Offshore Banking

Course: FNB 406

Strategic Banking
Department of Finance & Banking
J ahangirnagar University
Savar, Dhaka
Submittedto:
Md. Alamgir Hossen
Course Instructor
Submitted By:
William Masterson Shah
Student ID: 2129
2
nd
Batch
BBA Program
Department of Finance and Banking
J ahangirnagar University
Savar, Dhaka
August 11, 2014
Offshore Banking
Course: FNB 406
Strategic Banking
Department of Finance & Banking
J ahangirnagar University
Savar, Dhaka
Submittedto:
Md. Alamgir Hossen
Course Instructor
Submitted By:
William Masterson Shah
Student ID: 2129
2
nd
Batch
BBA Program
Department of Finance and Banking
J ahangirnagar University
Savar, Dhaka
August 11, 2014
Offshore Banking
Course: FNB 406
Strategic Banking
Department of Finance & Banking
J ahangirnagar University
Savar, Dhaka
Submittedto:
Md. Alamgir Hossen
Course Instructor
Submitted By:
William Masterson Shah
Student ID: 2129
2
nd
Batch
BBA Program
Department of Finance and Banking
J ahangirnagar University
Savar, Dhaka
August 11, 2014
1
Offshore Banking:
Offshore banking is an important part of global financial transactions.
Offshore banking refers to the deposit of funds by a company or individual
in a bank that is located outside their national residence. Although the term
implies that these banks are located on islands, many offshore banks are, in
fact, found in onshore locations, such as Panama, Luxembourg and
Switzerland. The advantage of offshore banking is that, in many cases,
funds are tax exempt where the banks are located. Offshore banks also
offer the same services as domestic banks, and frequently they offer more
anonymity than would otherwise be available in "onshore" banks.
Functions of an Offshore Bank
An offshore bank provides the same services as an onshore bank does. It is an institution in which to deposit
savings, and it also provides investment services for its clients. Depositors do not need to go in person to open
an account. Because offshore banks are found in places that would entail long travel times, they frequently open
accounts based on certified documentation of the individual identity and assets. For large deposits, accounts may
be established through onshore intermediaries located in the depositor country of residence.
Advantages
Offshore banks are often located in jurisdictions that offer low taxation, or nontaxation, on deposits and gains.
They also offer a degree of privacy, which insulates assets from scrutiny or seizure by tax authorities located in
the depositor country of origin. Less regulation is imposed on offshore banks, as they operate either as
independent banking institutions or as part of a larger banking entity located onshore in another country. For
depositors who live in countries subject to unstable political conditions, offshore banks also offer an advantage in
providing a safe and secure location where they can place their assets.
Taxation and Legalities
Many offshore banks are located in jurisdictions that either do not tax or have low taxes levied on deposits and
gains. However, exceptions do exist, such as Switzerland. Moreover, countries such as the United States and the
member nations of the European Union require by law that their citizens declare income or assets located in
offshore accounts. Failure to do so is considered tax evasion and is subject to criminal prosecution. While
offshore banks offer greater privacy to account holders, they still require proof of identity when setting up an
account. This is to prevent criminal activity, such as money laundering.
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Current Scenario of Offshore Banking in
Bangladesh:
The government of Bangladesh is offering a good numbers of facilities/advantages/incentives for offshore
banking customers, operating in other countries. It provides access to politically and economically stable
jurisdictions. This is an advantage for residents in areas where there is risk of political turmoil, who fear their
assets may be frozen, seized or disappear. Since it provides a broad range of features, offshore banking provides
absolute safety and security. However, it is often argued that the developed countries with regulated banking
systems offer the same advantages in terms of stability.
In Bangladesh, there is a ten-year period of tax holiday for companies based in Export Processing Zones (EPZs)
companies. Offshore banks are free to accept deposits or to borrow, from persons/institutions not residents in
the Bangladesh including Bangladesh nationals working abroad. Offshore banks are also free to accept deposits
from, or to borrow from, Type - A (wholly foreign owned) units in the EPZs in Bangladesh. However, such banks
are not to accept deposits from persons/institutions residents in Bangladesh including Type - B and Type - C
units in the EPZs in Bangladesh.
Bangladesh needs to develop offshore fund to fulfill its policy of attracting foreign investment. Private capital in
Bangladesh is not plentiful and technical know-how is limited. Because of this, there is ample scope and, indeed,
a strong need to encourage investment from abroad.
