With around 50 countries in the world offering tax benefits to offshore business, it is only logical to ask which offshore country is the best one, where to incorporate in. There can be no standard reply as the answer really depends upon the intended use of the offshore company and upon your own personal or business circumstances. Before going into the particular detail, it would however be useful to define what is a tax haven, anyway?
Important Criteria for Selecting a Jurisdiction
The selection of the most suitable jurisdiction for either international trade or investment can often be difficult and requires very careful consideration. Most offshore jurisdictions are free from foreign exchange controls and have introduced company legislation to cater for a diverse range of international business requirements. It is important to select a jurisdiction that is well-suited to specific corporate and personal needs. The following selection criteria have been outlined to guide the selection process:
Before considering a particular offshore jurisdiction, you should first consider it in the light of your intended business. Will your prospective customers be concerned that their new supplier or service provider is registered in a particular offshore territory – or won’t they care? Haven’t your prospective market countries imposed any restrictions against transfers of funds to the particular offshore jurisdiction? How will your partners, suppliers, customers or investors react when asked to transact their business with an offshore company? Will it pose any problem for them? Many high-tax countries have extensive blacklist regulations in their tax system, imposing tax surcharges or financial penalties on business carried out with known tax havens. Can it influence your business?
The offshore jurisdictions qualify into treaty jurisdictions and non-treaty jurisdictions. The first ones have an extensive network of double-tax avoidance treaties with other countries, inclusive with many high-tax countries. A double-tax avoidance treaty may be essential for the reduction of withholding taxes on the payment of dividends and royalties from contracting states. Treaty jurisdictions also usually 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. Cyprus is a typical treaty jurisdiction.
Non-treaty jurisdictions are “classic” in the offshore sense – they would usually have complete absence of corporate taxes on the profits of the company and only a fixed annual license fee. Gibraltar is a non-treaty jurisdiction.
Political and Economic Stability
The most important condition for those who want to establish their business or private interests in an offshore financial centre is to select a jurisdiction that provides both political and economic stability, so that business can be conducted with certainty, confidence and corporate security.
Another very important factor is that the legislation is modern, flexible and well proven. Some jurisdictions have introduced new and modern suites of corporate legislation, specifically designed for international business whilst others have amended existing domestic legislation to cater for offshore requirements. That being said, for quite many offshore jurisdictions the relevant pieces of legislation are practically carbon copies of each other. For instance, quite a number of jurisdictions have taken the IBC Act of the British Virgin Islands and adapted it to their circumstances without much of a change. Fairly often the legislation of relatively new offshore centres, such as, for example, Seychelles or Saint Lucia, tend to be very well thought out and put together, having taken care of all the shortfalls and errors of the earlier laws in other, more mature offshore tax havens.
Broad range of permitted company names and suffixes to denote limited liability;
Low capital requirements;
The ability to hold directors and/or shareholders’ meetings anywhere in the world;
The absence, or optional requirement for, the audit of accounting records;
Double Taxation Avoidance Treaties
Jurisdictions can be categorised as either treaty jurisdictions or non-treaty jurisdictions. Clients seeking to take advantage of double tax treaty relief need to establish a company situated in a treaty jurisdiction. This is essential for the minimisation of withholding taxes on the payment of dividends and royalties from contracting states. Non-treaty jurisdictions are mainly used because of the absence of corporate taxes on the profits of the company. These jurisdictions usually only require companies to pay a fixed annual license fee.
Desirable Corporate Characteristics
Many offshore jurisdictions have made efforts to ensure that their company law provides features such as minimal or optional statutory filing obligations, minimum number of directors, minimum information on public file, ability to hold directors’ meetings anywhere in the world, lack of requirement to file audited records, flexibility in regards the amount and paying-up of the authorized capital, and similar. It is for you to decide if any of those special features (which will usually be widely advertised by the agents in the respective country) are of any particular interest for you.
The infrastructure of an offshore jurisdiction is important. Factors such as quality of telecommunications and internet, physical access to the country, language, work ethics, legal system, confidentiality culture, exchange controls, quickness and variety of administrative and financial services available all can influence the smooth running of your business. Take time zone into account – dealing with a jurisdiction on the other side of the globe may constantly make you lose a day while communicating via email, or to make calls in the middle of the night.
A rather obvious factor; what are the registration fees and flat rate taxes? What is the incorporation fee and what are the continuing domiciliary and management fees? What are the audit and other statutory compliance requirements? More importantly, though – by taking into account all the other aspects described above – is the cost reasonable for the quality of product you are getting?