Below is a list of the number of offshore companies formed last year in the major offshore jurisdictions. Not all jurisdictions make this information publicly available, so we are unable to provide figures for such jurisdictions as Liechtenstein, the Cook Islands etc. The list does not include “offshore” companies incorporated in the USA (Delaware corporations, LLCs in various states), as these are not officially offshore companies.  

1.      List according to number of companies incorporated

2.            List of jurisdictions in alphabetical order

29/03/2005

Exempt Status changes

On 21 January 2005, the EC Commission announced its view in relation to Gibraltar’s Exempt Status Company under state aid rules and also terms for the continuation of the Exempt Status Company under certain conditions leading to its phasing out by 31 December 2010. These terms have been the subject matter of intensive negotiations and agreement with the EC Commission. The Gibraltar Government has therefore accepted these terms and has requested the UK Government (as the Member State responsible for Gibraltar’s external affairs), on behalf of the Gibraltar Government, to formally notify the EC Commission of the acceptance of the agreed appropriate measures.

The terms of the agreed appropriate measures for the continued operation of the Exempt Status Company are as follows :

1. The total number of exempt companies will be of 8,464.

2. Existing exempt companies will be able to continue to benefit from their tax exempt status until 31 December 2010.

3. Existing exempt companies that change legal or beneficial ownership and/or activity between 19 February 2005 and 30 June 2006 will be able to benefit from their tax exempt status until 31 December 2007.

4. Existing exempt companies that change legal or beneficial ownership and/or activity after 30 June 2006 will lose their tax exempt status.

5. New exempt companies can be formed up to 30 June 2006. This will be on the following basis :

5.1 In 2005, the number of new exempt companies that can be formed shall not exceed 60% of the number of exempt companies leaving the regime in 2005, or in any event 823.

5.2 From 1 January to 30 June 2006, the number of new exempt companies that can be formed shall not exceed 50% of the number of exempt companies leaving the regime during that period, or in any event the number of exempt companies admitted in 2005.

6. New exempt companies will be able to continue to benefit from their tax exempt status until 31 December 2007.

7. Regular reports shall be submitted to the EC Commission certifying compliance with the above.

For the purposes of the foregoing, an existing exempt company is one which enjoys tax exempt status on or before 18 February 2005 and a new exempt company is one that acquires such tax exempt status between 19 February 2005 and 30 June 2006.

22/03/2005

End of the line for Gibraltar tax-exempt companies

The EU have passed a decision on the fate of the tax-exempt status in Gibraltar. The agreement reached means that the tax-exempt status will come to an end in 2010. The system was considered as contravening the EU’s rules on State Aid, and thus distorting competition.

Under the agreement, existing companies will continue to enjoy their benefits until December 2010, provided that there are no changes in ownership or activity. Any change in ownership or activity before June 30^th 2006 will lead to benefits ending on December 31^st 2007; any such changes after June 30^th 2006 will lead to the immediate ending of such benefits. It will still be possible for new entrants to apply for tax-exempt status up to June 30^th 2006, but they will only enjoy the benefits until December 31^st 2007. The number of new entrants will also be limited.

02/03/2005

EU Savings Tax – deadline approaches

As we have mentioned earlier, the EU Savings Tax Directive has been accepted and is due to come into force on July 1^st 2005. From that day, EU member states, together with Switzerland and Liechtenstein, will begin to exchange information on bank accounts held by residents of member states (where information is not exchanged, a tax on interest will be withheld). It should be noted that the directive applies only to the accounts of private individuals, and not to accounts opened in the name of companies.

02/03/2005

The UK LLP – an interesting solution

The UK Limited Liability Partnership is finding favour with increasing numbers of clients, for a number of reasons. This company form was popular initially with professionals in the UK, attracted by the draw of limited liability, but it is being used more and more in regard to international tax planning. The company (partnership) must be formed by at least two members, but as these can be corporate members and there are no restrictions on their place of residence, this opens the door to a number of possibilities for trading, without being liable to UK tax (if, for example, the partners are non-UK resident for tax purposes, the company has no activity in the UK and receives no funds from the UK, then the company may not be liable to tax in the UK). The company does have to file accounts in the UK, and the structure must be carefully planned if the company is not to be liable to UK tax. For more information, please feel free to contact our offices.