The Bangladesh Export Processing Zones Authority (BEPZA) is the official organ of the government to promote,
attract and facilitate foreign investment in the EPZs. The primary objectives of an EPZ is to provide special areas
where potential investors would find a congenial investment climate, free from cumbersome procedures.
Attracting foreign and local investment is the prime objectives of EPZs towards economic development. An EPZ is
defined as a territorial or economic enclave in which goods may be imported and manufactured and re-shipped
with a reduction in duties/and/or minimal intervention by custom officials. An EPZ provides: (i) plots/factory
building in custom bonded area; (ii) infrastructural facilities; (iii) administrative facilities; and (iv) fiscal and non-
fiscal incentives. In our country, there are eight (08) EPZS in the concentration around 30 industries/sectors
ranging from textile to musical instruments that are in places locating at its different parts.
As far as facilities in Bangladesh EPZa are concerned, some positive points can here be highlighted: (i) law and
order situation of the country; (ii) infrastructure facilities in EPZ areas; (iii) reduction of lead time; (iv) cost of
doing business; (v) friendly policy of govt.; (vi) incentives; (vii) win-win ventures; (viii) auccess story; (ix)
signatory to MIGA (Multilateral Investment Guarantee Agency); (x) signatory to ICSID (International Centre For
Settlement Of Investment Dispute); (xi) member of WIPO (World Intellectual Property Organisation) (xii)
member of OPIC (Overseas Private Investment Corporation); and (xiii) Asia's low cost production base.
In order to cater to the need of financial support, off-shore banking facilities are being provided to the foreign
owned/join venture units in the EPZs of Bangladesh. Presently, 06 (six) foreign banks operating in Bangladesh
have been licentiated for doing off-shore banking. Apart from that, 23 local banks of Bangladesh also provide off-
shore banking. Besides, according to the Bangladesh Bank (BB), more local banks are in the pipe-line to have
off-shore banking licence from them.
In order to cater to the need of financial support, off-shore banking facilities are being provided to the foreign
owned/join venture units in the EPZs of Bangladesh. Presently, 06 (six) foreign banks operating in Bangladesh
have been licentiated for doing off-shore banking. Apart from that, 23 local banks of Bangladesh also provide off-
shore banking. Besides, according to the Bangladesh Bank (BB), more local banks are in the pipe-line to have
off-shore banking licence from them.
As far as fiscal incentives are concerned, some advantages in favour of Bangladesh, can be pointed out here.
These include: (i) 10 years' tax holiday; (ii) duty-free import of construction materials; (iii) duty-free import of
machineries, office equipment and spare parts etc.; (iv) duty-free import and export of raw materials and
finished goods; (v) relief from double taxation; (vi) exemption from dividend tax; (vii) availability of Generalised
System of Preferences (GSP) facility; (viii) accelerated depreciation on machinery or plant; ix) remittance of
royalty, technical and consultancy fees; (v) duty- and quota-free access to the European Union (EU), Canada,
Norway, Australia etc.
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In September 2010, the BB clarified that the offshore banks may discount bills accepted by authorised dealers
(Ads) in Bangladesh against import L/Cs opened on deferred/usuance basis and subsequently the same facilities
are also extended to domestic banking area against strong lobbying by non-offshore licensing banks. This is also
another attempt to save foreign currency as we need to pay higher amount of interest for usance period.
The operational performance of existing units of EPZs in Bangladesh have already borne out the positive aspects
of offshore banking in Bangladesh towards attracting FDI. Now, the question is whether the government should
allow all the industrial units to set up their business in the EPZs in Bangladesh. It needs to offer very exclusive
facilities to the investors. It did earlier decide not to go for allocating further any new land for EPZs. In EPZs,
around 70 per cent to 80 per cent factories are engaged directly and indirectly in ready-made garments (RMG)
and textile business. A good number of foreign investors, mainly from neighboring India and China, are looking
for opportunities to make investments in RMG sector in Bangladesh.
Policy for the Offshore Banking:
It has been decided to allow operation of Off-shore Banking Units (OBU) in Bangladesh subject to the following
terms and conditions:
(i) OBU will be a part of a bank whether incorporated in Bangladesh or outside Bangladesh but it shall maintain
its own separate accounts relating to off-shore banking business.
(ii) The operations of the unit shall be subject to the relevant laws of Bangladesh except those in respect of
which exemptions are provided.
