List of jurisdictions and offshore business

List of jurisdictions and offshore business

Setting up a company abroad, in an area with a zero or low tax rate, is a great way to save on tax and make more profit. Not only owners of large businesses, but also ordinary freelancers have the opportunity to register an offshore company. To make effective use of the advantages of an offshore company, it is important to choose the right country of incorporation and learn all the ins and outs of offshore zones.

The concept of offshore

An offshore zone is a state or part of its territory where non-resident companies do not pay tax or pay it at a reduced rate. Most often, benefits are granted to firms that are registered in a territory with a favourable tax climate but actually operate in another state.

International companies are divided into 3 types in terms of taxation and financial planning:

• Classic offshore, where there are no taxes, no reporting is done, and the beneficiary details are not disclosed. The company pays only a fixed fee to the treasury. This group includes territories with low level of economic development, most often small states (Panama, Belize), enclaves of some countries (Labuan in Malaysia), islands (Cook Islands, BVI). It is these jurisdictions that tend to be blacklisted;
• Offshore companies are companies registered in prestigious foreign jurisdictions with full (sometimes high) taxation. Such firms are set up in the country of destination, often in conjunction with an offshore or midshore. Onshore companies are fully accountable and attract great interest from government authorities. Onshore jurisdictions include Austria, Denmark, Switzerland;
• Midshorters are an intermediate link between offshore and onshore. Such companies are not blacklisted, but enable non-residents to pay taxes at a low rate. Midshore jurisdictions require reporting, companies can open accounts in international banks, and do not attract the attention of tax authorities. This category includes firms registered in Cyprus, Hungary and the UK.

Offshore business: "Black and grey lists

Despite the many benefits of offshore registration, a number of jurisdictions are recognised by individual states and international organisations as not meeting the criteria:

• transparent taxation;
• anti-money laundering and counter-terrorist financing.

Information on offshore areas can be found in the lists:

• EU;
• FATF (Financial Action Task Force on Money Laundering);
• OECD (Organisation for Economic Cooperation and Development);
• Ukrainian Cabinet of Ministers.

Ukraine has two lists approved by CMU resolutions - No. 143-p, adopted in 2011, and No. 1045 (December 2017). The first (relating to the definition of risks of financial transactions), has 41 jurisdictions. The second list (the criterion - taxation, corporate tax 5% or more lower than in Ukraine) includes 79 countries; transactions with companies from this list are considered to be controlled.

Criteria for choosing an offshore zone

When choosing a jurisdiction to open a business, consideration should be given to

1. Social and political situation in the state, it is necessary to avoid jurisdictions with unstable economy, dictatorship, social tensions.
2. Infrastructure (communications, internet, physical accessibility).
3. Cost of financial centre services.
4. Confidentiality of information about the company owner.
5. Availability of the state in Ukrainian and international 'black' and 'grey' lists, this factor affects reputation, attention from tax authorities.

The key purpose of establishing a legal entity (tax minimisation, international settlements, export-import operations) is of no small importance.