02/03/2005 

Foundations in the Channel Islands

In their continued attempt to modernise, and maintain their status as an important financial centre the Channel Islands (particularly Jersey and Guernsey) are considering the introduction of legislation on foundations.

While traditionally concentrating on the common law trust, the financial sector has seen the possibilities offered by the foundation, particularly for clients from civil law jurisdictions where the trust is less well known and not so easily accepted.

The Channel Islands are following the lead of a number of jurisdictions which have recently introduced legislation on foundations.

02/03/2005

Liechtenstein, San Marino and Monaco

Liechtenstein, San Marino and Monaco have followed Switzerland in signing agreements with the European Union concerning savings taxes.

The agreements, based on the agreement signed by Switzerland, will lead to tax being withheld on interest payments to EU individuals. The rate will be 15% for the first 3 years, rising to 20 % for the following three years and 35% thereafter. 75% of the withheld will be transferred to the authorities of the individual’s member state of residence, with the remaining 25% being retained by the country in which the tax was withheld.

No tax will be withheld if the individual involved authorises the disclosure of information to his home tax authorities.

The agreement also covers the exchange of information in cases of fraud or similar activity.

10/01/2005

BVI

The government of the BVI have increased the amount of annual tax payable by international business companies (IBCs) incorporated in the BVI. From January 1st 2005, the annual tax will increase from 300 USD to 350 USD. The change will apply not only to new companies, but also to existing ones.

01/01/2005

Switzerland manages to retain control of bank secrecy on deposited funds

Switzerland has managed to retain control of bank secrecy on deposited funds, despite EU efforts to change this in the fight against money laundering and tax evasion. At an EU-Swiss summit held in Berne, certain agreements were signed whereby Switzerland was granted exemption from the obligation to report on accounts held by EU-resident citizens, as laid down by EU laws. In cases where clients do not consent to details regarding tax payment being given to the police or tax authorities, information will not be released, as money laundering and tax evasion do not constitute crimes under Swiss law. This will not apply, however, to funds deposited as the proceeds of “blatantly obvious crime”. Furthermore, tax on interest on funds deposited by citizens of EU member states will be increased to such a level that investors will be discouraged from depositing funds. The EU is seeking to force Switzerland to sign up to, or at least accept, the terms of the Schengen agreements, whereby they would at least show a willingness to co-operate mutually with the police forces of the EU members. Without the co-operation of the Swiss, the EU would be unable to introduce the control of bank accounts by 2005, and would be unable to force other non-EU states such as Liechtenstein, Andorra and the Isle of Man to adopt such measures. The agreements and conditions mentioned above refer to private bank accounts. The EU directives do not apply to company accounts.

29/06/2004

New tax concessions to be introduced in the Isle of Man

The decision of the Isle of Man parliament to provide companies involved in astronautical and aeronautical engineering with a zero tax rate has created significant interest among such companies in the United Kingdom. The new rate will apply to all those companies which produce, operate, sell and otherwise work with products required for sending rockets, satellites and other objects into space. This also includes teaching and training directly related to this field. The zero rate of tax was introduced earlier for companies involved in a series of activities, including marine shipping and insurance. The government plans to introduce the zero tax rate for companies operating in all spheres by 2006.

