If you are setting up an international company, what criteria should be used to select the best offshore zone? Are the best offshore zone ratings true? Are they reliable? This article will show you the right way to choose the best offshore jurisdiction for company incorporation, private banking and trust services.
It is very important to choose the offshore jurisdiction that will be most suitable for your business. A key factor in this is selecting one or more foreign banks or financial institutions for opening a business account. Both procedures are quite complicated. The good news is you can outsource it to the experts!
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Many business persons emphasize trustworthiness and reputation as the key criteria for selecting an offshore jurisdiction.
Reliability is usually determined by the following factors that affect the status of the jurisdiction:
- It should not be on the EU and FATF blacklists.
- It has good governing legislation with well established practice in its application.
- The offshore tax system must show stability.
- Its personal data security is on the high level.
- Professional registered agents are available in the market.
A huge number of factors have an impact on the best offshore zone status. Reliability is merely a relative characteristic. Its value depends on certain specific criteria. Read on for the details!
Subjective Criteria for Choosing a Reliable Offshore Jurisdiction
Each business person is usually interested in a particular offshore jurisdiction. For them, it will be more reliable than others due to certain subjective factors like image or what friends have to say.
However, when choosing a particular jurisdiction, experienced entrepreneurs take into account the following aspects:
- Your specific business interests should be dovetailed with the established norms of tax and corporate legislation
- Is the business regulated? The need to get a license for the future company’s operations at the place of business should be considered. This often applies to financial and investment companies or family offices involved in crypto, amongst other high risk activities.
For a business person, the chosen offshore jurisdiction will become more suitable than the others if they see a reasonable commercial benefit and economic feasibility in incorporating a company or opening a bank account there. Bear in mind that the more reliable the offshore jurisdiction, the higher the compliance costs. For the entrepreneur, the strong reputation of the jurisdiction will be reflected in the total cost of incorporation, renewal and maintenance of their offshore company.
So, that all sounds good, but what are the concrete steps to get started?
First of all, we suggest you determine the goals that you will pursue as the owner while running an international company. When choosing a reliable offshore zone or jurisdiction, business persons are guided by the parameters that distinguish these zones from each other:
- Security, stability and reputation: these three trump all other considerations. Consider the reputation. For example: Nevis and Cook Islands are known as the top two asset protection trust jurisdictions in the world. Marshall Islands is great for commercial or maritime operations. Switzerland and USA are great for banking for non-residents. Serbia is the best for substance for offshore companies… and so on.
- Tax benefits (No taxes or low taxes in the offshore zone; territorial taxation; non-resident status for the company).
- How convenient it is to work with a company using this offshore zone (the requirements for capital, directors and shareholders, the cost of incorporating, renewing and maintaining the company, speed of set-up etc).
Are There Any Reliable Offshore Jurisdictions At All?
Wow, students of politics, philosophy and economics could spend years debating that question! So let’s break it down to make it more easily manageable.
A few years ago, when asked what offshore jurisdiction was more reliable in terms of personal data security, many experts would have answered Panama.
Then, as we all know, hackers got into the system of a big, mass production law firm. Insiders can argue about this, but the fact is Mossack Fonseca were going for quantity over quality. They actually called their main workspace where companies were produced the “factory.”
The lesson from this is that if journalists are willing to act illegally, it doesn’t really matter what legal protections exist. If you are concerned about personal data security of the offshore company beneficial owners (and who in their right minds wouldn’t be?) then you need to look at the data protection policies – real and imagined – of the offshore service provider you deal with just as much as the laws of the jurisdiction.
Therefore, it is not that easy to say what offshore provider is more reliable. At Offshore Pro Group, we can only speak for ourselves. Our client data is protected by legal privilege in every jurisdiction where we have operations, and we are happy to discuss our data protection and confidentiality policies with clients who are genuine. (Obviously not with random anonymous people from the internet who may well be journalists who are part of the anti-offshore political propaganda machine)
Many offshore jurisdictions have adopted similar legislation. If you wish to find out which offshore jurisdiction is more reliable in terms of economic substance, the Nevis is an ideal example. Nevis has introduced some of the most detailed norms related to the economic substance, and worked out in practice all the procedures for its establishment.
The Marshall Islands and the United Arab Emirates are next in the ranking of the most reliable offshore jurisdictions in terms of establishing economic substance. Marshall Islands went so far down this road as to be whitelisted not just by the European Union, but by France! Those who know the French tax authorities will attest that this is a major accolade.
