Choosing the country that you form your new offshore company in is probably one of the most important decisions you will make. It can impact both your business operations as well as the laws and tax treatment that you receive. Subsequently, I will do my best to highlight your options and Where is the Best Place to Set Up an Offshore Company.
(Look to the end of this post for a link to my checklist to help you decide upon an offshore jurisdiction)
Firstly, it’s important to think about what the most important factors are to you personally. Moving offshore is about more than simply looking for a no-tax or low-tax regime and may involve aspects such as banking, financial services licenses, hedge fund management, and privacy to name a few. Subsequently, you do well to consider what business sector you are operating in and whether you require a specific operating license and if the reputation of the jurisdiction is important to you.
Reputation can make or break an offshore setup given its role in the banking process. Some banks definitely take a dim view of tax-havens that are on the OECD blacklist, and you may find it difficult to find banking facilities for companies formed in jurisdictions like Belize or Seychelles. However, there are generally always options for almost all the major offshore jurisdictions, even Belize.
Additionally, if you intend for your business to actually trade then you will find that trying to get a client to pay funds to a Belizean company can raise a few eyebrows. You will also require a bank that can support multiple currencies and has correspondent banking facilities around the world to handle those cross-border transactions for you.
Subsequently, when you form your company, you should be looking forward and assessing the following factors against your future business operations:
- What sort of banking facilities will you require.
- Are you dealing with major companies that may not want to transmit payments to Belize.
- Do you require a certain financial license to operate.
- Do you require a major bank with correspondent (agreements with other banks) accounts to clear payments all around the world on your behalf.
- Will you require a debit/credit card for your business.
- Where will your business operate from and how will you pay staff, if required.
- Where will you pay tax as a tax resident.
Once you have determined the critical components of your new company you can then move on to assessing these requirements against the available offshore jurisdictions. There will be a link to a checklist form that will help you make these decisions at the end of this article.
The 8 Major Offshore Jurisdictions
Obviously, there are a significant number of tax havens where you can form an offshore company. However, here I will detail my top 10 locations of interest and, depending on your business, you may find that one of them meets your operational requirements.
The reputation of the Cayman Islands has continued to improve over the past decade and even the OECD has removed them from their uncooperative “Blacklist”. The country has remained one of the premier locations for those looking to form either a hedge fund or engage in captive insurance as a form of tax sheltering.
Regulation in the jurisdiction is quite strong and the Cayman Monetary Authority does a good job at regulating the various financial sectors whilst also retaining a commonsense approach to business operations. Subsequently, most of the world’s major banks are represented on the island and there is an active, and growing, base of professional service providers to work with.
The Caymans are also a British Overseas Territory which means that a mix of local and British common law is present in the jurisdiction. This makes for a reliable and trusted source of law with little in the way of surprises and adds to the general stability of the country.
The offshore sector makes up a major part of the Cayman Island’s service-based economy and, at present, there are over 100,000 international business companies registered in the nation. The reality is that the jurisdiction has gone from strength to strength in the past few years.
Taxation is well legislated on the Island, and they retain a zero-tax regime for offshore entities with global income. Effectively, they are a tax-free location and you will find that forming an IBC there will bring with it zero corporate tax on global income. You can also avail yourself of a tax exemption certificate which is quite useful when you are dealing with banks and financial institutions.
Advantages of the Cayman Islands
- Large Offshore Banking Presence
- Zero Tax Regime
- Almost no Annual Returns to be Filed
- Good Reputation, specifically for investment and fund managers
- Strong links with China and Asian Banking Options
- Tax Agreements in Place
- Non-Public Corporate Registry (for members)
- English Speaking
- Stable Jurisdiction and Strong Legal System
Disadvantages of the Cayman Islands
- Expensive by Offshore Standards
- May Be Hard to Visit from the Southern Hemisphere
- Heavily U.S. Dominated for Individuals Based in the Americas
- Did I Mention Expensive?
