The difference between offshore jurisdictions and countries with high taxes is clear to the business community. However, there are more than four dozen offshore jurisdictions in the world. How do you go about choosing the most suitable one for you? Let us discuss the most relevant aspects that make a difference for company owners who compare jurisdictions when planning to go offshore.
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The world economy is often compared to a huge iceberg with the bigger part concealed under the sea. Offshore jurisdictions are deep in that ‘underwater’ part. They are an important global phenomenon:
- roughly 50 percent of international trade transits through such zones;
- almost all major European multinational corporations maintain subsidiaries in offshore jurisdictions;
- private assets worth over 11 trillion U.S. dollars (the amount comparable to the GDP of the United States) are parked by wealthy individuals in offshore jurisdictions.
Types of offshore jurisdictions compared by tax incentives and other perks
The two main types of offshore jurisdictions are:
- classic (zero-tax) offshores
- low-tax jurisdictions.
Classic offshores usually offer full tax exemption for commercial activities conducted outside the country by non-resident companies. Foreigners are only required to pay an annual renewal fee.
Low-tax countries offer solid tax incentives for certain types of activities conducted by non-resident companies.
The state treasury of classic offshore jurisdictions is not replenished by taxes. Instead, it is supported by the state fees collected for the registration of offshore firms and the annual renewal of their activities.
Experts refer certain countries to classic offshore jurisdictions if they maintain a special regime for the establishment of businesses by foreigners.
The most common incentives provided by classic offshores include the following perks:
- zero rates on the corporate tax for offshore companies registered by non-residents if their profits arise abroad (i.e. if they do not generate income on the territory, where a company is registered)
- confidentiality of the beneficiary owners’ personal data
- no requirement to submit financial statements to regulatory authorities or audit the firm
- no currency control.
However, classic offshore jurisdictions do not provide the benefits and advantages of double taxation treaties because they do not sign DTTs with other countries.
Classic offshore jurisdictions compared by parameters of registration
|Parameters of registration||BVI||Seychelles||Nevis||Bermuda||Belize|
|Company type||BC||IBC||IBC||Exempt company||IBC|
|Business immigration allowed||Yes||Yes||Yes||Yes||Yes|
|Offshore capital gains tax||No||No||No||No||No|
|Number of shareholders required||1 or more||1 or more||1 or more||1 or more||1 or more|
|Number of directors required||1 or more||1 or more||1 or more||2 or more||1 or more|
|Corporate directors allowed||Yes||Yes||Yes||Yes||Yes|
|Company secretaries required||No||No||Yes||Yes||No|
|Registered capital / shares||50,000 shares, registered capital deposit is not compulsory||from USD 5,000 (deposit is not compulsory)||USD 50,000||From USD 1.00||USD 50,000|
|Bearer shares allowed||No||No||Restricted (only permitted with the special approval)||No||Yes|
|Legal address required||Yes||Yes||Yes||Yes||Yes|
|Registered agent required||Yes||Yes||Yes||Yes||Yes|
|Local directors required||No||No||No||Yes||No|
|The Board meetings to be held locally||No||No||No||No||No|
|Comprehensive Due Diligence||Yes||Yes||Yes||Yes||Yes|
|Beneficial owner’s name to be disclosed||No||No||No||No||No|
|Directors’ names to be disclosed||Not compulsory||No||No||No||No|
|Shareholders’ (members’) names to be disclosed||Not compulsory||No||No||No||No|
|Audit of the account||No||No||No||Yes||No|
|Registration wait time||2-4 business days||3-5 business days||2-4 business days||1 week||2-4 business days|
Some cases of very popular offshore jurisdictions compared
Let us look at examples of some very popular jurisdictions.
The British Virgin Islands (BVI) is a member of the British Commonwealth. The jurisdiction’s legal system is based on Common Law (its Business Companies Act includes some terms from Delaware Law).
Registration of a firm in the British Virgin Islands comes with a high degree of its owners’ privacy, so the local authorities require to submit a minimum amount of information. The most popular legal form is Business Company BVI. It does not have to pay taxes and is not connected with currency control. Many multinational companies and wealthy individuals choose to register firms in the BVI, making it one of the most popular places in the world to register offshore.
The British Virgin Islands is a group of about 40 islands located in the Caribbean region, just a 25-minute flight from Puerto Rico.
Why register an offshore firm in the British Virgin Islands?
- The high degree of privacy protection for business owners
- Non-disclosure of shareholders’ and directors’ data to local authorities
- No taxes
- No need to deposit capital at the time of business registration.
