Offshore Tax Benefits: What, Where, How to Obtain?

For companies that are looking for ways to reduce their overall operating costs, offshore tax benefits remain the main advantage of offshore jurisdictions (also called tax havens and International Financial Centers). Besides, many IFCs retain their right to keep their registers of foreign businesses’ ultimate beneficial owners (UBOs) and shareholders non-public. That is why, compared to onshore and even midshore jurisdictions’ approaches, tax havens can provide a significantly higher level of confidentiality, asset protection, and shield against unfair encroachments. In any case, incorporation of an offshore entity remains a popular legal vehicle allowing, among other virtues, to substantially economize on taxes and be exempt from the requirements to submit audit reports.  

The procedure of granting tax benefits depends on the national legislation, but most offshore jurisdictions set nearly the same list of requirements. Let’s look at them in more detail.

Basic requirements for offshore tax benefits

The term of ‘an offshore jurisdiction’ is often used to refer to a country providing ultimate tax exemption to non-resident individuals and legal entities. The Caribbean region remains the most popular tax haven in the world offering high-level financial confidentiality and the strongest legal protection of the foreign investors’ interests. 

To qualify for the full exemption from taxes in an offshore jurisdiction of incorporation, a company needs to meet a set of requirements:

• not to conduct business activities in the jurisdiction of incorporation;
• not to generate any type of income in the jurisdiction of incorporation;
• not to own real estate or any other assets in the jurisdiction of incorporation;
• not to sell goods/services to individuals and/or legal entities-residents of the in the jurisdiction of incorporation;
• be managed and controlled from the territory of another jurisdiction (while having no substance in the jurisdiction of incorporation that would otherwise result in the offshore tax resident status).   

In simple words, tax benefits are available to absolutely any company that has undergone the registration procedure in accordance with the local laws but does not conduct any activity in the jurisdiction of incorporation. 

The types of offshore tax benefits 

International financial centers are attractive to international commercial companies because of the opportunity of ultimate tax exemption. Please note the difference between the two types of benefits: the zero tax rate; the ultimate absence of (some or all) taxes. 

1. The 0% tax rate means the legal compliance of a certain company with specific conditions that are prescribed by the national legislation of the jurisdiction. As a rule, such tax relief is granted to companies developing certain types of economic activities, while all other enterprises operate under the standard tax regime (this situation is more common to countries with conventional taxation). 
2. A complete exemption from taxes is a quite different story. It means that a company, regardless of the scope and types of its economic activities, has the right not to pay any taxes in the state of registration if it meets certain requirements; for example, not to generate revenues locally (this is a typical requirement of a classical offshore jurisdiction). 

The full tax exemption may apply to the following taxes:

• income tax (corporate profits tax);
• inheritance tax;
• taxes on dividends, royalties, interest;
• capital gains tax;
• income tax on revenues received outside the jurisdiction of incorporation, including income of non-resident individuals. 

Access to offshore tax benefits 

When it comes to setting up the proper structure using offshore tax havens, a usual Google search won’t help you. Business solutions that used to be efficient, operational, and suited most business projects some time ago, do not work any longer. 

To decide whether some jurisdiction can be a suitable tax-free destination for your business, the main questions need to be answered: 

• Is the entire company bound to be transferred offshore? 
• Is a division, office, or subsidiary going to be set up there? 
• Is the ultimate beneficial owner planning to move to the jurisdiction?

Each jurisdiction has its legislation, geographical location, time zones, financial instruments, infrastructure, licensed activities, other specific features. No wonder, one cannot expect that their tax benefits, taxation procedures and policies are alike and yield similar effects across all offshore jurisdictions.

Access to tax benefits is certainly the most important privilege of an offshore company, but the efficiency of tax benefits depends on several factors that need to be taken into account when expanding/establishing a business. 

In many cases, the ease of business development plays a key role. For example, it can make a great difference if the office and local personnel are required, or how easy it is to get access to international banking instruments in the preferred jurisdiction.     

Offshore tax benefits compared across several classic offshore jurisdictions

As we have mentioned, the most popular offshore countries are in the Caribbean region. Those are mostly island states with a stable political situation and a predictable economic system, the Anglo-Saxon system of law, and the legislation beneficial for asset protection.  

Tax incentives in the form of an ultimate tax exemption allow these jurisdictions to offset the lack of advanced economic sectors that are inherent in the more developed countries. Offshore authorities support their economies by means of annual fixed duties and fees charged for registration of foreign legal entities, thereby attracting a large number of residents planning to reduce their tax burdens. 