Typical Uses of a Cayman’s IBC
- E-commerce and Online Trading
- Fund Management and Capital Raising
- Holding Companies
- Financial Service Entities
- Approximately US$2,900 for basic incorporation
- Professional Fees can easily exceed US$5,000 if you require professional advice
- US$1,000 for bank introduction and compliance fees
Although its crown has been diminished in the past few years, Hong Kong still retains its position as the premier offshore finance hub in Asia. The special autonomous region (SAR) of China continues to welcome entrepreneurs to its shores and provides a very seamless company and incorporation service with world-class service providers and entrepreneurial citizens.
Over the past few decades, Hong Kong has transitioned into almost a completely service-based economy with banking and finance, and general services now representing almost 97% of the nation’s GDP. Subsequently, it is unlikely that the Hong Kong authorities will shy away from the offshore business aspect despite China’s increasing control over the territory.
One of the biggest advantages to Hong Kong SAR is that it has an excellent reputation on the world stage and, despite effectively being a tax haven, has a sterling reputation. Taxation in the territory is treated on a domestic basis only and worldwide corporate income is normally exempt from tax. However, their tax department requires that exemption documents are lodged every two years and they do scrutinize these transactions heavily.
Additionally, you will require an annual audit, starting in your second year of operation, and this can add significantly to the basic cost of maintaining your company. Thankfully, the audits are normally conducted by a standard CPA and are fairly limited in scope unlike what we experience in the West. Often, they are conducted by your own accountant who simply tests some of your transactions and sends a few audit confirmation letters, and certifies your financials.
The cost of maintaining an entity in Hong Kong is higher than many of the 3rd tier tax havens but brings with it a superior reputation and no restrictions on seeking banking around the world. However, it should be noted that domestic banks have introduced significant compliance requirements following HSBC being fined and this has meant it has become difficult to attract local banking without a real presence within the territory.
- Fantastic Global Reputation
- Well Regulated Business and Legal Environment
- Large Number of Tax Treaties
- Banking is Easy to Seek Offshore
- Paypal Approved
- Zero Tax on Global Income and 16.5% on Domestically Sourced Income
- Strong Service & Professional Focus and Very Entrepreneurial Labor Available
- Limited Annual Audit Required
- Must Have a Local Secretary/Agent
- Must Lodge Annual Profit Return and Tax Exemption Request
- Local Banking Can Be Difficult to Obtain
- Expensive Local Office Leases
Typical Uses of a Hong Kong Company
- E-Commerce with a Focus on Asia
- Holding Company for Patents and Licenses
- Shipping Businesses
- Operating Companies for Entrepreneurs Seeking a Visa
- Approximately US$750 for incorporation and 1st years fees
- Expect to pay approximately US$2,000 for your annual audit
- Local office (if required) will cost in excess of US$3,000/month
British Virgin Islands
The British Virgin Islands (BVIs) is a well-known offshore tax haven based in the Caribbean. The country is a British Overseas Territory and, therefore, relies upon English common law in tandem with local decisions to provide legal stability. The BVI’s are whitelisted by the OECD’s Financial Action Task Force and have access to the global banking system.
The country retains a zero-tax regime for offshore profits and has signed over 17 tax treaties at the time I’m compiling this guide. This means there is relative stability in the tax treatment of BVI offshore companies and this is unlikely to change in the long term.
The BVI’s primary economy is based around the offshore sector and there is a well-established banking and professional scene to support your offshore operations. However, to retain their position as a compliant offshore banking sector, they have moved towards an UBO (Ultimate Beneficial Ownership) register which means that privacy is now impacted in the jurisdiction.
- Strong and stable body of common law
- Established offshore jurisdiction
- Range of Local and International Banks to Choose from
- Zero Tax Regime
- Strong Ties to the U.S. and Puerto Rico
- Potentially Public UBO Register
- May Find it Difficult to Bank Away from the BVI’s
- Mid-Tier in Cost
- Regulatory Change and Further Tightening on Offshore Sector Likely
- Offshore and Captive Insurance
- Holding Companies
- Unregulated FX Wholesale Operators
- Hedge Fund Formation
- US$1,700-$2,400 Formation Fees
- US$1,800 Annual Fees Circa
If you ask someone to name an offshore jurisdiction or tax haven it is likely that Panama would be quite close to the top of their list. This is a country that has undergone significant change over the past few decades in the post-Noriega period. It now tops the list of financial hubs for Central America given its moves to clean up its reputation.
