With ever-increasing KYC and AML obligations and new VISA and VAT regulations for distance selling, our clients are looking for ways to set up an online business in a jurisdiction that is both a) bank-acceptable and processing compliance requirements, and b ) tax efficient and easy to manage. The wish list could also include confidentiality protection, fast corporate bank account services and many other benefits that are actually quite difficult to combine in a simple structure – but let's try it!
KYC/AML transparency for acquirers
Ultimately, acquirers must comply with their KYC/AML obligations, which essentially means disclosing their entire corporate structure to their UBOs and individual controlling directors, etc. In today's world, it is difficult to use legal structures to disguise ownership, and even the most opaque corporate structure is just a letter from regulators away from full transparency.
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It's always best to keep things as simple as possible, both to make it easier to set up banking arrangements and to pass acquirer due diligence checks, which is a bit more difficult.
Something to note here: There is a new set of Visa rules regarding the location of merchants that will come into effect on October 15th. In short, Visa is attempting to crack down on non-European merchants accessing its European network of card acquirers by establishing a European entity. The new rules provide that it is not enough for the merchant to have a European company; the “dealer location” must also be in Europe. What does that mean?
In general, it is where the business operates: where the offices are, where decisions are made, etc. It also refers to where the customers are located. If the merchant is not physically located in Europe, a significant part of its processing traffic can be expected to originate from Europe.
There are a number of other requirements and conditions, but the basic idea is that merchants wishing to use acquiring services in Europe should have a genuine European operation and/or European customers.
EU merchant companies
As the majority of acquirers are located in the EU and cater to EU-based clients, their number-one requirement will be that your company is registered in the EU. Other than Gibraltar, there are no EU jurisdictions free (or almost free) from corporate income tax and VAT. You could consider using a company in Malta, Cyprus, Latvia or another EU state as the EU merchant company, but bear in mind that it will be impossible to avoid VAT implications if you sell to EU customers. On the other hand, from the acquirer’s perspective there is little difference between Gibraltar, Cyprus, the UK or Malta.
Setting up a merchant account
Your EU company will be referred to as the 'merchant'. The merchant account will be opened directly in that company's name, while the funds will be received into an associated corporate account. The process is as follows: when the acquirer issues a Merchant Identification Number (MID) for the client, they will also provide technical set-up details. Later, the merchant is set up in the payment gateway and its account credentials are configured. You will then be given API integration instructions, and the acquirer's technical team will probably assist you with this. You may be offered the option of setting up a test environment first, migrating to the live environment once the test integration is working smoothly.
https://www.confiduss.com/en/services/incorporation/location/europe/