29/06/2004

Luxembourg changes laws related to holding companies

As expected, Luxembourg will make significant changes in its laws in the near future, to bring laws on royalties and dividends in line with an EU directive on this topic. In line with EU directives, there will be no withholding tax levied on dividends if a company holds at least 25% of the authorised capital of another company, or if a third company holds at least 25% of the capital in two other companies. In this case, both companies will be subject to tax on their incomes. Luxembourg would also like to go even further, and the changes to be introduced mean there will be no withholding tax on royalties paid to non-resident companies, and Luxembourg holding companies incorporated according to the terms of the law of 1929 will not be subject to such withholding tax either. The withholding tax on royalties is currently 10% (unless an agreement for the avoidance of double taxation signed between Luxembourg and the country concerned provides for a different rate). In line with the directive, the laws will come into force retrospectively, with effect from January 1st 2004. In addition, Luxembourg must also harmonise its laws on “harmful tax practices” with the EU regulations. According to the new laws, a holding company will lose its tax-free status if it receives 5% or more of the dividend paid by a tax-free or low-tax company. 11% is considered to be a suitable level of taxation. Existing holding companies, operating according to the law of 1929, will probably be granted a period of grace until 2011.

 29/06/2004

Taxes levied on German companies are among the highest in Europe

According to a report by the German finance minister, taxes levied on German companies are among the highest in Europe. The aggregate of consolidated taxes paid by German companies in local and state taxes currently stands at 40%. The same report also shows that the gap between taxes in Germany and the 10 new EU member states is continuing to grow. At the same time, during their preparations for entrance into the common market, the new member states were making great efforts to reduce the amount of tax levied on companies.

29/06/2004

BVI companies and bearer shares

The situation regarding BVI companies with bearer shares has taken another twist. The Government now looks set to extend the deadline for the “immobilisation” of bearer shares (or the exchange of bearer shares for registered shares) until December 31st 2010. It will still be possible to issue bearer shares, but the annual tax payable will increase from the current 300 USD to 1000 USD, and the bearer share certificates will have to be deposited with an approved custodian. In addition, amendments will have to be made to the Memorandum & Articles of Association removing the possibility for the company to issue bearer shares. If the amendments are not made, then the higher rate of annual tax will be applicable. The deadline for these amendments to be made is January 1st 2008. In the case of new companies, the new rates of annual tax, and changes in the Memorandum & Articles of Association will apply from January 1st 2005.

10/06/2004

Will Cyprus be an attractive financial centre in the future?

In the spring of 2002 our colleague in Cyprus wrote a thesis with this title at Nottingham Trent University in England. This happened when the changes in the tax laws which were approved by a vote of the Cypriot parliament in July were still only in the planning stage. Certain points were only made known at the last moment, taking many experts in the field by surprise.

A tense period of waiting swept across Cyprus leading up to the vote, with nobody knowing what the future might hold. Would the offshore business be killed off, or not? Would joining the EU mean the end for a business which was extremely important to the island, or would it be possible to survive and carry on in the future? Nobody knew anything, but everybody tried to keep abreast of developments. One week the representatives of one of the banks in Cyprus came to us for advice, the following week a different team appeared, trying to find out what was happening, whether the old clients would remain and new ones would come if taxes were raised. This was all after they had held numerous forums and seminars outlining the expected changes and possible problems and possibilities that EU membership would bring.

The tension visibly eased to a degree when the new changes in the law were accepted in July, 2002, and the main modifications became clear. The essence is as follows: the difference between offshore and non-offshore companies has officially ceased, or rather will cease to exist. From January 1st 2003, all companies will pay a uniform rate of 10 % tax on profits. Companies which were formed  and had started operating before December 31st 2001 can continue to pay tax at the earlier rate (4.25%) until December 31st 2005. The rate of 10% was fixed with the imminent EU membership in mind, as this was the minimum requirement from Brussels with regard to taxation. The tax rates in several current and future EU member states are set around this figure; in Ireland, for example, the rate is 12.5%, and in Hungary from January 1st 2004 the rate is 16%. The Cypriots, however, have still adopted the most attractive rate.

At the declaration level, there is no difference between local companies and offshore companies. In practice, however, this is not strictly true, as the incorporation of a local company (which actually operates in Cyprus) is more complicated than in the case of an offshore company, and local companies are also subject to VAT, as well as some additional “stealth” taxes. To the outsider this may not be immediately apparent, even if that person is an expert on the EU; the differences and points of interest may only come to light in the office of a lawyer or accountant during the course of a possible company formation.