Yet in mid-2020, the European Union included the Cayman Islands, a British territory, in its blacklist of offshore jurisdictions. Therefore, opening a business account with a bank that has a strong reputation has become rather difficult for a company from this jurisdiction. (Of course, this political decision had absolutely nothing to do with Brexit! 🙂
Under pressure from international organizations, the European Union and the United States, certain offshore jurisdictions actually ceased to be such, refusing the zero tax regime. This is what Dominica did early last year to get removed from in 2020 the offshore black list. It was added back again in 2021, so that was a pretty pointless exercise! Unfortunately, Dominica has many reputational issues with scandals going back decades.
Belize still continues to be a “classic” offshore jurisdiction… an almost exact copy of the old BVI offshore company legislation that was so successful for so many years. New substance regulations have changed things, but not significantly.
According to the above mentioned criteria, a few offshore zones look more reliable than others… Nevis, Marshall Islands and Belize. This is a subjective opinion, certain experts may disagree with it. At the moment these jurisdictions are not on the major blacklists, and their taxation systems are stable. International lawyers note the high quality of the Nevis and Marshall Islands legislation. The practice of incorporating offshore companies and trusts in these jurisdictions is very extensive among nationals of different countries. This is also thanks to the operational excellence of the registered agents.
Many business persons are looking for low-tax midshore havens, mistakenly calling them offshore. Hong Kong and Cyprus, being mid-shore, offer company incorporation and international business on favorable terms. These so-called offshore locations can also be considered reliable in terms of respectability, though during 2020 Hong Kong’s reputation was almost irreparably damaged by political events.
No Offshore Jurisdiction Will Be Reliable If You Make the Following Mistakes
1. Do not appoint your relatives and friends as your offshore company directors
Fully controlled companies look like instruments of tax evasion. Appointing your relatives and friends as nominee directors, you will make it obvious to the others that you as a business person have established full control over the company. Likely they can just find these people on Facebook and link them to you. And a registered company should look like a commercial partner of the owner.
2. Under no circumstances conduct any business after the loss of legal capacity
Many states have public registers of companies showing their status. Any legally-versed person can find out the status of a particular foreign company in a few minutes. In the case of a non-public register, an official request to the state authorities to confirm the company status in terms of its legal capacity remains available. If your international company has no Certificate of Good Standing, and has lost its legal capacity, all of its transactions starting from that moment could be declared illegal or ultra vires.
3. Do not send any offshore bank records to your corporate address in your home country
Names of the offshore company beneficial owners get disclosed in most cases when someone gains access to the bank statements sent to the corporate address in the founder’s home country. This information can be passed from the company’s employees to business competitors. The same applies to the place of storage of your offshore records. You should definitely not keep it at your home country office.
4. Do not use an unsecure laptop and free Wi-Fi for storing and communicating your offshore electronic documents
Phishing software is freely available. Third parties can gain access to the electronic documents of your offshore company. Please do use data encryption software and applications for storing and communicating such documents, e.g. Signal or Telegram instead of WhatsApp, special archivers, PGP compatible email client, etc.
Offshore Jurisdictions: Reliability vs. Popularity
Have you ever wondered how many offshore zones there are in the world? Currently there are about four dozen of them. Their clusters are located in Europe, the Asia-Pacific region, and the Caribbean. We suggest looking at several offshore zones that are if not more reliable then more popular than others.
The Republic of the Marshall Islands (“RMI”) is an island nation in the middle of the Pacific. It is one of the most popular offshore zones which now enjoys prestige and political stability, being on the European Union whitelist and having the second largest merchant marine fleet in the world. All non-resident domestic business entities registered in the RMI are governed by the RMI Associations Law. The RMI Associations Law is primarily modeled after the corporate laws of the US state of Delaware and statutorily exempts all non-resident domestic entities from taxes. Here, one doesn’t have to submit financial statements to authorities, but of course one has to keep the books and records, and store them like any responsible business anywhere.
Singapore is a mid-shore, low-tax jurisdiction. It has been repeatedly ranked first in global rankings for ease of doing business and investment potential. It is a convenient and reliable jurisdiction for incorporating fin-tech projects. In our case, it is of particular interest because one can now open accounts remotely there in Singapore banks for offshore companies such as those of Marshall Islands or Belize.
Belize is rather popular in terms of providing a high level of data security to the beneficial owners. It can be reached in two hours from Miami. The political situation in the country is stable. Belize is a member of the British Commonwealth.
We would like to kindly remind you that the search for a reliable offshore zone for your specific business should begin together with selecting a suitable bank for opening a business account.
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