Modern e-commerce businesses have more choices than ever for how to handle their payment processing. Some of these options can be confusing for people who aren’t very familiar with the space. A lot of merchants see the option of having an offshore merchant account but never consider it. There may be some good reasons why you should get this type of account.
Your merchant account is a type of bank account that lets you accept payments, particularly from debit and credit cards. Historically, most businesses have worked with banking institutions in the same country they are operating in. However, as technology has improved, an increasing number of businesses are using banks that aren’t in their home countries.
This isn’t exactly new. Large businesses have used offshore accounts and legal structures to help them minimize their tax burdens. Some global brands such as Google, Microsoft and Apple have notoriously done this to significantly avoid taxes.
However, in the past, using offshore accounts was mostly limited to major companies and very shady operations. Today, it is something well within the reach of small- to medium-size businesses. There may be some excellent benefits to choosing this option as well.
Benefits of Using an Offshore Merchant Account
It is probably no surprise that the main benefit of using an offshore account as a merchant is to optimize your returns. These are some of the reasons to choose this type of account:
- Reduced Tax Burden: Compared to a domestic merchant account, an offshore one can often reduce your tax burden. This is because you are processing the payment in another jurisdiction, typically one with a lower tax rate. You will not be able to avoid all taxes. However, this can help you optimize your tax situation.
- Easier for International Sales: In many cases, you can more easily handle the sales from international customers. Many of the jurisdictions that offer offshore accounts also have simpler laws regulating transactions.
- Options for More Currencies: Just because your business operates from one location does not mean that it does most of its business in the local currency. For example, if you have an online business that primarily sells in Asia, you may want to operate in a relevant, Asian currency. Using an offshore account lets you more easily operate in a non-local currency.
- Available for High Volume Businesses: Some businesses have a hard time qualifying for regular merchant accounts. Offshore providers may be able to work with organizations that have very high volumes of transactions. These are typically considered too risky by domestic merchant account providers due to the elevated risk of fraud.
- Will Accept High-Risk Businesses: Similarly, if your business is in a high-risk industry such as gambling, you may want to look for a merchant account provider with offshore options. Banking institutions in international jurisdictions may be readier to work with you.
Considerations When Evaluating an Offshore Account
The above benefits are very enticing for any business. However, not all offshore accounts are made equal. If you want to open a merchant account offshore, you need to evaluate it in the same way you would a domestic account option.
First, make sure that the provider is likely to accept your business. As mentioned, offshore accounts can be very attractive for high-risk industries, but that doesn’t mean every provider accepts every business. Instabill takes on high-risk businesses from adult to weight loss.
Second, consider the fee and payout structure. Just like any domestic merchant account, offshore accounts can vary significantly in terms of the cost of processing. This can potentially negate some of the financial benefits of going offshore. Make sure to do the math and ensure the provider offers competitive rates and fees. At Instabill, we work with a large network of acquiring banks to help you get the best terms possible.
Third, ensure that the account will allow you to accept the currencies and payment types you want. Again, while offshore providers often accept a more diverse variety of payments, not all are equally varied. Don’t start using an account only to learn that it won’t work the way you want it to. Fortunately, Instabill accepts a broad range of currencies and payment types, including ones that are popular internationally.
Registering in the Jurisdiction
In some cases, you may need to register your business with the jurisdiction of the acquiring bank. This is especially common when working with banks in the European Union. You will need a bank account in the same jurisdiction, registered offices and may need a representative in the country. Research the jurisdiction you are considering before starting. Instabill can help you arrange much of these requirements if needed.
Is An Offshore Merchant Account Right for You?
Overall, working with an offshore bank for your merchant account can be a very lucrative option. However, it is not without obstacles. Working with the right provider can ensure you reap all the benefits with few of the drawbacks.