At the same time, the differences are not apparent to foreign tax authorities either. Provided that it is managed from Cyprus, a Cyprus offshore company may take advantage of the agreements for the avoidance of double taxation signed by Cyprus. One important difference is that according to the new laws is that to qualify for tax residency it is not enough for the company to be registered in Cyprus – major managerial decisions regarding the company must be made by the directors in Cyprus. The Cypriots have probably copied the British “management control” test model in this. If a company meets the above conditions, then it can request a Tax Residence Certificate from the tax authorities in Cyprus, and can then use this abroad to prove that it has the right to make use of the agreement for the avoidance of double taxation signed by Cyprus.

The three main areas where the beneficial tax rates offered by the agreements are used are in the redistribution of income from dividends, interest and royalties. According to the current agreements (not yet taking EU membership into account), the country of source may also tax the above types of income, but the rates offered by the agreements, which are generally more advantageous than local rates, are usually used. So until now it was definitely worth considering this type of holding structure, where a Cyprus company was used to own and finance a foreign subsidiary. And these benefits will also apply in the future, and it will still be worth using a Cyprus company as a parent holding company in relationships between Europe and North America.

According to the law changes of 2001, dividend income is not included as income in Cyprus. As a result, it is not even included in the tax base, and is treated separately in financial statements and the annual accounts. At the same time, when a Cyprus company pays a dividend to its owners, there is no further withholding tax, as long as the owners are foreigners. In practice, therefore, a dividend received from abroad can pass freely through the Cyprus company into the hands of the ultimate beneficiary.

Interest payments received from abroad are subject to tax, but only 50% of the payments received will be taxed. On the other hand, interest payments made abroad at normal market rates can be freely deducted as an expense. The most recent tax changes do not include regulations regarding subsidiary-capitalisation in Cyprus. At the same time, it is important to note that financing can not just take place freely, as the Cyprus company may only take part in the financing of its own group of companies. However, it is not totally clear what is meant by the term group of companies. 

The Cyprus company will continue to be a perfect vehicle for the collection of royalties because of the agreements for the avoidance of double taxation. This is true, even if fees from royalties count 100% as income and are subject to tax. In this case, too, royalties paid abroad can be relatively freely deducted, and the company in Cyprus paying the royalty is not required by law to apply a withholding tax.

The 2001 tax changes also include numerous new aspects with regard to personal income tax and VAT, which time and space will not allow us to list here. We can, however, make two clear statements about the new position of Cyprus:

1.      In Central-Eastern European relations, companies incorporated in Cyprus offer some of the most advantageous taxation possibilities with regard to parent companies and subsidiaries.

2.      Cyprus offers the lowest rates of profit tax in the EU, and payments made to foreigners from income attract the lowest levels of tax. And all this is accompanied by an extremely client-friendly and liberal accounting system, based on the permissive Anglo-Saxon traditions, rather than the stricter continental model.

But why is all this important? On May 1st 2004, the European Union will expand, with ten new members being admitted; as a result, an enormous common market will come about, made up of 400 million, albeit not equal, people. This will be the world’s biggest market-place – bigger than the USA and whose consumer potential will even exceed, for the time being at least, that of China. One of the major factors in the EU market-place price war will be tax. The use of legal tax benefits can provide a considerable plus for all those producers and consumers whose business transactions are carried out through countries with lower rates of taxation. On a 100 EURO transaction the difference between 15 or 20% VAT can be very important; in the same way, it can make a huge difference if a company pays only 10% profit tax in Cyprus as opposed to 30% in England.

A wave of tax migration will begin within the EU, which will clearly lead to astute companies taking their business to countries with lower rates of tax, such as Cyprus. The signs are already there, and it is the British who have made the first moves. This is not surprising as the island was part of the British Empire until 1964, and the ties between the two countries are still very strong, and the Cypriots have always tried hard to maintain the Anglo-Saxon legal traditions. Re-settlement to Cyprus will be particularly beneficial in the case of trading companies, as they can possibly redistribute their profits to greater advantage.

