Offshore Company Bank Account: How to Structure a Strong KYC File

For the purposes of this article, the term "offshore company" is used descriptively for a foreign company, including an entity incorporated in a low-tax or preferential tax jurisdiction. For banking purposes, the relevant factors are the particular jurisdiction, ownership and control structure, transparency, business activity, source of funds and customer risk profile rather than the label alone. European supervisory guidance requires a risk-based assessment and does not treat every individual risk factor as an automatic basis for refusal. 

Where an account is opened with a Bulgarian bank, the institution must conduct Customer Due Diligence (CDD). The Bulgarian Measures Against Money Laundering Act requires identification of the customer and beneficial owner, clarification of the ownership and control structure, assessment of the purpose and intended nature of the business relationship, establishment of the source of funds and ongoing monitoring. 

Does a Company Have a Statutory Right to a Bank Account? 

The special right to a payment account with basic features under Article 119 of the Bulgarian Payment Services and Payment Systems Act applies to consumers legally resident in the European Union. The Bulgarian National Bank confirms that this account is intended for natural persons. The statutory regime does not provide an equivalent right for commercial companies to require a bank to open an ordinary corporate account. 

For a corporate customer, successful completion of KYC is necessary but does not guarantee a positive onboarding decision. At the same time, where a bank is unable to complete the mandatory customer due diligence measures, Article 17 of the Bulgarian Measures Against Money Laundering Act requires it to refuse the transaction or business relationship, including the opening of an account. Where a relationship already exists and the necessary CDD cannot be completed, the relationship must be terminated. 

A KYC file should therefore not be treated as a formality or as a package of documents that automatically results in account opening. Its function is to provide sufficiently reliable information for the bank to perform its regulatory obligations and its own risk assessment. 

Why Are Ownership and Control Central to a KYC File? 

The bank must establish not only the formal shareholders or members of the company but also the natural persons who ultimately own or control it. 

Under the current Bulgarian AML framework, a natural person who directly or indirectly owns 25% or more of the shares, equity interests or voting rights falls within the principal beneficial ownership criterion. The legislation also recognises control through other means. Where all possible means of identifying the natural person who ultimately owns or controls the entity have been exhausted and no grounds for suspicion exist, the statutory senior managing official criterion applies. 

For a multi-layer international structure, the KYC file should permit the ownership chain to be traced to the relevant beneficial owners. Depending on the jurisdictions involved and the bank's requirements, the supporting records may include constitutional documents, current corporate extracts, registers of directors and shareholders, Certificates of Good Standing or Incumbency and documents relating to intermediate entities. 

A group ownership chart can be particularly useful for a complex structure, but it does not replace formal corporate evidence. Its purpose is to show clearly the relationship between entities, ownership percentages and control mechanisms so that the information can be reconciled with the underlying records. 

What Is the Difference Between Source of Funds and Source of Wealth? 

Source of Funds (SoF) and Source of Wealth (SoW) address different issues and should not be used interchangeably. 

Under the Bulgarian Measures Against Money Laundering Act, Source of Funds concerns the origin of the funds used within a business relationship or for a particular transaction. Bulgarian law requires the source of funds to be established using prescribed methods, which may include information about the customer's business and expected activity, reliable independent sources, other information collected under applicable legislation and analysis of financial flows. 

Source of Wealth has a broader scope. The Bulgarian AML legislation defines it by reference to the sources of a person's overall wealth, assets and financial position, rather than only the particular funds used in a specific transaction or banking relationship. 

Depending on the circumstances, SoF may be supported by bank statements, loan or intra-group financing agreements, commercial contracts and invoices or documents evidencing capital contributions. SoW may require a wider financial history, such as financial statements, evidence of a sale of a business or other asset, dividends, investment returns, professional income or inheritance. 

The required depth of supporting evidence is not identical for every customer. It depends on the applicable law, the particular risk profile and the financial institution's policies. In specified higher-risk relationships, Bulgarian law requires enhanced due diligence that may include additional information concerning the customer and beneficial owners, Source of Wealth, the reasons for contemplated transactions, approval by a senior management official and enhanced ongoing monitoring. 

How Should the Business Model and Genuine Commercial Activity Be Documented? 

Corporate registration establishes the legal existence of the company but does not, by itself, explain how the bank account will operate. The KYC assessment must enable the institution to understand the purpose and intended nature of the relationship and subsequently compare actual transactions with the customer's known business activity and risk profile. 

