The term “offshore” migrated to the CIS countries from the English word offshore, which means “offshore”. The meaning of the fashionable “word” quite accurately reflects the essence of the new business format. In practice, offshore means a geographical zone, a location with a legal status, where the relocating company becomes inaccessible to national control bodies and receives certain advantages in paying taxes.
Offshore companies and their purpose
An offshore company is a legal structure created in a foreign country or special jurisdiction. It operates under laws that often guarantee low taxation, and in many cases, complete tax exemption, except for a small fixed annual license fee. Such companies are usually used for non-resident businesses.
Reasons for choosing offshore zones
In our country, offshore zones have become particularly popular, because on the one hand the country is in a state of war, and on the other hand the current legislation is not perfect. In addition to purely technical reasons, the popularization of the outflow of companies is facilitated by mental characteristics: if a Ukrainian is offered a relatively safe option to minimize taxes, in most cases he will use it.
It should be noted that in addition to profitable motives, the popularity of offshore schemes in Ukraine is gaining momentum due to the lack of legal mechanisms for business protection. The anonymity of owners and the absence of requirements for explaining the origin of capital ensure stable demand for the use of offshore schemes.
Ukraine is not the only country in the world where there is an imperfect legal framework, but zero tax rates and impunity create a particularly favorable basis for the prosperity of offshore companies, their stable position and attractiveness.
The most popular offshore zones in the world
Offshore zones around the world can be divided into several categories, depending on the level of tax burden and regulatory features:
- Classic. This group includes the British Virgin Islands (BVI), the Bahamas, Bermuda, and the Cayman Islands. In these jurisdictions, foreign companies are exempt from taxes or pay a minimal rate.
- Territorial. Jurisdictions that are gradually moving to the territorial principle of taxation: Seychelles, Jersey, Saint Kitts, Nevis, and the Marshall Islands. Despite a partial change in the tax regime, they still remain popular among international business.
- Jurisdictions that have lost their offshore status: Malta, Belize, Saint Vincent and the Grenadines, are no longer considered full-fledged offshore zones, but their tax policies remain favorable.
Before choosing a jurisdiction for business registration, it is important to understand its features, company status, and operating conditions.
Overview of the most attractive offshore zones in 2024
British Virgin Islands (BVI)
The jurisdiction is among the most affordable classic offshore jurisdictions. Here, companies have low costs for registration and doing business, and the tax policy remains minimal. However, since 2019, a mandatory economic presence rule has been introduced. To comply with it, the company must cooperate with a local registration agent, have an office in the BVI, and provide employment for local residents.
Hong Kong
The world's largest financial center. Although the jurisdiction is not an offshore zone in the classic sense, it offers favorable tax conditions for foreign businesses. For companies with revenues up to 2 million HKD, a preferential rate of 8.25% applies, and for the rest - a standard rate of 16.5%.
Cyprus
It remains a popular low-tax jurisdiction. It has one of the lowest corporate tax rates in Europe, at 12.51% per annum. Cyprus has double taxation treaties and exempts dividends from tax. An additional advantage is the availability of relatively cheap labor and a good reputation, as Cyprus is on the “white” list of international financial institutions.
Liechtenstein
The country can be conditionally classified as an offshore zone due to the high level of confidentiality provided by its laws. There is no capital repatriation tax, but financial reporting and regular audits are mandatory. Income tax is in effect, but it can be reduced under certain conditions.
Seychelles
Remain an example of a classic offshore. Company registration in this jurisdiction is quick and affordable. Information about the owners remains confidential, and the size of the authorized capital has no restrictions. The activities of foreign companies in the Seychelles are limited, but such companies are exempt from reporting and auditing, although they must keep corporate documents for seven years.
Advantages and disadvantages of offshore zones
Registering a company in such jurisdictions opens up access to a number of benefits, but also involves certain risks.
Main advantages
- Absence of corporate taxation. Companies registered in these zones do not pay taxes, provided that their activities are not conducted in the country of registration and do not require licensing.
- No physical presence requirements. Most offshore jurisdictions do not require the establishment of a physical office on their territory.
- Simplified financial reporting. Many offshore jurisdictions do not have mandatory requirements for filing financial statements, conducting audits, or declaring VAT.
- Confidentiality of owner information. One of the important advantages is the high level of confidentiality. For example, Belize registries do not disclose information about beneficiaries, and owners can use nominee services for additional protection.
Main disadvantages
- Inclusion in “black” and “gray” lists. Many offshores are on the FATF or European Commission lists, which significantly complicates opening bank accounts and partnering.