Panama is no longer on any form of OECD blacklist and has largely mainstreamed much of its offshore operations to acceptable levels. It is a great place to live and work and is very attractive to many American-based entrepreneurs for this reason. Additionally, it retains its no-tax regime and exempts international business companies from almost every form of taxation.
The country has a well-established body of corporate law to handle almost every situation and the country is awash with well-qualified, western-trained, attorneys. In short, it is very easy to form a Panamanian IBC in a tax-effective manner using one of the myriads of local specialists.
However, its reputation has been again tarnished with the recent Panama Papers leak, regarding Mossack Fonseca, and many banks have now become wary of dealing with Panama IBCs without strong and clear links to the UBOs. In some cases, it can be difficult to obtain banking facilities outside of Panama.
- Ability to Us Nominee Directors and Shareholders
- Easy Access to Panama from Anywhere in the Americas
- Relatively Cheap to Form and Operate an IBC
- Zero Tax Regime
- Easy Residency Options
- Strong Professional Advisor Scene
- Tarnished Image Following Panama Papers Leak
- Requires 3 Directors
- Overseas Banking is Difficult Currently
- Documents May Be in Spanish
- Boat and Yacht Registration
- Holding Companies
- Intellectual Property/Licensing
- International Investment Companies
- US$1,299 Formation Costs Circa
- US$600 Bank Introduction Fees
Cyprus has been on the radar of many investors for some time given its position as part of Europe and the fact that they had a very liberal Forex Trading License regime. Additionally, it was originally a tax haven but has since raised corporate taxes, like Hong Kong, to 12.5% in a move to appease the OECD.
However, Cyprus still provides plenty of benefits given the passporting rights into Europe that it retains and, as a trading company, can still provide strong benefits to entrepreneurs. In recent years, the country has passed numerous tax treaties and the tax system is relatively well established now.
Unfortunately, you will also soon discover that you will normally require an annual audit for your Cypriot-based company. Like Hong Kong, the country has moved to annual returns and audits in an attempt to stamp out much of the Russian money laundering that was occurring in the early 2000s. This has increased the overall compliance costs of Cyprus companies as well as the increased incidence of a global tax at 12%.
- Easy to Access the EU from Cyprus
- Passporting Rights
- Audits and Taxes have Increased Offshore Banking Options
- Strong FX and Financial Services Licensing Regime
- Increased Compliance and Audit Costs
- Tax on Global Income of 12%
- Previous Bank Failures Have Impacted its Reputation
- Relatively Expensive Given its 2nd Tier Status
- Ongoing Social Unrest
- FX and Financial Service Licensed Companies
- Holding Companies for EU Based Assets
- Passporting into EU
- Wealth Management
- US$2,050 Formation Costs
- US$500 for Bank Introduction
- US$3,000 for Audit for a Small Company
The U.A.E is one of the most exciting offshore jurisdictions to pop up in the past 5 or 6 years and the country has moved firmly into the space of being an offshore finance hub. In short, the RAK is a great tax haven depending on your operational needs and business sector. Additionally, the RAK has a variety of Free Zones that you may incorporate in depending on your needs and each has different advantages for the budding entrepreneur.
Additionally, the U.A.E has a great tax system where individual and corporate investors pay zero tax regardless of whether they are physically present in the Emirates or not. Despite the competitive tax regime, the nation has also retained its reputation amongst the global banking community which is a huge benefit to potential entrepreneurs.
Visas are also obtainable in certain circumstances, and you can, potentially, tie up your new IBC with a visa that would allow you to reside within the U.A.E. However, do note that the cost of living is quite high in cities like Dubai, and, depending on your specific business size, this may offset the tax advantages.
The economy is stable, and their primary export is oil, but their offshore service industry continues to grow annually. At this stage, the offshore regime appears stable and major changes are unlikely in the next few years. However, it will remain to be seen if the no-tax approach, and their compliance approach, keeps them off the OECD “Blacklist”.