Let us briefly consider some jurisdictions that are on the top of the lists of popular international financial centers.  

Bahamas

Since the 1990s, it is one of the most preferred jurisdictions attracting residents of the United States and Europe. The Bahamas was the first country to adopt the strictest bank secrecy laws. Information about account holders can be disclosed only on a special order from the The Supreme Court of The Bahamas. There are no tax obligations for offshore companies and owners of individual bank accounts if their income is received outside the jurisdiction.   

BVI

The British Virgin Islands is a reputable jurisdiction recommended as an ideal destination for setting up an IBC and an account with a local bank. In the BVI, companies do not pay taxes, enjoy the highest level of financial and personal confidentiality, and can freely move capital (there is no currency control).

Commonwealth of Dominica

The tax benefits in this jurisdiction imply the complete lack of any restrictions for the creation of companies by non-residents. This is a fairly secure offshore company with a high degree of confidentiality guaranteed, including the privacy of owners of offshore accounts. The country has ideal conditions for creating trusts, foundations, and offshore corporations. 

Nevis

What tax benefits does Nevis offer? In general, they are similar to other popular perks provided by most offshore jurisdictions. Modern conditions for the registration of offshore companies in this jurisdiction are perfect for registering trusts with the transfer of assets to fiduciary management. The key advantages include access to high-quality financial and insurance services. 

Belize

This jurisdiction can be a good business solution for creating investment funds, holding companies with IP rights, and trading companies. Like many other classic offshore jurisdictions, Belize has a special law that allows business activities and real estate acquisition locally. But in this case, the owner can lose the right to tax exemption. 

Saint Lucia

Your access to tax benefits in this jurisdiction allows you to actively develop e-commerce, create your own offshore bank, engage in insurance and reinsurance activities. Today, this small state maintains a favorable investment climate and attracts investors from the United States, Europe, and other parts of the world.  

Bermuda

An interesting and most attractive feature of this state is the opportunity to open a bank account with almost any institution in the world. Companies registered here do not pay any taxes, including VAT, and can freely move capital for investment, financial, or leasing activities.  

Saint Kitts

This is one of the most affordable jurisdictions without an individual income tax, corporate tax, and other dues. In certain cases, a tax may be levied on short-term capital gains (for more information, please refer to our experts). The procedure for obtaining tax benefits, namely, the full tax exemption, is similar to the ones set by most offshore jurisdictions.  

Seychelles 

Tax incentives in the Seychelles create ideal conditions for companies with export-import operations, entities engaged in transport activities, shipping, large corporations aspiring to optimize taxes on worldwide income. What tax benefits does the jurisdiction provide? Like in many classic offshores, there are absolutely no taxes for offshore companies operating outside the Seychelles. 

Opportunities and limitations for offshore tax benefits    

How to design a reliable structure for your business and assets? You would be able to accomplish this objective only with the help of international tax and legal experts. Their support will allow you to protect yourself not only from existing threats, but also to identify potential risks in the future to be able to counter them in a timely manner.  

A DTT (double taxation treaty) can be very beneficial in terms of optimization of the tax burden.  In most cases, however, non-resident companies in offshore jurisdictions are not allowed to apply DTT provisions. This limitation can negatively impact holdings’ activities. Whether this is the case can be found out only on a case-by-case basis. Such a study needs to take into account the residence/citizenship of the UBO and/or the holding company. For example, US residents need to pay corporate taxes not only on income earned in the United States, but also on worldwide profits. 

Expert assistance in getting access to offshore tax benefits 

Our assistance is a shortcut to your tax benefits and to your effective work with payment systems, classical and new banks. The tax benefits is the main attraction of most offshore jurisdictions, but it is important to take into account the reputation of the state, the presence/absence of special financial instruments, the possibility of obtaining a variety of licenses and permits, participation in the national projects, etc.  

In short, to avoid various challenges after the company registration, a thorough analysis is necessary yet before the final choice of the jurisdiction is made. Thanks to our team’s experience,  in 95 percent of cases our experts obtain for our clients the approval to open corporate accounts for classic offshore companies. Of course, our experts can help only if the client is ready to provide the required data, including the information on the UBOs. Anyway, we guarantee the protection of trade secrets, and banking institutions and registered agents are bound by similar privacy laws.   

You are welcome to order a consultation with our experts and start building an effective, secure, and profitable business today by booking a FREE online consultation.