- Global de-offshorization. International regulators are gradually changing the rules for offshore companies. Corporate taxes, financial reporting, and substance requirements are being introduced. Such changes are aimed at preventing tax evasion and tax base erosion.
- CFC (Controlled Foreign Company) Rules. Ukraine, like many other countries, has implemented CFC rules. This means that owners of foreign companies must report their ownership of corporate rights, which can lead to the possibility of CFC income being taxed in the country of residence.
Despite the challenges and increasing international control, offshores remain attractive for businesses seeking tax optimization and asset protection. Choosing the right jurisdiction will help you take advantage of the benefits of offshore regulation, but only if you comply with all international standards and local legal requirements.
How to choose an offshore zone for business registration?
Offshores encompass traditional tax havens and low-tax countries that offer legal ways to optimize taxation. This review examines several groups of such jurisdictions.
- European countries with low corporate taxes
This category includes countries that provide favorable tax conditions for international business. Among them are Estonia, Lithuania, Latvia, Cyprus, Malta, Gibraltar, and North Macedonia. They actively attract foreign investment to increase budget revenues.
Most of these countries have double taxation agreements in place, which allows for a significant reduction in the tax burden.
Doing business in European countries is usually more expensive than in traditional offshore countries. At the same time, it is easy to open a corporate account in local and international banks. Baltic banks often provide services in Ukrainian. Such jurisdictions are especially beneficial for registering holdings, operating and trading companies.
- Asian jurisdictions with favorable taxation
This group includes Hong Kong, Singapore, the UAE, Qatar, Indonesia, and Labuan (Malaysia). These are countries that create special tax regimes for foreign companies, attracting investment and promoting economic growth.
Jurisdictions:
- Country Optimization opportunities
- Hong Kong Corporate tax rates – from 7.5% to 16%
Singapore Preferential regime for startups, tax-free minimum - Indonesia Small Business Discount 50%
- Labuan Corporate Tax – 3%
- UAE No income tax, only 5% VAT
Qatar Corporate Tax Rate – 10%
Registering a company in Asia is cheaper than in Europe, but somewhat more expensive compared to classic offshores. You can open a bank account in local banks and international financial institutions. The jurisdictions of the region are suitable for registering companies engaged in trade or operating in international markets.
- Classic offshore jurisdictions
Countries and territories historically associated with offshore: Mauritius, Seychelles, Panama, Belize, Caribbean countries – Saint Kitts and Nevis, Antigua and Barbuda, Dominica. Company registration in these countries is relatively inexpensive.
The choice of jurisdiction depends on the needs of the business: to optimize tax costs in the "white" zone, countries in Europe or Asia are suitable, and to maximize confidentiality, classic offshores are suitable.
International legislation and control of offshore zones
There is no single and unified list of offshore zones in the world. The following international organizations are responsible for monitoring and controlling the activities of offshore jurisdictions: the International Monetary Fund (IMF), as well as the central banks of individual countries.
Since the early 2000s, there has been an increase in regulation of offshore jurisdictions, supported by the Group of Twenty (G20). Such measures are aimed at ensuring transparency in the activities of companies within these zones and combating tax evasion.
Purpose and objectives of anti-offshore legislation
Many countries have legal restrictions on offshore transactions. However, they are usually not completely prohibited. The main purpose of regulation is to control financial transactions to prevent fictitious transactions and tax evasion.
After the financial crisis of 2008–2009, the international community adopted strict measures to enforce tax transparency standards by offshore jurisdictions. In 2009, the Organization for Economic Cooperation and Development (OECD) developed new criteria for information exchange. From now on, governments are obliged to provide tax information upon request to partners.
OECD lists: a control tool
Since 2009, the OECD has published three lists annually that classify countries according to their level of readiness to meet international standards.
- “White” – includes jurisdictions that have successfully implemented all necessary tax standards.
- “Gray” – contains countries that have committed to implementing these standards, but have not yet fully implemented them.
- “Black” – consists of states that do not cooperate in the exchange of tax information.
European countries, including Germany, are actively promoting the implementation of international standards. Germany has the largest number of double taxation agreements and insists on concluding agreements with offshore jurisdictions to exchange tax information.
The choice of an offshore jurisdiction should be based on a thorough analysis of its legal status, tax conditions, level of transparency and suitability for the needs of a particular business. The right approach and adherence to international standards will allow you to avoid risks and maximize the benefits of offshore zones.
