction with a more respectable solution such as Hong Kong or a company in London. The latter can provide total legitimacy but still brings the tax leakage to less than 4% through an agency agreement.
The offshore solutions of yesterday are in the process of disappearing for the offshore world of tomorrow. The offshore world of tomorrow will be one based on using countries with good reputations associated with a flexible and tolerate tax system to make business sustainable and long term.
What’s the future for Seychelles?
We cannot say for sure because the tax of 0% is firmly rooted in tradition in Seychellois law. But we would not be surprised if in the next 3-5 years the Seychelles announced an accounting requirement and a tax of at least 2% or 3% in an effort to retain their international clientele.
In the opinion of Fidusuisse, Seychelles will be obliged to introduce some minimum tax if they do not want to lose their international customers. Europe has already drawn a line under the Seychelles. How much longer will it be for the same to happen in territories like China and India? These together represent two billion people. How many millions of entrepreneurs who live and work with offshore business will now not hesitate to leave the Seychelles to take their business or residency elsewhere?