How to choose the right Offshore Jurisdiction
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 to incorporate in. Some of those countries are very popular and have an inherent image of offshore tax havens - like British Virgin Islands, Panama or Belize. It is less known that some attractive tax benefits are on offer to some types of non-resident businesses in places that do not ring the bell as "tax-havens" - for instance, UK, US, Holland, Iceland or Denmark.
There can be no standard reply as to which is the best offshore jurisdiction. That answer really depends upon the intended use of the offshore company, upon the personal and business circumstances of its owners and upon the various tax regulations in force in the countries where the offshore company will engage in business.
Before going into the particular detail, it would however be useful to define what is a tax haven, anyway?
Your business profile
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? Have 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?
Perhaps, Your business partners already have their own offshore companies? If so, where are they registered? Nowadays, a considerable part of international trading business is completely transacted through offshore companies. The money never actually leaves the "low-tax zone", as both parties to a deal would have their businesses registered in tax havens. According to some estimates, up to 60% of the total global mass of money at any given moment actually sits tax-free in offshore accounts, and not in the highly invasive, highly taxed financial systems of the big jurisdictions.
The offshore jurisdictions qualify into treaty jurisdictions and non-treaty jurisdictions. The treaty jurisdictions have an extensive network of double-tax avoidance treaties (DTA`s) with other countries. A double-tax avoidance treaty basically removes or reduces levels of taxation on certain transactions, taking place between residents of both member countries. The most common and tangible benefits granted by a double-tax avoidance treaty are usually the reduction of withholding taxes on the payment of dividends and royalties between the contracting states - thus, great for a targeted establishment of offshore holding companies. It may sound surprising, but there are actually many DTA`s between tax-haven jurisdictions and distinctly high-tax jurisdictions.
Treaty jurisdictions often 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. Seychelles has concluded a number of useful DTA`s, in particular with China, South Africa, Thailand, Cyprus, Belgium and several other countries. The treaty benefits in Seychelles are accessible to resident companies only (not IBC`s) - so a Seychelles Special License Company, which qualifies as tax-resident in Seychelles, has access to Seychelles DTA's.
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. In respect of IBC`s, Seychelles is a non-treaty jurisdiction.
It is for you to decide whether the circumstances of your business requires the tactic of "offshore stepping stones" through treaty jurisdictions, or the clear-cut approach through a classical offshore tax haven.
If you can find positive answers to these issues, the biggest part of choosing the right offshore jurisdiction is already done.