How to choose a jurisdiction for Forex brokerage. EU vs offshore Forex license
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Every new player in the brokerage business inevitably faces the need to obtain a license, since Forex trading comes with special regulations. No need for panic: the process of applying for and obtaining a Forex license is not as scary as it might seem at first glance. Where to begin with getting a license, how to choose a suitable jurisdiction and how much it will cost you — let’s find out right now.
Forex is a very competitive and demanding industry. The right choice of jurisdiction for obtaining a license is one of the key factors that will determine the success of your company, so it must be approached very carefully. Before settling upon a particular region, you need to see which jurisdictions offer the best conditions for doing business, as well as consider the psychology of your future clients.
First thing to remember is that there is no simple path that will magically lead you to become a licensed broker. Legal and regulatory responsibility requires doing a lot of paperwork and signing agreements, but the payback is definitely worth it.
If you want to make your life easier, we are ready to help you with the most common challenges, such as registering a business and choosing a jurisdiction. Depending on the countries you plan to work in, what financial risks you are willing to bear, and what type of broker you want to launch, we will choose the regulator that will not be a hindrance to your operation. UpTrader provides a full range of legal services both as a standalone package, and as part of White Label Meta Trader 4 and Meta Trader 5 offerings.
There are 2 main options: offshore or European licensing. Let's take a closer look at both of them.
Offshore license
Offshore licensing are the most common and simplest option in the business. It is popular due to its low cost and fast registration. On average, obtaining an offshore license will cost you $20,000 and will take about 2.5–3 months. Among other benefits, doing business in an offshore jurisdiction allows optimizing the tax burden.
The main advantages of having offshore companies:
low taxation
flexible legislation
support of foreign businessmen at all levels
All these advantages provide good business opportunities. You will protect your company not only from liquidation attempts, but also against illegal claims.
Unfortunately, not everything is so simple. There are drawbacks to registering an offshore company. For example, the restrictions on the part of many countries. Some states, such as the USA and EU countties, put companies that are registered in such regions under more thorough scrutiny, which will slow down your ability to fulfill financial obligations.
Here are the most convenient zones for doing business related to financial services:
1. Belize is an offshore zone with a stable economy and financia sector, which is advantageous for registering a foreign company, including the brokerage niche.
2. Vanuatu is a great place to start a Forex company due to its simple requirements and tax incentives.
3. The British Virgin Islands (BVI), Mauritius, and the Bahamas are popular because of the low taxes, which also applies to licensed activities.
4. Saint Vincent and the Grenadines (SVG) is one of the most confidential business jurisdictions.
European license
A European financial license for your business will undoubtedly ensure a solid reputation and credibility. Clearly, it won’t be cheap (at least $50,000 for the registration), you still have to deposit funds into a bank account for your company's authorized capital. Registration of a company and obtaining a license will take about a year. In European jurisdictions, there are strict accounting and reporting regulations, as well as a local office is also a requirement. Among the Western jurisdictions, New Zealand and Cyprus are the most favorable in terms of taxation, the cost of setting up a company and registration in general. The cost of a license here starts from about $35,000.
As we have already mentioned, when choosing a jurisdiction, it is very important to take into account the region your company’s activities will be focused on, as well as how important it is for potential clients to deal specifically with the European jurisdiction. The key is to determine in which bank you would like to open an account for your company. The reputation of the bank is in direct ratio totrust of your future clients . For example, it is almost impossible to open an account in a prestigious European bank for a company registered in Belize.
Criteria for choosing a jurisdiction
We have already considered the distinctive features and differences of obtaining licenses in offshore and European jurisdictions. Here is some practical advice on choosing the right jurisdiction for your business.
1. First of all, pay attention to the registration costs. In some countries, the registration process is quite simple and doesn’t take much time, therefore registration fees and requirements are low.
2. The second point to pay attention to is the conditions of obtaining a brokerage license. The cost of such a license can be quite high, and the time it takes to obtain it varies from a couple of weeks to a year. In some offshore jurisdictions, the activity of Forex brokers isn’t legally regulated, so brokers must make an important decision for themselves whether to do business in countries with a weak legal field, given that this may be negatively perceived by partners, investors, clients, and banks.
3. Political stability in the country also plays an important role. You need to make sure that your chosen zone has a strong legal system, transparent economic policies, and a stable currency without restrictions on investment repatriation. Business processes can be influenced by various political factors, for example, the risk of a new government coming to power and tax relief due to international political pressure.
4. Don’t forget about the peculiarities of the tax regime. Some offshore jurisdictions have lower tax rates, and there are also zones with zero taxation status. However, tax exemption is not always the deciding factor.
Finally, we should mention the meaning of the blacklist. This list is regularly updated by the Financial Action Task Force on Money Laundering (FATF). It includes a list of jurisdictions that are not considered for cooperation in the global fight against money laundering and terrorist financing.
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