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Tips on choosing the best offshore jurisdictions
There are many things to consider before determining the best place for your offshore company. Below are some helpful questions for your self-check:
Reason to incorporate
What are your expected benefits? Does the offshore location meet your needs? How to form the best offshore in the world?
Jurisdiction reputation
Does that offshore location have a stable economy, politics, legislative system, and corporate laws? Is it included in the “blacklist” or “grey list” by EU Council?
Taxation
Are there any special taxes or exempted status imposed on offshore companies? Under what circumstances may your company be liable to tax?
Entity structure
How many structures are available? Can you choose that business structure (e.g. IBC, LLC, Pte, or Ltd) in that jurisdiction?
Incorporation cost
How much is the incorporation cost? Which countries offer the lowest incorporation cost?
Compliance requirements
What are reporting requirements for your company if it operates within that offshore jurisdiction?
Merchant banking
Do you need a corporate bank account to run your business in that jurisdiction? What are the options of local and international banks available there? Does the country’s banking system allow the opening of offshore debit or credit cards, merchant accounts, or cryptocurrency accounts?
Processing time and residency situation
How long does it take to incorporate your company in that offshore jurisdiction? When moving offshore, are there any residency requirements for your company directors, shareholders, or company secretary?
The availability of tax treaties
Does that offshore country have any signed double taxation agreements or tax treaties that can apply to your corporation?
Based on these inquiries, which countries are the top choices for establishing an offshore company? Let’s move on to the next section!
Types of offshore jurisdictions categorized by tax incentives
One of the priorities for many entrepreneurs when looking for the best incorporation place is to optimize the company’s profit through tax incentives.
To seize the opportunity, you must understand how offshore jurisdictions are categorized based on the incentives they offer.
The first type you shall encounter is the zero-tax jurisdiction or tax haven.
These jurisdictions offer owners a tempting package of tax exemption for any business operations that happen outside the border of that nation. Businesses are only required to pay a small annual fee.
As specified, this favorable regime includes a pay-no-corporate-tax offer, the privacy of beneficiary owners, and the free-duty form for submitting financial statements. Examples include the Bahamas, Bermuda, and Seychelles.
The second type is the low-tax jurisdiction.
These jurisdictions offer comparatively low corporate tax rates, making them appealing to offshore companies seeking favorable tax environments (e.g. Switzerland, Luxembourg, Ireland, and the Netherlands.)
However, foreign businesses need to note that these jurisdictions do not sign the DTTs, so there are possibilities your income might be taxed double.
Seeking legal advice from professionals is highly advisable. Get in touch with our support team now for more information on setting up an offshore business.
Furthermore, you should take into account factors beyond incentives, such as compliance requirements, reputation, accessibility, and cultural features.
List of recommended entity types for offshore countries
Offshore jurisdictions recognize the diverse needs of international businesses and provide different structures and legal frameworks to accommodate those needs.
The question is: what types of business would be the most beneficial to set up for your company? Let’s find out.
Anguilla
- Recommended entity: the International Business Company (IBC)
- Common uses: international trading, consulting, personal trading, and holding companies
Panama
- Recommended entity: the Non-resident Corporation
- Common uses: international trading, consulting, personal trading, holding, wealth management, investment, and private trust companies
Hong Kong
- Recommended entity: the Private Limited Company by shares
- Common uses: international trading, consulting, personal trading, holding, IP holding, investment, financial service company, China/ Asian market entry, eCommerce, merchant account, tax treaties, and startups
Singapore
- Recommended entity: the Private Limited Company (Pte. Ltd.)
- Common uses: international trading, consulting, personal trading, holding, IP holding, investment, financial service company, China/ Asian market entry, EU entry, eCommerce, merchant account, tax treaties, and startups
BVI
- Recommended entity: the Business Company (BC)
- Common uses: international trading, consulting, personal trading, holding, wealth management, investment, and private trust companies
For other offshore countries’ entity suggestions, feel free to check out our tool on offshore company comparison and make the right choice.
Examples of best offshore jurisdictions for foreigners
In this section, we will explore a selection of top jurisdictions available for international business endeavors and their distinct features.
