There are many debates on how the ‘offshore financial centre’ should be defined. Should people say ‘offshore centre’, ‘tax haven’, ‘low tax jurisdiction’, ‘offshore zone’ or the other combination? And what do they really mean? They all relate to similar area, but there are slight differences between some of them (which I will explain in the next posts).
What is an Offshore Financial Centre?
Let’s focus on the point now. The offshore financial center is basically an area or country which offers favorable tax regime for non-residents. Non-resident is a key word here as in those jurisdictions the residents of these areas/countries usually pay normal or high taxes (or at least higher than the non-residents). It would usually involve either no taxes or low taxes on certain types of income or transactions.
For example, they may offer:
- No Capital Gains Tax
- Low Corporation Tax
- No Withholding Tax
- No/low VAT
and so on….
Key Features of Offshore Financial Centres
There are also additional factors which help defining the offshore centres like e.g.:
- High banking secrecy
- Stable, flexible & simple laws and regulations (which is actually a competitive advantage and not otherwise)
- Access to professional firms offering financial and legal services
- Lower disclosure requirements for authorities
- Favourable residency and retirement schemes for wealthy individuals
and many others.
Offshore Centres and the Financial Services Industry
Another typical characteristic – as a general rule, huge part of economy of the offshore centre is based on financial services (more specifically fiduciary services, corporate services or investment services and banking), therefore you might notice a big amount of financial services providers in those jurisdictions in comparison to the majority.
Simply speaking, a significant sector of the economy is created by firms that help non-residents with:
- Setting up and managing offshore companies
- Establishing and operating funds, trusts, and foundations
- Opening investment and bank accounts
- Providing tax & legal advisory services
Examples of Offshore Financial Centres
Some of the examples of offshore centres are: British Virgin Islands, Seychelles, Cyprus, Jersey, Malta, Singapore, Isle of Man, Panama, Cayman Islands, and many others. It is important to remember that different jurisdictions (might) have different tax&legal rules, different entities in offer and may have other benefits for various nationals. They all offer some benefits, however they are not the same.
Choosing the Right Offshore Centre
Choosing a right offshore centre for the business and for the individual is very important aspect and it is not the same & simple as buying a yoghurt in the supermarket (some people might argue here…).
The above is a very broad and general description of offshore jurisdictions and some of their typical characteristics. With time I will try to come back to more details regarding each of them, so you can have a better overview on the offshore world.
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