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Offshore companies: Myths, realities and the facts

Offshore companies: Myths, realities and the facts

The term "offshore company"

For most people, the term "offshore company" is associated with ideas of tax avoidance, money laundering and secrecy. However, the reality is more complex and varied. In this article, we shed light on what offshore companies really are, what types there are and how this area is changing as a result of new regulations.

What does the average person understand by offshore? The common associations with offshore structures are often negative. Many people think of tax avoidance, asset protection in a legal gray area or opaque financial activities in countries with looser laws. The word "offshore" itself conjures up images of islands in the Caribbean or other exotic locations.

What are offshore companies really? In essence, offshore companies are simply companies that are established and registered outside the country or jurisdiction of their owner. The reasons for this are varied and not always illegal. Legitimate motives can be tax avoidance within the legal framework, international financial management or the protection of assets.

"If the taxation in my home country is too high and the existence of my company is jeopardized, I will move my company elsewhere. That's the principle of the free market and that's how it should be.

Types of offshore structures

There are various forms of offshore companies and structures. Here are a few examples:

  1. Completely offshore: The entire company structure is located outside the owner's home country without any connection to it.
  2. Partly offshore: The holding or parent company is registered offshore, while operating subsidiaries are located in the home country or other countries.
  3. Offshore bank account: A Bank accountopened with a bank in a jurisdiction other than the account holder's home country.

The best-known offshore locations are tax havens such as the Bahamas, Cayman Islands or Panama. Other popular financial centers are Switzerland, Singapore and Luxembourg.

Regulatory changes and their impact

In recent years, international agreements such as the agreement on automatic Exchange of information (AIA, CRS) has led to offshore activities becoming more transparent. Most of the well-known offshore financial centers have joined the AEOI (CRS).

This means that financial institutions in these countries must now transfer account information of foreign nationals to their home countries. This softens the once strict confidentiality of many offshore locations.

For company owners and investors who legally use offshore structures for tax optimization or asset protection, this trend is a challenge. Completely non-transparent offshore solutions are becoming increasingly rare.

The loopholes are closing for those who have misused offshore companies for illegal purposes such as tax evasion or money laundering. Regulators and authorities can track capital flows and assets more easily.

This reduces private capital, which also leads to instability on the global market. Unfortunately, these problems are also exacerbated by Double taxation agreement (DBA) are not always resolved in favor of the capital holders.

The best-known offshore countries and the AEOI (CRS)

When you think of offshore destinations, the following countries and territories often come to mind:

  1. Switzerland
  2. Luxembourg
  3. Singapore
  4. Bahamas
  5. Cayman Islands
  6. Bermuda
  7. British Virgin Islands (BVI)
  8. Panama
  9. Isle of Man
  10. Malta

For a long time, these were considered the most famous "tax havens" and offshore paradises in the world.

However, the myth of these countries as places with impenetrable banking secrecy and complete lack of transparency has changed in recent years. The reason for this is the Agreement on the automatic exchange of information (AEOI)which most of these financial centers have now joined.

Of the ten offshore destinations mentioned above, eight - Switzerland, Luxembourg, Singapore, Bahamas, Cayman Islands, Bermuda, British Virgin Islands and Panama - have signed the AEOI (CRS). Only the Isle of Man and Malta have not yet agreed.