(iii) Any bank willing to operate an OBU in Bangladesh will have to obtain license from Bangladesh Bank. The
license may be issued at the discretion of the Bangladesh Bank. In the event, the license is issued; the
permissible functions as well as requirements to be fulfilled will be incorporated in it. The bank applying for
license for off-shore banking unit must have well established links with important international financial center.
(iv) OBUs will be free to accept deposits from outside Bangladesh and borrow abroad. They will also be free to
make advances / investments abroad and also make permissible transactions with industries in the EPZs. Every
bank while applying for license to establish an OBU, should voluntarily indicate the limit of the assets and
liabilities up to which they would like to operate.
(v) There will be no statutory capital and reserve or liquidity requirement for an OBU. It will, however, be
required to furnish to the Bangladesh Bank an assurance from its head office that it will maintain a sound
liquidity position at all times and that the head office will assist OBU with funds whenever required.
(vi) OBUs will be allowed to carry on transactions in specified foreign currencies. The suggested currencies are
US Dollar, Pound Sterling, Canadian Dollar, Deutsch Mark, J apanese Yen, Swiss Franc, Dutch Guilder, French
Franc, Swedish Kroner and Singapore Dollar. OBUs will be free to determine the minimum size of deposits on
their own.
(vii) There would not be any restriction on the physical location of OBUs. These may be located both in the
Export Processing Zones or any other convenient location outside. Even existing branches of banks may be
allowed to operate such units through a completely separate counter.
(viii) Banking transactions with residents of Bangladesh outside EPZ will not be permissible and there would be
no restriction on banking transactions with non-residents.
(ix) Local banks may also maintain foreign currency accounts with OBUs in the manner they maintain such
accounts with their foreign correspondents.
(x) Records of OBUs will not be accessible to anyone in Bangladesh except the Bangladesh Bank. OBUs will
submit reports / returns to the Bangladesh Bank as and when asked for. Such returns / reports will generally
deal with aggregates rather than individual accounts.
(xi) OBUs would be free to take out insurance abroad and not be subjected to local insurance laws.
(xii) OBUs, regardless of their location in Bangladesh, would get coverage under BEPZA Act, 1980.
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(xiii) Interest payable on foreign currency loans / deposits obtained by OBUs from outside Bangladesh will be
exempted from payment of income tax.
(xiv) After obtaining a license for OBU, a registration fee of US$ 5,000.00 is initially payable by the bank to
Bangladesh EPZ Authority and a normal renewal fee each year.
2. OBUs of the banks have been allowed exemption from the purview of certain provisions of Banking
Companies Ordinance, 1962 as per government notification SRO No. 474-4 / 85, dated 12.11.85.
OBUs of the scheduled banks will also be considered for exemption from article 36 (1) of Bangladesh Bank
Order, 1972 on such terms and for such period as may deemed fit by the Government.
Offshore Banks in Bangladesh:
Foreign investors do not have the opportunity of availing credit facilities from the Different Financial
Institutions (DFI) of Bangladesh.
In order to cater the need of financial support off-shore Banking facilities is being provided to the
foreign owned/ J oin Venture unit in the EPZs of Bangladesh.
Presently Foreign Banks in Bangladesh have licentiated for doing off-shore banking like:
1. Standard Charter Bank Ltd.
2. HSBC Ltd.
3. Woori Bank Ltd.
4. Citi N.A. Bank Ltd.
5. Commercial Bank of Ceylon.
6. Dutch-Bangla Bank Ltd.
7. State Bank of India
Apart from that local bank of Bangladesh also provide off-shore banking like:
1. Prime Bank Ltd.
2. Dhaka Bank Ltd.
3. South-East Bank Ltd.
4. National Bank Ltd.
5. Estern Bank Ltd. (EBL).
6. Bank Asia Ltd.
7. Shahjalal Bank Ltd.
8. The City Bank Ltd.
9. The Premier Bank Ltd.
10. IFIC Bank Limited
11. BRAC Bank Ltd.
12. AB Bank Limited
13. Mutual Trust Bank Ltd.
14. J amuna Bank Ltd.
15. One Bank Ltd.
16. Pubali Bank Ltd.
17. Standard Bank Ltd.
18. National Credit and Commerce
Bank Ltd.
19. Islami Bank Bangladesh Ltd.
20. Trust Bank Limited
21. Mercantile Bank Ltd.
22. United Commercial Bank Ltd.
More local Bank in the pipe-line to have off-shore Banking license from Bangladesh Bank (Central
Bank).
Schedule of standard charges are being practiced among the off-shore Banking units of DFI (Different
Financial Institutions) of Bangladesh.