There are various benefits for companies and individuals going offshore, but the most popular one is the possibility to reduce or avoid taxes. Tax avoidance was, is, and will be the most important reason for going offshore. We can mention some other reasons like e.g. protection of assets, holding of investments, using the offshore company as a gateway to other markets, possibilities of staying confidential, etc. However, most of the ‘other’ reasons listed above (and not only) eventually will relate to taxation anyway. I have described the main reasons below.
Taxation – as already mentioned, this is the most common reason for going offshore. It relates to individuals and companies. People use offshore jurisdictions to completely avoid or reduce taxes that they pay/would pay in their countries.
It can be done in various ways, depending on needs and individual circumstances through:
– Incorporation of company / partnership / foundation
– Setting up a Trust
– Setting up an Investment Fund
– Participation in Investment Schemes
– Obtaining tax residency in certain jurisdiction
– Obtaining citizenship of certain jurisdiction (also through special programs designed for wealthy individuals)
– and other not-listed above.
Asset protection – very important factor especially for persons/companies whose assets are highly exposed to risk. In addition to asset protection, the assets can be also hidden for the specific purpose. It can be achieved in many ways, however the most popular ones are:
– Setting up a Trust (which holds the assets and is practically ‘untouchable’ and ‘invisible’ to the authorities)
– Setting up a Company or other entity for the same purpose
Stability – might apply to individuals or companies wanting to move their assets or whole businesses to another jurisdiction which has more stable economy, legal and political system. It is a common practice for businessmen coming from countries having political conflicts, unstable economy or just unfriendly business approach.
Gateway to other markets – companies can use a specific jurisdiction as a gateway to the new market or to the new areas. Good example here is the use of a company in some of EU jurisdiction (e.g. Malta or Cyprus) which would allow or ease trading with EU countries and generally access to EU customers (which might have been impossible when doing business through some non-EU country directly).
Ship registration – offshore jurisdictions are also used for registrations of ships, ship management and related services. This allows either zero or very low taxation (usually limited to tonnage tax) for companies operating in this industry.
Retirement – many jurisdictions offer beneficial retirement schemes for wealthy individuals, citizenship programs, etc. I have mentioned this in ‘taxation’ point above, however this point relates to literally moving to another country for retirement (who wouldn’t like to retire in peaceful country located in warm climate, with access to the sea, palms and everything else – with accompaniment of sound economy and well-developed infrastructure). Some of the jurisdictions are called ‘heaven’ or ‘paradise’ for a reason and it does not relate only to taxation.
Confidentiality – very important factor for people who desire high level of confidentiality. It is important to mention that not always the jurisdictions itself offer confidentiality. Some jurisdictions might have laws & rules designed in the way that there is no disclosure of certain information (e.g. no disclosure of the shareholders of the company to the authorities).
Another option is the usage of nominee services provided by fiduciary firms. Fiduciary firms and their representatives might act as a nominee for shareholders, directors, secretaries and similar bodies – allowing the ‘real’ ones to remain confidential. This is a common practice offered by corporate services providers in almost all jurisdictions.
Lower regulations and ease of doing business – many offshore jurisdictions offer lower regulation and legal requirements generally in comparison to other countries. No requirements for licenses or allowance of doing specific type of business (e.g. running casinos, e-gaming) which would not be legal or limited in their home countries is also a potential benefit.
Many people also tend to ask about the accounting-related requirements. No requirement for audit of financial statements of the company (or sometimes even no requirement of doing the accounts) might be an advantage for some.
In addition to the above, one might decide to go offshore only for sake of ease of doing business. Many jurisdictions offer quick company incorporations, no bureaucracy, relatively low prices of professional services and generally business friendly environment.
MONEY LAUNDERING – unfortunately due to the ease of incorporation of companies and opening of offshore bank accounts, there is a huge field of money being laundered in many jurisdictions, especially those less transparent from outside EU. It is (of course) illegal and sometimes not very easy to detect nowadays. I will touch the topic of money laundering in the next posts in more detail.
Summarising, as seen on the above list (which is a vast majority), there are many reasons why people go offshore. Nowadays it is a simple procedure to incorporate a company abroad or open a bank account and in most of the cases everything can be done online. Therefore considering the benefits, it might be worth playing, however it is important to note that there also many disadvantages and dangers of using a company in different jurisdiction. Before proceeding with such steps, relevant information about potential dangers, disadvantages and negative double-taxation implications (which might be possible) should be obtained.