Offshore is a type of investments made by an individual or a legal person/entity in a country different to their country of residence. These investments are also known as investments in tax havens or offshore jurisdictions. What are the advantages of using offshore to set up a business or open a bank account? And what are the disadvantages of not doing it? Is it legal? What are the most important offshore centers in the world?
The causes that have led large companies and businessmen to move their tax residence to other jurisdictions are mainly due to the tax pressure, wars and socio-migratory changes that we can now observe in developed countries. The free movement of capital from developed countries has contributed to the expansion of offshore investments around the world that now serve as a shelter and protection for assets and savings of many individuals and legal entities.
It is completely legal to use Offshore for commercial operations. Being the owner of an offshore company or a bank account registered in a tax haven is not against the law and it is a completely legal choice of any individual or legal entity to make investments in any country different to its place of residence. From a legal point of view, offshore investments are licit structures that allow us to "avoid paying taxes" and this way increase the income and guarantee a sustainable growth of our company or a security for our private assets. We must not confuse the definition "Tax Avoidance" with "Tax Evasion". “Tax Evasion” is the illegal misrepresentation of income and profits that were actually earned by the company or individual in the country where the business is registered or, in a case of individual, where he/she resides. This behavior has nothing to do with “Tax avoidance”.
Advantages of operating in offshore
The main advantages, among others, are:
- Non-resident companies are exempt from all types of taxation.
- Banking and commercial secrecy: The law recognizes as crime the disclosure of any official information regarding the company and its beneficiary owner.
- Heritage protection.
- In majority of offshore financial centers there is no minimum share capital requirement.
- To file an annual return and audited accounts is not mandatory.
- Offshore company registration can be done without a physical presence of the client.
- Foreign offshore firms are often exempt from Social Security payments.
- Few and easy to fulfill requirements for offshore company set up and bank account opening.
- Free capital flow.
- Lack of banking regulations.
- The majority of tax havens are based on common law favorable for the registration of companies, inheritance tax plannings and establishment of "trusts".
- Tax havens are both politically and financially stable territories.
- No restrictions on nationality of the shareholders and directors.
- Avoid Double Taxation Agreements with onshore countries, also known as high-tax countries.
- Tax havens have good telecommunication infrastructure that guarantee the online banking service 24/7.
- Offshore bank employees specialize in international finance and speak several languages: English is the official language in offshore finance centers but is also very common to find support in Spanish, French, German, Russian and Chinese.
- Remote offshore bank account opening.
- Favorable laws for development of small businesses.
Disadvantages of not operating in offshore
The main disadvantages, among others, of not operating in offshore are:
- Tax payment: VAT (18% min/max 27%), income tax (15% min/max 49%), corporate tax (20% min/max 35%) and inheritance tax (min 1%/max 20%).
- There is no banking and mercantile secrecy. The private assets may be seized if the natural or legal person has outstanding debts to the tax agency, creditors or during divorce process.
- High initial share capital outlay (minimum 3,000 euros / year).
- Accounting and audits are mandatory depending on your total asset turnover.
- High social security payments. The average cost of social security in the European Union is 3,000 euros/year.
- Strict banking regulations and difficult cash flow. Many countries are limiting cash payments to 2,500 euros per invoice.
World map of offshore centers
The world's most important offshore financial centers are: Belize, Seychelles, Costa Rica, St. Vincent and the Grenadines, Cyprus, Latvia and Hong Kong. Please take a look at the world map of the most important offshore centers in the world: