Before to consider the types and characteristic features of any specific offshore jurisdictions, it is necessary to define the concept of an offshore area or the offshore jurisdiction, and also to determine the main purpose of the territories, which provide for special conditions for private investors and businessmen.
The term offshore jurisdiction, in international law, refers to the international financial centres, which attract foreign investments and capital by providing various tax, customs and other benefits. As a rule, foreign companies, which are registered in an offshore, pay a fixed annual fee and are exempted in full from the corporate taxation.
It remains only to add that in modern practice offshore jurisdictions remain one of the most famous, effective and popular tools for international tax planning.
Classification of the traditional offshore jurisdictions
As to the classification of traditional offshores, there is no unified world system. However, experts single out a number of characteristic features by which one can classify offshore areas which exist in the world, in particular:
System of a state taxation:
- Jurisdictions with a minimum threshold of the corporate tax (low-tax);
- Classic offshore jurisdictions that do not implement corporate taxation (tax-free).
- Jurisdiction, which are located in the territory of the island countries and in the Central American region;
- Jurisdictions, which occupy the territory of continental Europe;
- Individual territorial and administrative entities in various parts of the world.
Requirements to the accounting and financial audit:
- Complete absence of requirements to submission of the financial reports and annual financial audit;
- Offshore jurisdictions, where the submission of the relevant financial reports to state regulatory authorities is required.
The level of privacy of the information on the ultimate beneficiaries and the owners of the business:
- Offshore areas where there are public registries of international companies with information about the owners and the managers;
- Jurisdictions that do not require the maintenance of the state registry, or which use closed registries.
Besides, one of the key factors, which are used when classifying the offshore areas, is the cooperation with specialized international organizations (OECD, FATF). The fact is that such organizations develop countermeasures to the offshore zones and classify the existing offshore jurisdictions, and respectively include them in "black", "gray" and "white" lists.
Traditional offshore jurisdictions: legal status, advantages and disadvantages
Traditional classic offshore zones are characterized by the following approach to taxation: companies, which are registered in the offshore jurisdictions, do not have the right to enter the local market, and that’s why don't gain profits from the local sources. Accordingly, the company's revenues which have a foreign origin are not taxed on the territory of an offshore jurisdiction where the company is registered. The replenishment of the state treasury is provided at the expense of registration fees and annual fees for the extension of the activity of such company. Besides, some jurisdictions practice special state licensing of entrepreneurial activity.
Advantages and additional possibilities for private business:
- Relatively low cost of registering an offshore company and annual maintenance;
- No requirements to the submission of the financial reports and annual audit;
- High degree of protection of information and privacy of information.
The main drawbacks of classical offshores:
- Classic offshore zones can be included into "black" and "grey" lists of international organizations;
- Negative impact on the company's image, and consequently a low level of confidence on the part of financial institutions and potential business partners;
- No bilateral international agreements that allow to carry out effective international tax planning.
Based on the abovementioned, one can make one conclusion – use of the traditional offshore jurisdictions will be economically feasible solution in the following situations:
- For optimization of the business processes of large holding formation or international structure;
- For schemes that provide for the payment of royalties, or financing within a certain group;
- Export and import operations within the relevant jurisdiction;
- Sale of immovable property or provision of the proper assets protection.
Resistance to offshores: relevance and problems
Speaking about offshore jurisdictions as the very popular and demanded tool for tax planning, one should not underestimate the growing resistance to offshores in the international arena. It is no longer a secret that there are special organizations that work on developing of the so-called "blacklists" of offshore zones. First of all, it is an intergovernmental organization, which is designed to fight against laundering of criminal assets (FATF) and the Organisation for Economic Cooperation and Development (OECD).
Black lists are a list of tax-free jurisdictions, in respect of which certain limitations may be applied, which are based on the rules of the current law and the circulars of the international organizations. And these lists have several key objectives:
- Ensuring a proper control over the operations, which are carried out from the territory of the jurisdictions included in the list;
- Fighting against and active resistance to the financing of international terrorism and laundering of criminal assets;
- Adoption of the effective measures, which contribute to the reduction in the percentage of tax evasion by individual residents and corporate entities.
The fight against traditional offshore zones is the reality of modern international law. Such a resistance affects private business that seeks to optimize the taxable base by any available means. As a result, usage of the offshore jurisdictions becomes less attractive and often linked with significant legal implications - how to be?
Alternative solution can be always found
More and more entrepreneurs and businessmen around the world are concerned about finding jurisdictions where the company's image will not undergo sanctions of international organizations, and favorable conditions for development and investment are guaranteed for private business. Free trade zones in the United Arab Emirates can serve as the example of such a tax-free jurisdiction. These are specialized areas where you can count on the number of competitive advantages and opportunities for your business. Here are only some of them:
- Complete absence of income and corporate taxation;
- Possibility of obtaining a residence visa for founders, managers and members of their families;
- Partial or full exemption from import and export duties;
- Possibility of a 100% foreign participation in an international company;
- Nonexistence of state currency exchange regulation and restrictions on the withdrawal of assets outside the jurisdiction and etc.
And what is crucial – the UAE provides the opportunity to register both offshore and fully resident companies that receive tax benefits comparable to the benefits, which are gained by the offshore companies.
You can visit the relevant sections of our website or use the “contact us” form in order to learn more about the opportunity to set up the profitable business in the most favourable place on the planet. We will gladly provide you with a free consultation and we will answer all your questions about how you can use the UAE and its potential for your business.