Offshores

General Information

According to the OECD Glossary, the term ‘offshoring’ means to replace the production of services from domestic sources to foreign sources, in order to obtain more favorable tax/corporate treatment. So, the term `offshore’ relates to a jurisdiction, to which the production of services is transferred. Offshore jurisdictions are usually called ‘tax havens’. 

 

Actually, there is no full list of offshore jurisdictions. OECD proposes its own lists of jurisdictions that 1) made commitments to implement the standards of transparency and exchange of information for tax purposes; 2) are non-compliant with measures to avoid base erosion and profit shifting.

 

So, according to the blacklist of the Council of European Union issued on 16th February 2018, such jurisdiction is regarded as non-cooperative

Offshore jurisdictions have gained the popularity, not for no reason. Actually, having an offshore company may bring a lot of benefits to its owner, if he/she follows certain rules that exist almost in every offshore zone, for example:

 

  • For companies to be tax-exempt it is necessary not to engage in business activities with residents;

  • A high degree of privacy is guaranteed through various instruments, such as bearer shares;

  • No thin capitalization and financial assistance prohibition;

  • Simple accountancy provisions;

  • No restrictions on payment and distribution of dividends;

  • Business flexibility;

  • Separate legislation for, so-called, International Business Companies (IBCs);

  • An offshore company must have a registered office and a registered agent, but the physical presence of business (like having an office and employees) is unnecessary;

 

The mere word ‘offshore’ will have different associations with different people. Some will certainly think of tax exemption and privacy measures, while others will recall white-collar crime situations and non-possibility to open a bank account for an offshore company. So, let`s summarise all the pros and cons, which tax havens may propose to us:

 

Cons:

  • Actually, there is only one con: if not apply with the national and international legislation, the offshore business activities will be claimed as illegal. 

  • Stricter substance requirements will be introduced in 2020.

Pros:

  • low (or no) corporate tax, if a business is conducted abroad;

  • low property taxes;

  • usually, no stamp duties or estate duties;

  • confidentiality protection;

  • clear and non-burdening accounting;

  • nominee services are legally allowed;

  • registered agents are reliable and professional to provide ongoing maintenance of the company;

  • no need to be physically present while incorporating a company.

General comparison

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