Imagine a U.S.-based small business that purchases alpaca yarn from Australia. This business owner needs to pay its overseas supplier, since its hand-knit sweater business relies on this transaction. A logical solution is opening a corporate bank account in Australia to simplify payment processing. The challenge, however, is global banks often make this process cumbersome, difficult, and impossible without traveling to the country in person for an interview with the bank. This article highlights some of these challenges along with a positive solution.
Foreign banking challenges
U.S.-based organizations often can benefit from having a foreign bank account when they need to pay suppliers, international employees, or allow clients to pay in their local currency. Unfortunately, global banks can be extremely selective about the international customers they accept and require business plans or a local address. Documents may need to be notarized at the local embassy and translated into the local language of the bank. It can be time-consuming, cumbersome, and expensive. All of that is certainly not possible for your favorite local Etsy shop that decides to sell to international locations, or even for many established small businesses.
To illustrate this challenge, some consulting organizations charge upwards of $5,000 to help organizations open a corporate bank account in a foreign country. These companies will prepare a quality business plan for each corporate bank account application, travel to the foreign country, or negotiate a travel exemption with the bank.
Let’s take a look at a few of the challenges or banking restrictions in a number of foreign countries:
Germany – Most banks in Germany require a personal visit to the country. The German American Chamber of Commerce California describes several challenges for U.S. entrepreneurs interested in opening a corporate German bank account: a German or American lawyer is often required to provide a certified “legal opinion,” bank regulations require a plethora of documents, as well as the language barrier.
New Zealand – Banks in New Zealand maintain a strict “know your client”policy based on mandates by the government. This requires additional information detailing specifics on the company’s activities, customers, shareholders, directors, and suppliers. One interesting aspect is New Zealand banks are supportive of startup businesses and will loan money to help fund investment projects.
Australia – Businesses that want to open a corporate bank account in Australia must pull together a list of documents as part of the due diligence process. These include items such as company registration certificate, memorandum and articles of association/charter, passports for all shareholders and directors, certified copy of proof of address, and more.
Japan – One American living in Japan spent three months applying for a corporate bank account in Japan before getting an acceptance. And this was using the assistance of a local Japanese partner. Imagine the extra complexity when you don’t live there. Shinsei Bank, for example, requires at least a one-year Visa to open a bank account. Organizations should expect to travel to Japan to open a corporate account.
U.K. – Most banks in the U.K. will require meeting in person before approving an application for a corporate business account. If that challenge isn’t enough, some U.K. banks also require a large initial deposit or charge a monthly fee making the outcome even more expensive.
Canada – Canadian banks require a personal visit to open a bank account. Companies also must be incorporated before a corporate bank account can be opened.
Understanding the downside
U.S.-based businesses that open an international bank account need to realize the potential tax implications and paperwork required for foreign accounts. Money laundering and hiding money overseas are understandably real concerns for the government.
The Department of Treasury’s Bank Secrecy Act requires certain U.S. individuals and businesses to annually file a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR). Typically, the guidelines are geared to businesses with at least one foreign account containing more than $10,000 at any point during the year. Yet others might need to file even if they didn’t produce income. Higher thresholds might trigger another requirement filed with an income tax return: Form 8938, Statement of Specified Foreign Financial Assets.
All this to say, organizations need to be aware of the requirements and consult with experts to ensure they stay in compliance.
Keeping it simple
Rest easy, because there is a simpler process. Organizations can rely on an easy banking solution, thanks to World Account from WorldFirst. World Account saves businesses time and money. This free platform enables organizations to receive and make payments in seven different currencies (EUR, GBP, CAD, JPY, AUD, NZD, and USD). Account transfers are simple with a few clicks. This solution is perfect for everyone from online sellers to C-suite executives. Buying linen handkerchiefs from a supplier in Japan, for example, is now a no-brainer process.
Here are the steps to make overseas banking life easier:
- Sign up online for World Account.
- Select the appropriate currency accounts: EUR, GBP, CAD, JPY, AUD, NZD, and USD.
- Use your local U.S. bank to send money to your account. Then wire money to accounts in the selected currency.
- Send and receive funds – or hold funds in your accounts. This gives you more control over the exchange rates and the timing of your transfers.
While opening traditional bank accounts around the world is a cumbersome process, industry leading technology like World Account is available to make international payments faster, cheaper, and easier for small businesses.
This is all good news for the alpaca farm in Australia selling yarn for the hand-knit sweaters. Its U.S.-based client can easily pay in AUD with the click of a mouse.