Hong Kong
Hong Kong is listed among the most ideal countries for offshore company formation for its strong international reputation and beneficial business schemes, including:
- 100% of foreign ownership
- Business-friendly tax regime: Free corporate tax for foreign-sourced profits, low tax rate from 8.25% to 16.5%
- Free sales tax, capital gain tax, dividends, and interest tax
- No exchange controls
- Open trade policy, competitive economy, the independent legal system
- Financial hub with 75 out of the 100 largest banks in the world
- Ease of access and entry point to mainland China
Among many choices, a Limited Company (Co., Ltd) is the most common entity type in Hong Kong among start-ups, entrepreneurs, and those looking to form international trading businesses.
Advantages
- Shareholder’s liability is limited to the number of shares
- Any change in the company’s shareholders does not impact the existence of the company
- The company can enter contracts, acquire assets, sue or be sued under its name
- Transfer of ownership can be done wholly or partially by selling or releasing the shares
Disadvantages
- The company needs to fulfill compliance requirements on an annual basis with CR and IRD
- The identity information of shareholders and directors must be disclosed to the public
- Maintenance and dissolution for Hong Kong limited company are quite complicated
Singapore
Singapore is another fast-growing commercial center in Asia. It is also known as the promised land for start-ups, entrepreneurs as well as investors in respect of commodity trading and wealth management.
Some key highlights of Singapore’s business nature encompass:
- Transparent tax scheme: Only transactions conducted in Singapore are taxed; the corporate income tax is capped at a rate of 17%
- More than 70 tax treaties available between Singapore and foreign jurisdictions
- Partial tax exemption schemes and various incentives for startups and investors, especially in fintech and technological innovation industries
- Top-notch banking systems
- High-skilled workforce, beneficial visa schemes for foreigners
A private limited company is the most popular option here. Either individuals or body corporate can be shareholders of a Singapore private limited company.
Advantages
- Shareholder’s liability is limited only to their shares
- The company can own property, enter contracts under its name
- Any change of members does not impact the existence of the company
- The ownership can be transferred completely or partly by transferring to another
- The company can enjoy many tax schemes for tax reduction
Disadvantages
- Follow annual compliance requirements with ACRA and IRAS
- Maintain accounting and other relevant documents
British Virgin Islands (BVI)
The British Virgin Islands is a well-known tax haven. The reasons behind the attractiveness of the BVI are likely its ease of setting up a company and its cost-effectiveness.
In addition, some other pull factors that make the BVI one of the top offshore jurisdictions are:
- Tax exemption for profits derived outside of the BVI
- Ease of doing business and banking
- USD as an official currency
- No currency exchange control
- No annual meeting requirements
- No financial statements, annual return requirements
BVI Business Company (BVI BC) is the most popular vehicle for foreigners seeking offshore investments, international trade, savings, and more. A BVI BC can enjoy favorable tax benefits and reduced compliance requirements under the islands’ environment.
Unlike Hong Kong and Singapore, where the publicity of identity information is a key requirement, the BVI companies are highly confidential. The details of your BC’s beneficial owner, directors, and shareholders are only disclosed to the competent authority (the Registrar) and the Registered Agent.
Cayman Islands
The Cayman Islands is another well-recognized offshore jurisdiction.
It is a leading offshore financial hub, linked with economic and political soundness, offering a simple incorporation process, and a set of tax advantages for international entrepreneurs.
One widely-selected offshore business type in the Cayman Islands is a Limited Liability Company (LLC).
A Cayman LLC does not pay corporate tax for any earnings generated outside of its jurisdiction. There are no direct taxes, no exchange control, and the reporting requirements are minimal for LLCs.
Cayman LLC is also an ideal option for business seekers of asset protection, investment funds, private equity transactions, securitizations, movable or immovable asset holdings, etc.
Belize
Belize shines as a golden opportunity for overseas businesses, high-net-worth individuals, and international investors seeking to establish their presence in this captivating jurisdiction.
It offers a relatively competitive cost of formation, a swift incorporation process, and a set of preferable privacy policies and tax benefits.
As an offshore jurisdiction, Belize provides:
- A straightforward incorporation process
- A secure, democratic, and stable judiciary system
- High level of confidentiality and privacy in terms of records of directors and shareholders regarding account-related information
- A primary banking sector that supports businesses with a high liquidity ratio, remote bank account opening service, and low deposit requirements
Additionally, it is among the top highest per capita income in Central America.
