- Offshoring is the process of moving business process from one jurisdiction to another, typically to achieve strategic advantages (see also: regulatory competition, tax competition). In this context the destination jurisdiction is “off shore” from the current jurisdiction.
- Offshore companies (as well as offshore banks, offshore trusts etc.) are legal entities, established under the laws of a jurisdiction that prohibits any local business activities (see also: international business company, international banking license). In this context the entities are “off shore” from the jurisdiction of establishment, meaning that they are prohibited from any local business relationship with citizens and residents.
Jurisdictions providing the establishing of legal entities offshore, are referred to as offshore financial centers (OFC or offshore jurisdictions). Their economies are specialized in providing financial and corporate services, such as company incorporations, banking or the registration of vessels and aircrafts.
Registries contain information about the the registered agent and the directors, with their full name and identification number (government-issued identity document, photo id, passport, id card, Cédula).
Since the registry is not designed to store physical addresses of the company itself or its registered agent or its directors, offshore companies meet the criteria of a shell corporation.
Information about the shareholders / beneficial owners and articles of incorporation are stored with the lawyer, serving as registered agent. Even though this has been subject to increasing KYC regulations, it is still often described as anonymity or secrecy.
Misuse of offshore entities
While legal entities can still be easily established, corporate service providers and financial service providers face increasing regulations regarding AMLCFT, AML (Anti-Money Laundering), CFT (Combatting the Financing of Terrorism), KYC (know your customer / know your client).
KYC requirements of corporate service providers (such as lawyers and law firms)
- proof of identity
- proof of address (utility bill)
- bank reference letter
- professional reference letter / personal reference letter
- criminal record
- beneficial owner(s)
Compliance with regulations, internal risk-assessment and growth strategies of financial service prover lead to differences in acceptance of clients, required information at account opening and during ongoing operations, as well as pricing policies, depending on the jurisdiction.
- PayPal accepts clients signing up from many low-tax and no-tax jurisdictions, the fees vary between 1,4 and 5,7 percent. Functionalities as connecting bank accounts or credit cards might differ between jurisdiction. Information regarding the beneficial owner are not required at account opening.
- Stripe accepts clients signing up from only limited no-tax jurisdictions. While for most jurisdictions ownership informations about entities holding more than 25% of shares or executive power are required, clients from USA and Canada have to provide a tax ID and SSN/SIN.
- PaySera accepts clients from most jurisdictions to sign up a personal account. Once the personal account is fully verified by providing id and performing a verification video call, clients can request opening an business account for offshore companies. Speaking of personal experience, account opening will proceed within 5-7 work days.
It can be assumed that also the flagging of transactions and suspicious activities depends on the client’s jurisdiction.
- United States: USA Patriot Act of 2001
- Seychelles: Anti-Money Laundering Act, 2006
- Cyprus: The Prevention and Suppression of Money Laundering Activities Law of 2007
- United Kingdom: The Money Laundering Regulations 2007
- Belize: Money Laundering and Terrorism (Prevention) Act, 2008
- British Virgin Islands: Anti-Money Laundering and Terrorist Financing Code of Practice, 2008
- New Zealand: Anti-Money Laundering and Countering Financing of Terrorism Act 2009, No 35
- Panama: Law No 2 of 1 February 2011
Vetting of legal entities
Jurisdictions offering no-tax legal entities
Countries, territories and jurisdictions considered offshore:
- Costa Rica
- Hong Kong
- Marshall Islands
Jurisdictions offering tax transparent legal entities
Jurisdiction considered onshore, offering tax-transparent legal entities that can be established by offshore entities and therefore inheriting their tax status from offshore jurisdictions:
- Canada: EPC
- Denmark: K/S
- Ireland: L.P.
- Netherlands: CV
- Hong Kong: Ltd
- Singapore: LLP
- Sweden: KB
- England: L.P.
- Northern Ireland: L.P.
- Scotland: L.P.
- Wales: L.P.
Banks and NBFIs
- Euro Pacific Bank
Perpetual traveling 101
This is achieved by creating low or no tax liabilities in the jurisdiction of citizenship, and no tax liabilities in the jurisdiction currently staying in.
Tax liabilities in the jurisdictions currently staying in
In most jurisdictions no tax liabilities are created when staying less then 183 days per year.
Tax liabilities in the jurisdiction of citizenship
Perpetual travelers working self-employed, usually also meet the criteria of offshoring, since the business processes are usually moved to the jurisdiction they are currently staying in. This might be no tax liabilities anymore in the jurisdiction of citizenship.