HOW TO CHOOSE THE RIGHT OFFSHORE JURISDICTION

There are about fifty countries in the world that offering various tax benefits to non-residents, thus promoting what is called offshore business. Some of those countries are extremely popular and widely perceived as offshore tax havens - like British Virgin Islands, Panama or Seychelles. At the same time interesting tax breaks to non-resident businesses are actually available in some places that are not at all recognized as "offshore" – for instance, UK, US, Denmark or Netherlands. And there are all sorts and types in between.

So, which is the best jurisdiction to incorporate an offshore company?

There is really no standard answer. The choice of the right offshore jurisdiction will depend on the intended use of the offshore company, the personal and business circumstances of its owner, and the actual regions of the world where this company intends to trade.

But, before going into the details, what is a tax haven, anyway?


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Before considering an offshore jurisdiction you should first consider it in the perspective of your business. Will your prospective clients be concerned that their new contractor or supplier is registered in an offshore territory – or won't they care? Have Your own country, or the countries where You intend to sell, imposed any restrictions against transfers of funds to the particular offshore jurisdiction? How will your business partners, suppliers, customers or investors react when asked to transact their business with an offshore company? Will it pose any problem for them?

Perhaps, Your business partners already have their own offshore structures in place? If so, where? Nowadays, in a considerable part of international trading business the money never actually leaves the "low-tax zone", as both parties to a deal would have their businesses registered offshore. According to some estimates, up to 60% of the whole mass of money circulating in the world at any given moment is actually in offshore accounts, and not in the highly-stressed, high-tax financial systems of the worlds' superpowers.

In response, many high-tax countries have 'blacklists' of offshore territories, imposing tax surcharges or financial penalties on those, who carry out business (read: pay money to) known tax havens. Can such blacklists influence your business?

The offshore jurisdictions qualify into treaty jurisdictions and non-treaty jurisdictions. Treaty jurisdictions have a network of double-tax avoidance treaties concluded with other countries, inclusive many high-tax countries. A double-tax avoidance treaty basically removes or reduces levels of taxation on certain transactions, taking place between residents of both member countries. The most common and tangible benefits granted by a double-tax avoidance treaty are usually the reduction of withholding taxes on the payment of dividends and royalties between the contracting states – thus, great for a targeted establishment of offshore holding companies. Treaty jurisdictions often portray a non-offshore image – usually offering reduced levels of tax instead of a complete exemption. This obviously may provide a better "image" of the jurisdiction. Malta is a typical treaty jurisdiction.

Non-treaty jurisdictions are "classic" in the offshore sense. They would usually have zero corporation and income taxes anyway, so there is not much to reduce and no interest for any other countries to negotiate a double-tax avoidance treaty anyway. British Virgin Islands is a typical non-treaty jurisdiction.

It is for you to decide whether your intended business requires the tactics of the "offshore stepping stones" through treaty jurisdictions, or the clear-cut approach through a classic offshore tax haven.