CountryYear of joiningEffects on companies and bank accounts
Switzerland2018Switzerland has signed the AEOI with some restrictions and reservations that limit the application of the agreement to certain countries. Accounts and companies. Nevertheless, most accounts and companies are affected by the automatic transfer of information.
Luxembourg2017Luxembourg has signed the AEOI and is therefore obliged to automatically pass on information about financial accounts and taxpayers in other countries to these countries. This can lead to higher tax obligations in their home country for the owners of offshore companies and bank accounts in Luxembourg.
Singapore2018Singapore has signed the AEOI and is therefore obliged to automatically pass on information about bank accounts and taxpayers in other countries to these countries. This may result in higher tax obligations for owners of offshore companies and bank accounts in Singapore in their home country. However, Singapore has some exemptions for certain companies and accounts that are not covered by the treaty.
Bahamas2018The Bahamas has signed the AEOI and is therefore obliged to automatically pass on information about bank accounts and taxpayers in other countries to these countries. This can lead to higher tax obligations in their home country for the owners of offshore companies and bank accounts in the Bahamas. However, strict banking secrecy laws still apply in the Bahamas for accounts opened before 2017.
Cayman Islands2017The Cayman Islands have signed the AEOI and are therefore obliged to automatically pass on information about bank accounts and taxpayers in other countries to these countries. This may result in higher tax obligations for owners of offshore companies and bank accounts in the Cayman Islands in their home country. However, the Cayman Islands has some exemptions for certain companies and accounts that are not covered by the treaty.
Bermuda2017Bermuda has signed the AEOI and is therefore obliged to automatically pass on information about bank accounts and taxpayers in other countries to these countries. This may result in higher tax obligations for owners of offshore companies and bank accounts in Bermuda in their home country. However, Bermuda has some exemptions for certain companies and accounts that are not covered by the treaty.
British Virgin Islands (BVI)2017The British Virgin Islands (BVI) have signed the AEOI and are therefore obliged to automatically pass on information about bank accounts and taxpayers in other countries to these countries. This may result in higher tax liabilities for owners of offshore companies and bank accounts in the BVI in their home country. However, the BVI does have some exemptions for certain companies and accounts that are not covered by the treaty.
Panama2018Panama has signed the AEOI and is therefore obliged to automatically pass on information about bank accounts and taxpayers in other countries to these countries. This can lead to higher tax obligations in their home country for the owners of offshore companies and bank accounts in Panama. However, Panama has some exceptions for certain companies and accounts that are not covered by the treaty.
Isle Of ManNot yetNone yet
MaltaNot yetNone yet

By participating in the AEOI (CRS), these countries are obliged to automatically transfer information on bank accounts and assets of foreign citizens to their respective home countries. This means a significant loss of confidentiality and privacy for offshore structures in these jurisdictions.

The once strict protection of banking secrecy and the possibilities for complete Anonymity for offshore companies and accounts have thus been severely restricted. While these countries continue to offer attractive locations for legal tax optimization and asset protection strategies, they must now adhere to significantly higher transparency and compliance standards.

The myth of the completely isolated and secretive offshore paradise is no longer entirely true for the majority of well-known financial centers. International regulations such as the AEOI (CRS) have led to greater openness and transparency. Monitoring led.

In search of the unknown

We did not take the USA into account - that was a mistake!

One destination that is often overlooked are the USA itself - more precisely, certain US states:

States such as Wyoming and Nevada also allow for a largely anonymous company formation without disclosing the beneficial owners. Registered agents can serve as contact persons instead of the actual owners.

Thus, certain US states fulfill the four main criteria for offshore havens for non-US citizens:

  1. No taxation at company level
  2. Absolute data protection of the owner
  3. Liberal regulation of the corporate structure
  4. Banks without an obligation to report automatically to other countries

The myth of the completely foreign "tax haven paradise" is no longer entirely true for the majority of well-known financial centers. Thanks to regulations such as the AEOI (CRS), many have become less transparent. The USA itself, and some states in particular, have become an often overlooked offshore destination.

Unbeatable value for money

In addition, the Company foundation in the USA makes it possible to open a bank account without personal presence and high fees. Unlike the thousands of euros required as an initial deposit at banks in banana republics, opening an account in the USA is free and does not require a personal presence as is the case in banana republics.

Conclusion

Forget the cliché of the businessman with a suitcase full of banknotes traveling to a banana republic in the Caribbean to deposit his money in a bank account. The idea that such accounts are only affordable for drug dealers and other illegal businessmen is outdated. Your legal and useful business can also benefit from data protection and stability. We give the USA the best offshore grade among legal and globally recognized solutions for offshore businesses, with a high level of security and transparency for the founders.

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Disclaimer: Please note that the above dates, tax rates and regulations may change over time. Do not make any independent decisions without first consulting an expert for your individual situation. It is in your interest to always receive individual information from an experienced expert who knows your situation.

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