Selecting the 'right' Offshore Jurisdiction

"These days man knows the price of everything but the value of nothing..." 

 - Oscar Wilde 


Most offshore jurisdictions are free from foreign exchange controls. They are tax-free and  have simple company legislation to cater for a diverse range of international business requirements. The most common reasons that businesses and high net worth individuals consider using an offshore company is for:

1. Asset/Investment Protection
2. Confidentiality & Financial Privacy
3. Reducing Tax Liability (personal or corporate)
4. Estate Planning

All of the above are valid reasons for you to consider owning an offshore company - but WHICH jurisdiction?  We have encountered numerous cases whereby the clients were previously recommended the wrong jurisdiction for their businesses or personal objectives.  Hence, they ended up having to incur additional and unnecessary costs to rectify an error of judgment by the company incorporator.

Unless your offshore company is specifically set-up for international trading with the intention of taking advantage of the double taxation treaty in jurisdictions such as Labuan and Mauritius, it is not necessary to incorporate in a jurisdiction that has a tax treaty.

For those with a familiarity of English Common Law and appreciate its reliability, there are many suitable offshore jurisdictions to choose from, including Seychelles, BVI, Anguilla and Samoa. For others who are comfortable with Napoleonic Code inspired civil law, jurisdictions such as Aruba, Antilles and Costa Rica may be more palatable. However, civil law jurisdictions such as these, and Panama, are most unsuitable for setting up a trust.

How important is it for you to be in a similar time zone with the offshore jurisdiction so that you can contact the agent and effect changes/relay information? Indeed, e-mail is an effective way of getting around the time barriers, but for urgent matters, international phone calls may require rising before the blackbird's song.

For some clients, cost is a major factor in their choice of offshore jurisdiction. For others, it weighs lightly in the overall consideration. In addition to the incorporation cost, there are also the annual maintenance costs, and more importantly, professional legal fees - which can certainly build up when subsequent advice and transactions are required.

• Incorporation Costs
  
  With respect to the incorporation costs, there is quite a wide variance in government fees and agent fees - with some jurisdictions costing from a few hundred dollars (USD) to others with double taxation treaties such as the Mauritius which will cost about a few thousand to set up.


• Company Officers & Fiduciary Fees
  
  Although all IBC's allow you to incorporate with foreign individual/Corporate Director and Shareholders, some jurisdictions require the company secretary to be a local resident, which will involve additional payment to the offshore agent. Additionally, should you opt for a further level of privacy, you may wish to engage the services of a Nominee Director and Nominee Shareholder.


• Maintenance Fees
  License fees are payable to the offshore government on a yearly basis, and also to the offshore agent and for use of the registered offshore address. Again, prices do vary. In the case of BVI companies, where bearer shares are being phased out, any company retaining bearer shares in its Memorandum and Articles of Association (M&AA) will be required to pay higher license and custodian fees.


• Professional Fees
  Depending on the type of offshore vehicle required such as a Trust, professional legal and international tax planning expertise may be necessary. As a general rule of thumb, professional fees for tax planning (which includes drafting of service agreements and contracts) range from USD$3,000 to USD$10,000. For example, when setting up a private equity fund, you will need to put aside USD$30,000 (including offshore incorporation and license fees). Subsequent advice will be based on time cost. Also, as international legal firms in these jurisdictions tend to monopolize, the fees can be quite substantial (USD$500 per hour). To minimize incurring these costs, you may wish to involve us as your intermediary consultant.

Most offshore jurisdictions practice non-disclosure with regard to information on company officers and shareholders, with some jurisdictions such as Cayman having a Confidentiality Ordinance or Act. Whilst company registers must be updated and lodged with the offshore registrar, the information will not be released to third parties except when subpoenaed by international law authorities.

Bank confidentiality also plays an important role in the offshore company structure. Complete privacy is impossible, as all banks have very stringent due diligence procedures. However, once bank accounts are opened, your confidentiality is usually protected under the jurisdiction's applicable statute.  Furthermore, an extra layer of financial privacy between the public and the beneficiary can be attained by using nominee shareholders/directors.

There are pros and cons for high and low profile jurisdictions.For high profile jurisdictions such as the Bahamas, Cayman and Bermuda and well accepted jurisdictions such as BVI, it is certainly easier to open an offshore bank account, get listed on the stock exchange and enjoy the business infrastructure in place. On the downside, name availability (both shelf and new incorporations/name conversions) is quite limited and the annual fees for companies of such jurisdictions are markedly higher than lesser-known competitors such as Anguilla. Interestingly, high profile vs' low profile seems to be largely implicated by the 'status factor' and less in respect to government stability. Often, low profile jurisdictions share the same legislation and governance (and white sandy beaches!) as high-profile jurisdictions.