Customer and supplier contracts, invoices, purchase orders, evidence of services performed, transport documentation, financial statements, bank records and commercial correspondence may support genuine business activity where relevant to the particular company. 

A business memorandum or company profile is not a universally prescribed regulatory document in a fixed form. For international or more complex structures, however, it may be a useful practical tool for bringing together information on the products or services, customers, suppliers, markets, payment jurisdictions, expected turnover and funding model. 

The quality of a KYC file is determined not by the volume of documents but by whether the principal statements concerning the business and expected financial flows can be substantiated. 

Does an Offshore or Preferential Tax Jurisdiction Automatically Create Higher Risk? 

Incorporation outside Bulgaria or in a low-tax jurisdiction is not, by itself, evidence of unlawful activity and should not automatically be equated with a particular AML risk classification. 

Under Bulgarian law, the concept of a "preferential tax jurisdiction" has a specific statutory meaning. The Bulgarian Act on Economic and Financial Relations with Companies Registered in Preferential Tax Jurisdictions, Their Controlled Persons and Beneficial Owners contains specifically enumerated restrictions concerning certain licensed activities, qualifying holdings, public procurement and other identified relationships. It does not establish a general prohibition on such a company holding an ordinary bank account. 

AML/CFT risk assessment is a separate issue. Unusually opaque structures, vehicles capable of concealing identity, nominee arrangements and links with higher-risk jurisdictions may constitute relevant banking risk factors. An individual risk factor should, however, be assessed within the context of the particular customer and structure. 

Where a relationship involves a high-risk third country within the applicable AML framework, Bulgarian law provides for specific enhanced due diligence measures. A high-risk third country should not automatically be treated as synonymous with a preferential tax jurisdiction, as the two concepts perform different regulatory functions. 

What Role Do CRS and FATCA Play in Corporate Account Opening? 

CRS and FATCA are tax due diligence and automatic exchange of information regimes and should be distinguished from AML/CFT requirements. 

In Bulgaria, the automatic exchange framework for the Common Reporting Standard (CRS), DAC2 and FATCA is implemented through the Tax and Social Security Procedure Code. Bulgarian reporting financial institutions carry out the applicable due diligence and reporting procedures for financial accounts they maintain. 

For New Entity Accounts, the CRS generally requires the financial institution to establish the tax residence and status of the Account Holder through an appropriate self-certification, subject to the applicable exceptions. For certain Passive NFEs, the institution must also determine the Controlling Persons and whether they are Reportable Persons. AML/KYC information may be relied upon for determining Controlling Persons in accordance with the CRS rules. 

Tax status, AML/KYC risk and beneficial ownership are therefore connected within the account-opening process, but they arise under distinct regulatory regimes and should not be conflated. 

What Makes a KYC File Consistent and Verifiable? 

A strong KYC file presents the same underlying facts across the relevant records. The ownership structure should correspond with corporate registers. Beneficial ownership information should be consistent with the group structure. The stated Source of Funds should match the relevant financial evidence and funding model. Expected payment flows should correspond with genuine commercial activity. 

Corporate governance forms part of the same picture. Board or shareholder resolutions, powers of attorney and account mandates should clearly establish who has authority to represent the company and operate the account. 

The file must also support ongoing monitoring. Bulgarian AML law requires continued review of the business relationship and updating of customer information, including where account usage changes materially, transactions are inconsistent with normal customer behaviour or the information already held becomes insufficient. 

The central principle is therefore internal consistency. A properly structured KYC file does not guarantee account opening, but it reduces the risk that the bank's assessment will be impeded by information gaps, unexplained discrepancies or unsupported statements. 

Legal Assistance with Corporate Banking KYC 

Vassilev & Chisuse Law Firm provides legal assistance with corporate banking KYC and account-opening processes for domestic and international companies. The legal work may include reviewing ownership and control structures, corporate documentation, KYC files and business memoranda, as well as documentary support concerning Source of Funds and Source of Wealth. 

This material is provided for general information purposes only. It does not constitute individual legal, tax, financial, accounting or investment advice and does not guarantee that a bank account will be opened. Specific requirements depend on the jurisdiction and regulatory framework applicable to the financial institution, the corporate structure, the customer's risk profile and the particular facts and circumstances.