Offshore is a state or a separate region with special conditions for doing business for foreign companies. As a rule, these are low taxes, simplified financial reporting and licensing requirements, and the ability to hide the identity of the actual business owner. Offshore registration can also be used to circumvent sanctions imposed against a particular country or a particular company. There are over 50 offshore zones worldwide, and most are small island countries. Offshore regions are often used for fraudulent schemes and money laundering.
The term “offshore” literally means “at a distance from the coast” or “abroad”. Offshore is not only a legal concept but also an economic and geographical one.
It is meant that in a classic offshore the company is only registered in the territory of a particular country and conducts its activities outside of it. If it starts doing business within the jurisdiction, it becomes subject to “internal” tax rules.
History of the concept
The term “offshore” has been used since the 1950s. Firstly it appeared in a newspaper article in the United States, which told of an American financial organization that moved its activities to a territory with more favorable tax policies and escaped governmental control. Offshore schemes have been known since ancient times, they were used in ancient Athens.
Although offshoring is mostly associated with illegal activities, it is completely legal. The relocation of a company to a region with more favorable conditions is often dictated by the usual desire to reduce tax pressure and earn higher profits, as well as diversify assets and provide a higher level of confidentiality and anonymity for business owners and investors.
Because of the high risk of using offshore companies for illegal purposes, developed countries are putting more and more significant pressure on low-tax jurisdictions, demanding greater transparency of financial transactions and control over the activities of companies registered there.
Countries classified as offshore zones
There is no single clear list of countries that could be called offshore. Among the most popular for offshore commercial activities are the Cayman Islands, Bermuda, Seychelles, Caribbean Islands, Marshall Islands, Man and Cook Islands.
Island offshore zones are also called classic, and they are famous for zero or minimal taxes and the ability to maintain the complete anonymity of the final beneficiary. However, these zones have a low level of prestige, and companies registered here often have a dubious reputation. In addition, business registration in such a zone may cause an investor to intensify checks in the country where the financial activity is carried out.
More prestigious offshore zones include some European countries, including Switzerland, Ireland, Andorra, Liechtenstein, and Luxembourg, as well as such Asian jurisdictions as Singapore, Hong Kong, Malaysia, etc. They cannot be called full-fledged offshore zones, but certain non-resident companies are offered special conditions for doing business with reduced taxes on their territory. At the same time, accounting reports are mandatory here, and information about the owners is disclosed at the request of regulatory authorities.
Offshore zones are controlled by the International Monetary Fund (IMF), the Organization for Economic Cooperation and Development (OECD), the central banks of various countries, the Financial Action Task Force (FATF), and others.