An offshore company is registered or incorporated outside the country where it has its principal offices and operations, or where its principal investors reside. The term "offshore" can refer to any country, but is primarily associated with certain countries or jurisdictions where local laws offer asset protection, business flexibility, tax minimization, and privacy protection. Forming an offshore company begins with choosing a business structure and jurisdiction. Next, business owners need to appoint a registered agent or trustee, incorporate the company, and take care of all financial reporting responsibilities.
Characteristics of offshore companies:
Offshore companies differ according to the corporate law of the relevant jurisdiction. All offshore companies have certain characteristics:
They are generally not subject to tax in their home jurisdiction.
The business regime will be designed to promote business flexibility.
Regulation of business activities will normally be lighter than in a developed country.
The absence of taxation or regulation in the home jurisdiction does not exempt the relevant company from foreign taxation or regulation.
Another common characteristic of offshore companies is the limited amount of information available to the public. It varies from jurisdiction to jurisdiction. Most jurisdictions have laws that allow law enforcement authorities (local or foreign) to have access to relevant information and, in some cases, to individuals.
Most offshore jurisdictions normally remove corporate restrictions such as thin capitalization rules, financial aid rules, and limitations on company capacity and benefits. Many have removed rules on capital maintenance or restrictions on dividend payments. A number of jurisdictions have also adopted special provisions to attract business by offering corporate mechanisms that allow for complex business transactions or reorganizations.
Uses of offshore companies:
There are frequent allegations that offshore companies are used for money laundering, tax evasion, fraud, and other forms of white collar crime. Offshore companies are also used in a wide variety of business transactions, from holding companies to joint ventures and listing vehicles. Offshore companies are also widely used as part of private wealth for tax mitigation and privacy. The use of offshore companies, especially in tax planning, has become controversial in recent years, and a number of prominent companies have stopped using offshore entities in their group structure as a result of campaigns public funds so that these companies pay their "fair share" of government taxes.
A tax haven is a jurisdiction that offers its taxpayers favorable tax or other conditions compared to other jurisdictions. Special taxes like an inheritance tax or income tax are levied at a low rate or not at all. Maintains a system of financial secrecy, which allows foreign individuals to hide assets or income to avoid or reduce taxes in the home jurisdiction.
The following jurisdictions are considered the main destinations:
Bermuda has earned the dubious distinction of ranking No.1 on Oxfam's 2016 list of the world's worst business tax havens. Bermuda has a zero percent corporate tax rate and no personal income tax rate. Due to the lack of corporate taxes, multinational corporations have amassed huge amounts of money in Bermuda.
The most popular tax haven among the Fortune 500 is the Netherlands, with more than half of the Fortune 500 declaring at least one subsidiary there. Oxfam & # 39; s list of the worst tax havens for business placed this Benelux country third.
National governments often use tax incentives to encourage companies to invest in their country. Too often, however, tax incentives have proven ineffective, ineffective and costly, according to Oxfam.
This small EU member state remains a center of relaxed tax regulation through which multinationals are helped to avoid paying taxes. It is the leading banking center in the Eurozone, with 143 banks managing assets of around $ 800 billion.
Benefits: In Luxembourg, disclosure of professional secrecy can be punished with imprisonment. Apart from this, many international companies choose Luxembourg as the location for their headquarters and logistics centers, due to the low taxes and the great location in Europe.
The inconvenients: Intellectual property rights tax exemptions can reach up to 80% in Luxembourg, which is why many companies choose to manage their intellectual property rights from here. However, it is important to note that the tax exemption only applies to intellectual property rights instituted after December 31, 2007.
(4.) Cayman Islands:
Assets of $ 1.4 trillion are currently managed by banks in this country. As a British territory, which has 200 banks and over 95,000 registered businesses, the Cayman Islands is the world leader in investment fund hosting and the second country in the world where investment companies are located. Captive insurance is registered (designed to insure the assets of a parent company with another business purpose). More than half of the GDP is provided by the financial services sector of the Cayman Islands.
Benefits: Cayman Islands is one of the few countries or territories where the law allows for the formation of companies and the management of assets without paying taxes. This is considered legal and is not considered a tax avoidance strategy.
The inconvenients: Cayman Islands incorporation tax benefits exist primarily for companies doing business in multiple countries, to avoid the hassle of various tax systems.
Strategically located, the Republic of Singapore has a reputation as a very attractive financial center for "offshore" funds from Asian companies and entrepreneurs.
Benefits: The legislation on the confidentiality of banking information came into force in 2001 and since then, the electrifying city-state is recognized by the rigor with which it implements this law. And Singapore is not giving up on these rules, despite pressure from foreign governments.
The inconvenients: Singapore is not a country used by high net worth individuals seeking significant tax benefits, as most countries in this region offer a relaxed tax regime.
(6.) Channel Islands:
Located between England and France, the Channel Islands are home to hundreds of subsidiaries of international companies.
The Channel Islands are made up of two British Crown Dependencies:
The Bailiwick of Jersey, consisting of Jersey
The Bailiwick of Guernsey, made up of three distinct jurisdictions: Guernsey, Alderney and Sark
The Crown Dependencies are not part of the UK, but rather self-governing territories.
There is no standard inheritance tax, capital gains tax, or corporation tax. This made Jersey a popular tax haven, and the island is now home to $ 5 billion in assets per square mile. Maybe you should add the Channel Islands to your list when looking for inexpensive places to retire.
(7.) Isle of Man:
The Isle of Man is seen as a kind of financial center for low taxes. This small island, located between England and Ireland, has a very low income tax of maximum 20% and no more than 120,000 pounds.
Benefits: Low tax rates aren't the only perks this tiny island has to offer. Their pension plan is also very good, which is how many companies choose to keep their employee pension plans in accounts in Canada. It is possible to benefit from these pension plans from the age of 50.
The inconvenients: Establishing companies on the Isle of Man can be costly, especially for non-business activities and the registration process can be quite complex.
Ireland is often referred to as a tax haven, although Irish officials say this is not the case. However, a report from the Congressional Research Service found that US multinational corporations collectively report 43% of their foreign income in five small tax havens: Bermuda, Luxembourg, the Netherlands, Switzerland and Ireland.
Located in the Indian Ocean near Madagascar, Mauritius is another island that attracts a lot of foreign investment. A large number of international companies have subsidiaries established in Mauritius.
Benefits: The corporate tax levied in Mauritius is really low, compared to other jurisdictions at only 15%. Capital gains and interest are not taxed in Mauritius and residents can also benefit from various tax exemptions, due to double taxation treaties.
The inconvenients: Mauritius has been used as a place of investments, especially for those headed to India, but in May 2016 a new protocol amending the double taxation treaty between India and Maurice has been signed. This gives India a source-based right to tax capital gains, which result from the alienation of shares of Indian resident companies acquired by residents of Mauritius.
This small state has only 36,000 inhabitants, but it attracts many entrepreneurs and businesses keen to invest in this small country. Why? Because the resident income tax has not changed since 1869.
Benefits: Once a person becomes a Monegasque resident, they are allowed to keep any income they earn, without any limitations. It's no wonder that most of the world's millionaires are residents of Monaco. Corporate taxes are also very low which makes Monaco a great place to start a business.
The inconvenients: To become a Monegasque resident, a person must be a citizen of an EU member state or have a long-term French visa. It is also necessary to deposit at least 100,000 euros in a bank in Monaco, to have private health insurance and to buy real estate in Monaco.
Switzerland currently has in its banks the equivalent of $ 6.5 trillion in assets under management, of which 51% comes from abroad, so it is not really surprising that the country is also a world leader in asset management, with a market share of 28%.
Under international pressure, Switzerland has loosened its tax secrecy laws slightly in recent years, but the lobby to maintain these regulations remains strong as evidenced by the country's aggressive policy against pressure for tax disclosure. information in this sector.
Benefits: Combining low taxes and a top-notch banking system, it's no wonder Switzerland is one of the most popular tax havens in Europe. Opening a Swiss business is a relatively quick process, compared to legal hurdles in other European states.
The inconvenients: Although any natural or legal person is allowed to register a company in Switzerland, one of the conditions required by Swiss law is to have at least one Swiss company director. To solve the problem of Swiss leadership and tackle starting a business in Switzerland, you should talk to the experts.
Benefits: In the Bahamas, the personal income tax rate is zero. It can't be lower than that, right? There is also no wealth tax, no capital gains tax, no withholding tax and various other tax benefits for both individuals and companies.
The inconvenients: Not everyone can take advantage of a personal income tax exemption, only those who are also residents of the Bahamas. Part of obtaining residency here requires making an investment in local property with a minimum value of $ 500,000 (or a minimum of $ 1.5 million for the fast-track) .
The Bahamas does not levy direct taxes, so there are no double taxation treaties with other countries, but this small country has signed tax information agreements with 29 other countries including the United States, United Kingdom, and Canada. However, information disclosure is limited to criminal cases.
(13.) Hong Kong:
Hong Kong is one of the emerging tax havens, as assets of $ 2.1 trillion are currently under management here. It has the second largest stock exchange in Asia, after Tokyo, and boasts the highest density of people with fortunes of over $ 100 million. Slightly less than half of foreign investment in China went to Hong Kong in 2012, for example.
Benefits: Hong Kong incorporated companies pay tax only on profits made in Hong Kong and the tax rate is currently 16.5%. There is no withholding tax on dividends paid to foreign shareholders and no capital gains tax.
The inconvenients: China's control over Hong Kong hampers initiatives to increase transparency and further allows holders of bearer securities – instruments for some of the most damaging criminal activity – to go unidentified. This somewhat damages the credibility and reputation of companies registered in Hong Kong.
Malta tops the list of countries with the lowest taxes in the world in 2016, which is why it is one of the best tax havens in 2017. Living on the small Mediterranean island makes it possible to ; acquire resident status and therefore only be taxed on income from local sources.
Benefits: One of the best tax advantages for individuals and businesses is that there is no tax levied in Malta on income obtained abroad.
The inconvenients: Maltese citizenship can also be obtained through a citizenship by investment program, for those who want a faster process. However, in order to obtain Maltese citizenship, it is necessary to make investments in Malta worth around € 1 million.
(15.) Panama, which is an important international maritime center. Although Panama (along with Bermuda) was one of the earliest homes for offshore companies, Panama lost its importance in the early 1990s. Panama is now second after the British Virgin Islands in terms of incorporating volumes.
(16.) New Zealand, the most distant jurisdiction, has the advantage of being a true primary jurisdiction but with a rigorous but practical regulatory regime. It is well positioned in the Asian market but maintains close links with Europe.
(17.) Nevis: offshore companies located in this Caribbean island of the Federation of Saint Kitts and Nevis are exempt from all local taxes, including on income, withholding taxes, capital gains taxes, tax stamp and other fees or taxes based on income or assets from outside Nevis or connection with other activities outside of Nevis.