One of the most common business structures for foreign entrepreneurs looking to set up a business in Belize is the International Business Company (IBC). Belize is also among the fastest IBC Registry.
Recently, following the new Belize Companies Act 2022, Belize International Business Companies (IBCs) are being recognized as Belize companies, starting November 28th, 2022. IBCs or local companies no longer exist as they both share a single legal status of “Belize companies” with the same rights and obligations.
If this jurisdiction is still on your priority list, forming an LLC can be an alternative since LLCs remain excluded from being the subject under the ES rule.
RAK
Ras Al Khaimah, or RAK in short, is one of the seven fastest-growing emirates of the United Arab Emirates.
RAK has the highest degree of industrialization in the UAE, and it is the prospective destination for many foreign investors and business owners.
RAK company formation is now high in demand since it allows you to carry out almost all types of business activities, especially for holding companies, consultancy, financial service companies, investment, or international trading.
An International Business Company is a potential type of business to incorporate into RAK for the following reasons:
- 100% ownership of foreigner
- Tax neutrality in respect of foreign-sourced earnings
- No obligation for a specific currency used as the company’s capital
- No limit on bank transfers and deposits for share capital
- Guaranteed confidentiality regarding the register of company members
- No annual reporting or accounting requirements
- Fast incorporation in 1 or 2 working days
Notice of Economic Substance Requirements
Effective from 1 January 2019, several offshore countries including the Cayman Islands, the BVI, Belize, and RAK have enacted Economic Substance to ensure their tax benefits are eligible in an EU-standard manner.
Concerning the economic substance rules and their relation to tax implications, certain notes should be taken into account.
If your incorporated company (e.g. IBCs, LLCs, LLP, other than a domestic company, under the respective laws) falls under the in-scope entities of the Economic Substance Regime in those jurisdictions, your company must be subject to specific reporting requirements and taxation (if applicable).
More about Economic Substance and its compliance requirements in our detailed guidelines.
Best offshore company country for tax reduction
Which jurisdictions stand out when it comes to selecting the best offshore company country for tax reduction?
Panama
Despite the crisis, Panama, made famous by the Panama Papers leak, is still a suitable option for setting up an offshore business. Contrary to what the media portrays, it isn’t just used to conceal unlawful assets.
The country allows corporations to be established by a single director who can be a citizen of any nation and is not subject to local corporation taxation, audit requirements, or financial account preparation.
Cayman Islands
One of the most well-liked choices for offshore hedge funds and offshore businesses is the Cayman Islands. The 0% business tax rate is the major justification. There are no withholding taxes, capital gains, profit, income, or similar taxes.
Moreover, its offshore business renewal and registration costs are cheaper than those in other nations.
The OECD and the International Financial Action Task Force both have the nation on their white lists. In contrast to other tax havens, it complies with international tax legislation.
Cyprus
Cyprus is a great option if you intend to join Europe because of its membership in the EU. It has been a member since 2004 and, as of 2008, it has also been a member of the Eurozone.
Your company will receive an Intra-Community VAT number to conduct business within the Eurozone.
Unlike some EU nations, Cyprus imposes fewer regulations regarding company structures so you are also not overly constrained. Additionally, there are no minimum capital restrictions.
Despite not being as widely known as other Caribbean tax haven nations, it boasts one of the lowest tax rates, specifically at 12.5%.
Cyprus’s exclusion from the Automatic Exchange of Information is another perk for investors in this nation (AEOI). This implies that you are not required to provide your bank account information while opening an offshore bank account here.
To wrap up
To select the ideal offshore jurisdiction for incorporation, dedicate time to research and consider factors such as reputation, trustworthiness, tax policies, and compliance requirements. Narrow down the options to find the most suitable choice.
You can also engage with offshore company formation service providers like BBCIncorp to receive support on your specific needs. We offer fast, and transparent corporate services, including setting up companies, opening banking accounts, and so on. Contact us now via service@bbcincorp.com for more information.
Disclaimer: While BBCIncorp strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact BBCIncorp’s customer services for advice on your specific cases.
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