HOW TO CHOOSE THE RIGHT OFFSHORE JURISDICTION

With about 50 countries in the world offering tax benefits to offshore business, it is quite reasonable to ask which offshore country is the best to incorporate in. Some of those countries are very popular and have a natural image of offshore tax havens - like British Virgin Islands, Panama or Belize. It is less known that some attractive tax benefits are on offer to some types of non-resident businesses in countries that do not ring the bell as "tax-havens" - for example, UK, US, Holland, Iceland or Denmark.

There can be no standard reply as to which is the best offshore jurisdiction. That answer actually depends upon the anticipated use of the offshore company, upon the personal and business circumstances of its owners and upon variety of tax regulations in force in the countries where the offshore company will engage in business.

Before going into the particular detail, it would yet be useful to define what is a tax haven, anyway?


What is offshore?

The OECD - Organisation for Economic Co-operation and Development (to make it clear, these are the guys who think high and uniform taxes are good for everyone) describes the tax haven as a jurisdiction which actively makes itself available for the avoidance of taxes which would otherwise be paid in a higher tax jurisdiction. The term "tax avoidance" should be noted, because there are ways of avoiding taxes without breaking the law, while the opposite term is "tax evasion" - which is in general classified as a crime.

Offshore, in its broadest sense of the term, basically means a jurisdiction other than your own. The country next door can be offshore for you. Offshore is anything that is not "onshore", meaning - not at home.

In a more practical background offshore usually means a country or territory which offer specific benefits or incentives to foreigners. The most understandable ones are tax concessions. These come in various forms. It may be a complete tax exemption for all international business operated by non-residents (Belize or Seychelles International Business Companies), an ultra-low income tax for international businesses (Seychelles Special License Companies, which pay 1.5% tax), a complete exemption from income and capital gains taxation for all companies, despite of their ownership or country of operation (British Virgin Islands), local no-tax or low-tax liability on all investment income regardless of the residence of the investor (Bahamas, Cayman Islands); local tax exemption for non-residents of that jurisdiction (Gibraltar, Channel Islands); tax holidays for certain types of investment (Portugal, Netherlands Antilles, Iceland); favorable tax treatment through treaties and agreements with the investorĀ“s home country (Cyprus, Barbados, Netherlands, USA).

In addition, some foreign countries may appear to offer better legal protection from creditors and other potential litigants who might attempt to seize an individual`s wealth. This is the second key aspect why offshore jurisdictions are so popular - asset protection. It may even have nothing to do with tax, although usually both are intertwined. It`s just safer to be offshore. Except in the event of proven criminal activity (excluding so-called "fiscal offences" such as tax evasion or other money collection disputes), most offshore governments tend to uphold strict confidentiality laws for banks, corporate registries, and trust companies. These laws protect offshore investors from third parties, including both private and governmental authorities.