The main misconceptions when choosing an offshore

Offshores are countries or territories that offer legal and tax advantages for the formation of foreign companies, previously this always meant a tax-free and non-reportable status. But with the advent of global deoffshorization, the conditions for creating a business in an offshore zone have changed significantly. And today, not all offshore companies are equally useful and safe for registering companies. If you make mistakes when choosing an offshore, you can not only suffer reputational losses, but also financial ones.

In this article, we will consider and analyze the main misconceptions that may arise when choosing an offshore company for registering a foreign company.

1. «Offshore is always the absence of taxes and reporting»

Indeed, even 5-7 years ago it could be safely stated that offshore companies provide for the absence of taxation and control by the tax authorities. But, during this time, global trends in building a business have changed significantly, and today offshore companies are no longer about the absence of taxes. All island offshore jurisdictions, under pressure from international organizations, have introduced requirements for the real presence of companies, corporate tax rates, requirements to at least keep and maintain accounting records, and sometimes financial ones. Due to applicable sanctions, offshore companies eventually turned into countries with strict requirements for substance and the presence of a real office at the place of registration of the company, which entails additional costs for business owners.

Therefore, the most popular previously Panama, Seychelles, BVI, Belize, Cayman Islands, Marshals Islands are already “hybrid offshores”, which put forward increased requirements for the incorporation of a company and oblige to conduct the most transparent business in the territory.

2. «All offshore companies are equally safe»

Many people believe that there is no difference in which offshore zone to register a business, because they are all the same and safe. However, this misconception can lead to serious problems in the future.

Some offshore companies do not have the proper level of protection for companies registered on their territory, which, in turn, leads to data leakage, massive refusals to open a bank account, refusal to cooperate with international companies, partners, or even sanctions. All this, in the end, can lead the owner of such a company to unexpected expenses, lawsuits and other problems for the business.

Therefore, before choosing a safe offshore to create a company, it is necessary to carefully study the laws, rules and conditions that apply on the territory of the state, as well as assess all the risks of the existence of an offshore company in the future.

3. «Offshore companies are used only for money laundering»

Since the information space was often filled with news about how officials launder their corrupt funds through offshore companies, a stereotype appeared that this was the only purpose of such zones.

Initially, the purpose of creating offshore zones was to raise the economy of states that did not have, as such, sources of filling the budget. Often, these are island states that live off tourism and agriculture. Creating favorable conditions for the inflow of foreign investment solved 2 problems at once: the state received the desired economic growth, and investors saved in the tax burden. But over the years, tax-free zones began to be abused by financial criminals, fraudsters, and corrupt officials. Through offshore companies began to withdraw “dirty money”, while bypassing the tax legislation of several countries at once and leading law enforcement agencies to a standstill. Thus, the noble goal of tax-free zones turned into a “shelter” for criminals, and leading international organizations began to actively fight against the elimination of the main advantages of offshore companies: anonymity, lack of taxes and financial reporting of companies.

But, you should not consider that registering a company in an offshore zone is illegal or unethical. It’s a delusion. If a company follows all legal requirements and tax rules, both in the country of registration and in the country where it operates, offshore is a legal way to optimize the tax burden and conduct international business.

4. «Registering a company offshore is expensive»

When information spreads in the media that deputies, officials and other high-ranking persons open offshore companies, the association immediately arises that registering a company in an offshore is very expensive. However, this is also a misconception. The creation of an offshore is usually even several times cheaper than the incorporation of a company in developed European countries. And if we compare, for example, the Seychelles and Switzerland, then it is even more than ten times cheaper. Thus, this is a significant savings for the entrepreneur.

But, an important point to which you should pay attention is that tax laws and the rules for registering companies in offshore companies are very dynamic today and are becoming tougher. In particular, all the island states, one by one, introduce requirements for a real economic presence, which entails additional financial costs for renting an office, hiring local employees, etc. Therefore, before choosing an offshore company, it is necessary to carefully study all the possible costs and risks that may occur in the near future.

5. «Banks open an account for an offshore company without problems»

For banking institutions, offshore companies are clients of the risk group. Therefore, every year the possibility of opening a corporate bank account in a bank for offshore decreases and even approaches zero. In any case, European banks today are not ready to sacrifice their reputation and serve offshore companies. Compliance immediately puts a taboo on such corporate structures that use a nominee service, do not conduct operations and do not pay taxes.

But, nevertheless, there remains a small number of banks ready to open a foreign account for an offshore company, which can confirm the legality of their funds and the transparency of the ownership structure. Basically, this applies to investment and savings accounts. It is almost impossible to open a current account in a European bank for offshore. There are also options for opening an account in payment systems loyal to the offshore corporate environment. Of course, they will also be required to meet a number of compliance conditions, including proof of wealth and a simple ownership structure.

6. «Offshore companies guarantee 100% confidentiality»

If earlier confidentiality, and even more so anonymity, was the first advantage of all offshore companies, today this is far from the secrecy that you can count on.

International organizations are putting pressure on offshore countries for greater transparency and openness. Thus, requirements are being introduced for the introduction of public registers of directors and shareholders, open registers of beneficiaries, and for the remainder there is a global struggle against the displacement of nominee services, i.e.

Moreover, many offshore countries have already entered into agreements on the automatic exchange of financial information about accounts and exchange data with other countries whose residents open accounts offshore. Note that Ukraine has not yet signed the Automatic Exchange Agreement (CRS), but this initiative is already on the agenda and will also be implemented in the coming years.

Of course, when compared with European countries, with the help of an offshore company, you can achieve greater “closeness” of personal information, but today no offshore company can provide 100% confidentiality.

In general, choosing an offshore company to register a company is a serious step that requires a thorough study of international law and all aspects of the national legislation of the country of business. It is important to remember that offshore zones today do not guarantee full protection against tax and legal risks, therefore, before making a decision, it is necessary to conduct a detailed analysis and communicate with specialists in the field of tax and corporate law, who will tell you how to choose safe offshores, help with the preparation of all necessary documents and further support of the company.

Regardless of which jurisdiction you choose to register your company, it is important to follow all legal requirements and tax rules in order to avoid legal problems and preserve the company’s reputation.