Dr Felix Hammerschmidt participates in the IR Global Guide – A Jurisdictional Guide to Opening a Foreign Bank Account

Dr Felix HammerschmidtAccountants and tax advisers, Interexpert

Foreward by Andrew Chilvers

For companies and individuals looking to move into new jurisdictions for business opportunities, setting up a bank account is a crucial part of the process. But this is never as straightforward as it seems.

In all countries, banks are obliged to crack down on fraud and any potential financial scullduggery. As a result, they tend to be very risk averse. Regardless of where a business establishes an office in the world, local banks will generally have the newly arrived expatriates jumping through various hoops, pulling their hair out in frustration.

The new arrival will need the relevant paperwork, including personal identity papers, a personal and business address, personal references and other numerous documents. And that’s just the beginning.

Every jurisdiction has its own banks and banking rules, which are often complex and bureaucratic. Consequently, seeking advice from local legal and financial experts before setting up a bank account is imperative if a company is it get the right account for its particular business objectives. This is why it’s so important to use local advisers who are experts in the jurisdiction to provide information about the local banking rules.

What is the general risk appetite of banks in your jurisdiction and how does that affect setting up a new business bank account?

The general risk appetite of Austrian standard banks has decreased significantly over the years. Although there have been no prominent cases, some institutes became involved in money laundering cases and had to accept painful fines. A small bank with a rather lenient approach regarding KYC-procedures and more tolerance for the business of shady clients has been shut down by the authorities recently. On top of that, the fee level of Austrian banks is rather low due to fierce competition between them: understandably, banks are not willing to take considerable risk for an annual income of some hundred Euros.

The set up process for new bank accounts, however, follows common OECD-standards based on a strict KYC approach. This is only insofar remarkable as Austria used to have a very strict banks’ discretion policy for decades – only comparable to the Swiss model. This has now been fully adjusted to international rules.

Banks are using uniform procedures for opening business and personal accounts. Beneficial owners of Austrian companies have to be fully documented in the company register or the register of beneficial ownership respectively. For companies domiciled in other EU-countries an extract of a comparable register is required. If beneficial owners are domiciled in non-EU-countries, companies must have a managing director residing in Austria.

To open a personal account, the customer must have a primary residence in Austria – irrespective of their nationality. Austria has a well-established financial sector and is even qualified as overbanked. Consequently, fees for private bank accounts are very competitive and often cheaper as comparable products of international institutes. Therefore, also expatriates usually have their personal bank account with a local bank.

How accommodating are banks in your jurisdiction for opening a business and personal bank account?

Austrian banks have developed their standard KYC-procedures for opening business and personal accounts. Although they are all using their own forms, they all are following the same logic.

To open a personal account an official ID (passport, identity card) and a certificate of your registered home address is sufficient. Austria is having a mandatory system requiring everyone residing in the country to register her/his home addresses with the local authority. After forms and documents are complete, the procedure to open a personal account is usually finished after two days.

Duration and complexity of the process to open a business account very much depends on the ownership structure of the client. A company with natural persons as shareholders and a local management passes the vetting process within a day of two. The involvement of another company on a shareholder level triggers an identification process regarding ultimate beneficial owners. Based on a digitalised company register this can be sorted out for Austrian companies in a short time. As soon as foreign entities are involved, comparable confirmations issued by authorities are required. These documents must not be older than six weeks and have to be notarized and apostilled. In case of a complex legal structure and the involvement of different jurisdictions, the whole process may be lengthy and costly. If the chain of ownership includes offshore entities, banks may be reluctant to open a business bank account. Also legal forms which are uncommon in Austrian like trusts under British law may be a knock-on factor for an account opening process.

For the time being clients have to fulfil KYC-processes with many service providers (banks, legal and tax consultants etc.) presenting the same documents repeatedly. To improve this situation the Austrian Ministry of Finance is currently building up a data bank, where IDs shall be centrally stored.

Should you join an internationally reputable or established bank rather than a local bank?

Austrian banks offer a wider range of financial products to their private customers. Their fee structure is very competitive, so people resident in Austria mostly prefer to have their accounts with a local bank.

The standard procedure for the formation of a company under Austrian law requires that at least one business account is opened at a local bank. Therefore, the set-up of a NewCo includes a standard KYC-process. Vetting procedures of local institutes are very much comparable to international banks.

To speed up the opening process of a business account – and the formation of a company – clients should:

• Prepare IDs of management and beneficial owners and deliver them upfront;

• Prepare sufficient documents to make the complete chain of ownership transparent;

• Consider the legal structure of a NewCo: off shore entities and trust should only be involved, if really necessary.