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With ever-expanding KYC and AML obligations and new VISA and VAT rules for distance selling, our clients are looking for ways to establish an online company in a jurisdiction that is both a) acceptable for banks and processing compliance requirements and b) tax efficient and easy to manage. The wish list might also include confidentiality protection, fast corporate bank account services and many other benefits that are actually quite challenging to combine into one easy structure — but let's give it a try!

KYC/AML transparency for acquirers
Ultimately, acquirers must discharge their KYC/AML obligations, which essentially means laying their entire company structure bare to their UBOs and individual controlling individual directors, etc. In today’s world, it is hard to use legal structures to conceal ownership, and even the most opaque company structure is only one regulator’s letter away from full transparency.

It's always best to keep things as simple as possible, both to make it easier to set up banking arrangements and to pass the acquirer’s due diligence tests, which is quite a bit tougher.

Something to consider here: there is a new set of Visa rules regarding merchant outlet location that go into effect on 15 October. In a nutshell, Visa is trying to crack down on merchants who are not actually based in Europe accessing its European card acquirer network by setting up a European company. The new rules stipulate that it is not enough for the merchant to have a European company; the 'merchant outlet location' must also be in Europe. What does this mean?

Generally speaking, it’s where the business is operated from: where the offices are located, decisions made, etc. It also refers to where the customers are. If the merchant is not physically located in Europe, then the expectation will be that a fair amount of its processing traffic comes from Europe.

There are a number of other requirements and conditions, but the overall idea is that merchants wanting to use acquiring services in Europe should have a bona fide European operation and/or European customers.

If you have any further questions, take a look at our F.A.Q. section or contact us now.

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.


Using an intermediary company as a processing partner
This scenario, which should be cleared in advance with your acquirer, includes one extra company, for example, a Hong Kong company that has an arrangement with your EU merchant whereby the merchant acts as a processing agent for the principal Hong Kong company. The Hong Kong partner may lighten the EU company's tax base to some degree. Any such arrangement between the two partners requires a clear and detailed legal contract. In accordance with the contract between the two parties, the EU merchant handles the whole process of sales, invoicing and collecting payments from customers. Of course, that company must be compliant with all requirements and regulations imposed by the acquirer. For example, the acquirer may insist that it has a real office (instead of a simple registered address), which must be featured on the website, with contact telephone numbers and email addresses, etc. For the processing services provided, the EU merchant will receive a retainer from the Hong Kong principal, which might be a fixed amount or a percentage of sales turnover. The EU merchant will deposit the revenue into the Hong Kong principal company's corporate account, minus its retainer/commission.

An audit of a company's financial statements is called an audit. It is usually presented in the company's annual report, which is prepared by auditors. It usually refers to a specific past billing period. The audit report based on a selective review of company performance is the mandatory requirement upon completion of the audit. The report contains an income statement, a balance sheet, a statement of changes in equity and a cash flow statement and notes with a summary of the significant accounting methods in the notes.

An audit reflects the company's financial condition at a given point in time, including information about whether everything owned and owed by a company has been correctly recognized in the balance sheet and its losses and profits have been correctly assessed. The financial report must be prepared according to certain legal requirements. When the report is prepared, it must be approved by the company's executives (e.g. the board of directors) by giving a verdict on its accuracy.

Audits may also include: asking formal and informal questions, examining a company's tangible assets such as mechanical and electrical equipment, obtaining written confirmations, testing and monitoring specific procedures carried out on company premises.

Audit Standards
The standards for proper auditing of financial reporting are set by a government. There are International Standards on Auditing (ISAs) available on the internet that provide clear statements that auditors should consider. They consist of Introduction, Objectives, Definitions, Requirements expressed by the phrase “the auditor shall”, Application and other explanatory material.

There is also an e-Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements, published December 2016, available on the web with translations in English, Arabic, Bulgarian, Danish, French, Georgian, French, Kazakh , Italian, Serbian, Russian, Spanish and Thai . It includes Consideration of Laws and Regulations in the Audit of Financial Statements and Amendments and other international standards consisting of New Requirements Addressing Non-Compliance with Laws and Regulations (NOCLAR) in the IESBA Code of Ethics for Professional Accountants.


Core Principles of Auditing
There are general principles and responsibilities related to general auditing standards and functions of the independent auditor AS 1001. For example, considering materiality in planning and performing an audit that directly affects the determination of the financial statements. AS 1005 states that independence in mental attitude must be maintained by the auditor or auditors. AS 1010, which specifies the education and qualifications of the independent auditor and states that an independent auditor is one who has knowledge of accounting and auditing. AS 1015, Explanation of requirements for professional diligence in the performance of work. Other sections of auditing standards include general concepts. They contain a detailed description of audit risk, audit evidence and the relationship of audit standards to quality control standards. General activities describe the monitoring of the audit engagement, the audit documentation, the use of an expert and the quality check of the engagement. Auditor's notices describe communications with audit committees and notices of control weaknesses in an audit. Audit procedures include audit planning, reporting and risk assessment. The auditor's reporting includes requirements for reports, annual accounts and dates. Matters related to filings under federal securities laws and other matters related to audits include a view on responsibilities and reviews of financial information.