Offshore Banks


Jonás Bergstein
Professor da Universidad de la República (Montevideo)
LL.M’88 (HLS)


Uruguay offers an attractive regime for offshore, whose main characteristics are indicated below.


1. Scope of Activities


The exclusive object of offshore banks (so-called: "entidades de intermediación financiera externa" or "EIFEs" in local legislation) is the undertaking of "intermediation or mediation operations between the offer and demand of securities, monies or precious metals based abroad". Such operations must be undertaken with non-residents.


Uruguayan laws define the "financial intermediation" as the undertaking, on a periodical and professional basis, of intermediation and mediation activities between the offer and demand of securities, monies or precious metals (for instance, this is the case of the typical banking transaction: the offshore bank takes money from one client, to lend it to another client). The notion of "mediation" is not crystal-clear, but it is usually understood that "mediation" includes: (i) those activities by which offshore banks (hereinafter: "the OBs") put in contact several parties of a transaction, and (ii) the grant of guarantees by OBs.


For the above purposes, securities, monies and precious metals are deemed based abroad when they are the object of rights and obligations undertaken with non-residents.


And non-residents are defined as:


(i) Visitors, tourists and other individuals who - without having in Uruguay their principal place of interest or business - stay in Uruguay for several reasons, such as family reasons, ships or aircraft crews laying over in the country, sport games participants, conferences or meetings attenders, or members of exchange student programs;

(ii) Sellers or employees of foreign companies staying in Uruguay for less than one year;

(iii) Embassies and diplomatic representations in the country, as well as the personnel employed thereof;

(iv) International organizations;

(v) Parent companies, foreign branches or agencies of resident companies;

(vi) Individuals who reside abroad and legal entities which do not have their principal place of interest in the national economy (even if they own assets in the country);

(vii) Financial investment companies governed by Law No. 11.073 of 24 June 1948 (see below, item III);

(viii) For OBs authorized to set up in the Free Zones, free zone users are deemed to be non-residents.


In short: OBs are entitled to undertake full banking activities with non-residents - as defined above - to the extent such banking activities are included in the concepts of "intermediation" and "mediation" of securities, monies and precious metals.


Regulations specify that OBs are entitled to (i) receive deposits "on sight" ("depósitos a la vista"), (ii) operate with "current accounts" ("cuenta corriente") in foreign currency and with non-residents, and (iii) operate with checks, all in foreign currency and with respect to non-residents.


2. Application Process


Establishment of OBs is approved by the Executive Branch (acting through the Ministry of Economy and Finance) with the prior favorable opinion by the BCU; after approval, an additional permit (so-called: "habilitación") is to be issued by the BCU. Executive Branch decision may be grounded in reasons of both law and convenience or opportunity. Although there is no explicit criterion, in practice BCU reserves approval to reputed foreign banking institutions (e.g., individuals or companies with no prior experience in the banking or financial sector, would not be granted a banking license). Standards are normally higher for banks than for OBs.


Simultaneously with application, the sum of U$S 100.000 must be deposited with BCU; the deposit may be effected in local currency, or US dollars or Housing Bank Notes. Such deposit is returned to applicant upon issuance of authorization by BCU, whether or not the authorization has been actually granted.


Information to be submitted includes:


(i) Capital to be paid-in;

(ii) Background of the company, its founders, directors, administrators;

(iii) Any information which may assist in the assessment of the company's performance and efficiency, including the potential of channeling actual financial flows into the country;

(iv) Amount and type of activities contemplated, including amount and conditions of financing lines of medium and long term to be placed in the country;

(v) Forecasts of activities during first 12 months, indicating initial minimum net liability;

(vi) Shareholders (if the OB shall be a corporation incorporated in Uruguay);

(vii) Draft of by-laws.


Time-frame of application process with the Ministry of Economy depends upon credentials submitted by the applicant, but in general terms application process involves between four and ten months.


Once the authorization is issued, it must be published at the Official Gazette ("Diario Oficial") and another daily. After approval by the Executive Branch, OBs must (i) pay-in the full amount of the minimum net liability determined by BCU within 30 days of the authorization, and (ii) start operations within 180 days counted as from notice of such authorization.


OBs must adopt any of the following types of legal entities: (i) branch of a foreign bank; or (ii) nominative-share corporation whose capital must be owned by banks. In case "ii", banks must own 98% of the stock.


Therefore, and in addition to the application process with BCU, proceedings will have to be followed to establish a corporation ("sociedad anónima") or to register with the Public and General Registry of Commerce a branch of a foreign company (In the case of a corporation, by-laws must state that the shares shall be nominative and that transfer of such shares shall be void without the prior approval of BCU). In practice, if the OB shall be a local corporation, the first step is the execution of the social contract of the company (at least two founders are required to sign) and while the incorporation process is under way, the company submits the license application with the Ministry of Economy and Finance.


Denomination of OBs must be preceded by either the expression "Institución Financiera Externa" ("External Financial Institution") or the expression "I.F.E.", followed by the name of the parent company or the principal stockholder, adding the expression "(Uruguay)" (for instance: "Institución Financiera Externa Banco Roberts (Uruguay) S.A."). In the performance of its activities, Obs must use such denomination.


3. Minimum Net Liability


OBs must maintain at all times a minimum net liability of not less than U$S 500.000 nor less than 5% of the assets and contingent debts (net of "provisions") (such minimum net liability is substantially below the one that applies to banks and financial entities, see below item II.3).


4. Mandatory Deposit with BCU


OBs must maintain a deposit with BCU in the equivalent amount of U$S 500.000 (the deposit may be held in foreign currency or in national public instruments denominated in foreign currency and quoted with the Montevideo Stock Exchange; such deposit shall generate an interest at the LIBO rate for 6 months).


5. Capital


Unlike all other financial entities, OBs may express their capital in foreign currency.


6. Reserve Requirements


Unlike banks and financial entities ("casas financieras") OBs are not required to maintain reserve requirements ("encaje") on the deposits they receive.


7. Mandatory Holding of National Public Bonds


Banks and financial entities are required to maintain public notes issued by the State (this is a type of reserve requirement, to the extent such obligation is established as a percentage of the deposits and other obligations of banks). Again, such obligation does not apply to OBs.


Likewise, there is no restriction in the maximum amount of foreign public notes that OBs may maintain (unlike banks and financial entities, which may maintain such public instruments in the maximum percentage of 5% of their minimum net liability).


8. Other Assets OBs May Maintain in Uruguay


BCU has restricted the list of assets that OBs may maintain in Uruguay. Those assets are: coins, bills and precious; current accounts in banks to finance their activities; public debt instruments expressed in foreign currency and quoted with the stock exchange; foreign debt instruments; deposits with BCU; movables for daily operations in a percentage which may not exceed 50% of the minimum net liability.


9. Periodical Submittance of Information


The following items must be periodically submitted by OBs to the BCU:


i) Financial statements, every three months;

ii) Balance of accounting records, on a monthly basis;

iii) Information on the structure of their active and non-active operations as of the last day of each semester, on a bi-annual basis;

iv) Several reports must be submitted by external independent auditors, including reports on: consolidated annual balance; assessment on internal control systems; accounting system used, etc. Most of these reports must be submitted on an annual basis.

OBs - like all financial intermediation institutions - must also publish their annual financial statements in the Official Gazette and in another daily.


10. Tax Regime


OBs enjoy a broad tax exemption, only being subject to social security contributions.