- Zero-Tax Regime for Both Personal and Corporates
- Possible Visa Attached to Company
- Plenty of Local Banks Available
- International Travel Hub
- Relaxed Regulatory Regime
- Potential Personal Liability for Corporate Debts
- Expensive Jurisdiction
- Expensive Living Costs
- Significant Distance from Major Western Nations
- Advisory and Consulting Services
- International Trading
- Investments and JV’s
- Intellectual Property
- IBC’s US$1689
- RAK Freezone US$2,599
Belize has been around as a tax haven jurisdiction for many years and has featured prominently in many of the data leaks of the past 5 years. Unfortunately, this has impacted its reputation significantly and new Belize IBC users will find it incredibly difficult to find a bank to work with them.
Additionally, Belize was, at one stage, completely “Blacklisted” by the OECD but has since exited this list by agreeing to a raft of changes. This has meant that a public UBO register and taxation of business companies is in the winds and you should expect massive changes in the next 12-18 months.
The tax system is presently undergoing change and Offshore IBCs will be subject to taxation from 2022 in the form of a worldwide tax with their operating expenses being largely non-deductible. This means that Belize as a tax haven is now non-functioning.
However, there are still uses for Belize companies based around financial management and forex trading.
- Easy Registration Process
- Relatively Cheap
- Fully Remote Opening Including Local Banking Available
- Worldwide Taxation as of 2022
- Obligation to File Financial Statements
- UBO Register Coming
- Non-Deductibility of Expenses
- Bad International Reputation
- Ship Ownership and Registration
- Financial Management/Licensed Companies
- Investment Services
US$600-700 Formation Costs
Singapore is a more financial hub in Asia and a significant amount of capital is now moving from Hong Kong due to the civil unrest. Subsequently, Singapore now looms large in the minds of those looking to move offshore within the Asia Pacific region.
The nation is strongly pro-entrepreneur, and it is a delight to deal with the local professionals who are very predisposed to doing smart business. Additionally, the business formation process is relatively simple although you will face strong AML compliance requirements than what you would of in one of the lesser jurisdictions. However, this comes with a much better reputation and Singaporean companies can enjoy acceptance in most of the global major banks.
The tax perspective for Singapore is favorable and the nation has signed multiple tax treaties giving certainty to potential entrepreneurs. Standard taxation rates apply to Singapore companies with the top effective marginal rate kicking in at @$300,000 at a flat 17%. However, it should be noted that Singapore offers foreign income exemptions for offshore companies, similar in scope to Hong Kong.
Subsequently, the jurisdiction offers very tax-effective structures and a large body of professional, motivated, staff who can support and advise upon your local operations. For this reason, they retain one of the top spots as an easy to operate in an offshore jurisdiction.
- Credible Image and Good Reputation
- Lots of Local Banking Options and Access to Global Banks
- Low Tax Liabilities and Tax Exemptions Available
- Excellent Staffing and Professional Advisers Available
- International Travel and Finance Hub
- Can Be Costly
- More AML Compliance than other Tax Havens
- Office Space Can Be Expensive
- Shipping Companies
- Financial Corporations
- International Trade
- Holding Companies
- IP Ownership
- Circa US$2,600 for Formation of an Offshore Company
- Accounting Can Range Anywhere from US$1,000 to US$5,000 depending on size
Conclusion Where is the Best Place to Set Up an Offshore Company ?
This really depends on where your tax residency is presently located and the type of business operation that you require. Assuming you are operating in the e-commerce space, and you are not looking for strong privacy, then I would normally recommend a Singapore entity given the reputation and ease of banking.
However, the U.A.E/RAK is also an exciting jurisdiction and brings with it the opportunity to obtain a visa to relocate to the emirates. Subsequently, this may work for those operating within the consulting and services area who are looking to minimize their tax obligations and protect themselves from potential legal liability.
Ultimately, it really comes down to your personal circumstances to determine Where is the Best Place to Set Up an Offshore Company for you. If you would like to discuss your personal circumstances with us please contact our consulting arm:
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