- There must be at least one shareholder and director over the age of 18
- Registration takes place only through a local licensed registered agent
- It is necessary to submit the identity card of the founder and director.
It takes 2-4 working days to register a new company in BVI and it may take a few extra days to complete corporate documents and legalization by Apostille if this is necessary.
The Republic of Seychelles is also a member of the British Commonwealth. It consists of 115 islands in the Indian Ocean. Its official currency is the Seychelles rupee, a freely convertible currency.
Non-resident firms in Seychelles mainly fall into two categories: International Business Companies (IBC) and Specially Licensed Companies (CSL). In general, the IBC is more often registered and is a more popular and versatile type of organization for attracting international business.
In 2016, Seychelles ratified the International Business Companies Act, which offers favorable conditions for the registration of offshore firms, conducting business, and protecting the confidentiality of foreign companies’ stakeholders.
The main advantages of this classic offshore jurisdiction are similar to the benefits offered in BVI, only the business registration period is on average a bit longer – 3-5 days to receive the Certificate of Incorporation.
Nevis is a small island of 83 square kilometers in the Caribbean Sea, located 1,600 kilometers south of Miami. It is part of the island nation of St. Kitts and Nevis, which is popular with foreigners wishing to acquire economic citizenship for investment. The jurisdiction is governed by English Common Law. The official language is English.
Nevis provides a stable political, economic, and trading environment for investors from around the world.
Why register a company in Nevis?
- Offshore business activities are not subject to direct taxation
- There is no requirement to disclose information about shareholders and directors to the Company Registry
- There is no requirement to file annual reports or financial statements
- Offshore companies in Nevis may issue bearer shares, however with certain restrictions
- There is no requirement to appoint local directors.
- At least one shareholder and director
- Rent a registered legal address from a registration agent
- Standard registered capital is USD 50,000.
Bermuda is a member of the British Overseas Territories, which is located in the North Atlantic Ocean less than 1,000 kilometers off the coast of North Carolina.
Bermuda has a British legal system and its offshore insurance and reinsurance industry is a major sector of the economy.
A typical offshore business structure in Bermuda is an exempt company, specifically designed for foreign investors. It is not subject to capital gains tax, value added tax, sales tax, and gift tax.
Like companies in the Cayman Islands, Bermuda firms are traditionally listed on the Hong Kong Stock Exchange.
Advantages of company formation in Bermuda:
- Privacy protection and confidentiality, non-disclosure of the names of shareholders and directors
- No double taxation treaties with other countries
- Advanced legal infrastructure and high reputation of jurisdiction
- One shareholder is enough, this can be a legal or natural person regardless of his/her nationality
- At least two directors, who can be natural persons, regardless of their nationality. Corporate directors are permitted.
- There is no minimum share capital, it can be even USD 1.00.
Bermuda is known for a longer wait time needed to register an offshore – around 1-2 weeks. But the benefits of companies incorporated in Bermuda are more important.
Belize is located in Central America. Due to its commitment to the continuous development of offshore financial services, the Belizean government is committed to compliance with all requirements of the OECD, FATF, and the European Union. That is why these international organizations have recently removed Belize from offshore blacklists.
Whereas previously the Belize-registered offshore IBC companies could only operate as non-residents, automatically benefiting from tax exemption status, now all companies are treated like domestic entities in terms of tax. However, the territorial tax system implies that foreign-sourced income is exempted from tax in Belize. At the same time, the company needs to meet the substance requirements. One of the requirements for those companies which fall within the scope of Economic Substance Act is to rent a physical office in Belize.
A corporate tax of 25% is levied on resident companies. Trading firms with a turnover of less than USD 37,500 per year are exempt from taxation.
However, your fastest and the most fruitful progress towards making the right choice can be attained in cooperation with our seasoned experts.
We offer professional advice from InternationalWealth experts on choosing the most suitable offshore jurisdiction for your type of business. It is extremely important to simultaneously select a foreign account for your future offshore firm. Our experience shows that it is a good idea to open several accounts at the same time. You are welcome to take advantage of our free advice on selecting a corporate account in a foreign bank.
We also offer a Pre-Approval service which allows you to save time and resources during the selection of foreign banking institutions. This service implies a simultaneous electronic application to several financial institutions for a pre-approval of your corporate account.
For the free private online consultations on the selection of a reliable offshore jurisdiction, please contact us at e-mail address given at the top of this page.