One thing is clearly visible even today: the days of “paper companies” in Cyprus are over. It will probably not be possible within the EU for a Cyprus company to write all sorts of invoices to western European buyers without some kind of control. Tax authorities will be able to check the authenticity of Cyprus companies more thoroughly, and see whether or not they are real companies with a real physical presence. The solution of having a Cypriot lawyer represent the company as its director will probably not be the ideal answer either. It is not possible for every second Cyprus company to have a lawyer as its director, and the practice of having 500 companies registered in one office is not too plausible, and there isn’t even a name-plate at the entrance. A more competent visiting tax inspector, private detective or journalist will spot the fact that this is a “paper company” before he even walks through the front door.

So what is the solution? In short, the answer is probably a real physical presence. A small commercial office, run by real flesh and blood people (if possible not Cypriots), in a separate office with its own name-plate, and not just pretending to operate, but actually giving and receiving business proposals, and arranging advertising and invoices. Apart from checking the actual physical presence, foreign authorities will have very little legal reason to inspect the books and administration of the company. Taking the tax advantages into consideration, it turns out that a medium-sized Italian manufacturer would benefit from re-locating at least part of the trading arm of its business to Cyprus, in the form of a small two-man office. And Italy is not the only country within the European Union with high rates of tax.

But what advantages can be gained by an eastern European client from running a Cyprus company? Over recent years Cyprus has been repeatedly condemned and criticised. They said it was the money-laundering capital, a regular haunt of the Russian Mafia, a notorious tax haven, and so on. As a result, there were people who decided not to choose Cyprus for the incorporation of their companies. The rumours with regard to Cyprus were particularly prevalent among the Russians. Recently it was claimed that the Central Bank of Cyprus automatically reports people who buy offshore companies to the Russian authorities. In the light of such an article, it is difficult to explain that this is only possible in the case of serious crime and in accordance with the terms of the legal agreement between the two countries, and certainly does not happen automatically. Even within Cyprus this does not happen automatically. The law dictates that the Central Bank is not authorised to hand over details of the beneficial owners to local commercial banks, and this law is strictly adhered to.

Without going over the reasons again, we would like to repeat the main points described above: On May 1st 2004 Cyprus will become a member of the European Union. Anyone who has a Cyprus company will automatically have an EU company in the EU member with the lowest rate of tax, and which has signed an agreement for the avoidance of double taxation with the majority of CIS countries. People may continue to scoff at the idea of Cyprus, quoting the example of the girl with loose morals who gets married, only to continue in exactly the same way as before. This type of moralisation will only bring a smile to the faces of the money men. The west will not waste too much time on the question of morals. The east, however, will fall behind if they fail to see and take advantage of the tax possibilities of a United Europe. In a country where there is an old, well-established tradition of providing service to foreigners, a pleasant climate regarding both nature and taxation, competent professionals, in short everything you need for success in business. In short: VIVE LA CYPRUS! Why not?

 16/02/2004

Offshore news 2003

Increased annual tax in Delaware

The state of Delaware, USA, has increased the amount of fixed annual tax to be paid by corporations and LLCs. The annual tax on corporations has increased from 50 USD to 60 USD per year, while the tax on LLCs has been raised from 100 USD to 200 USD per year. The changes were introduced in the summer, and, as the taxes in Delaware are payable for the calendar year, also apply retrospectively to companies whose anniversary of incorporation falls between January 1st and the date on which the changes came in to force.

10/09/2003

Due diligence on banking activities in the Cayman Islands

Despite protests from some long-standing account holders, the Cayman Island authorities are insisting on tighter due diligence controls on all those who bank in the islands. All account holders, both new and old, are required to provide proof of identity and physical address, as well as details of their banking activities.

10/09/2003

New company format in the Seychelles

With the introduction of new offshore legislation, the Seychelles continue to develop as a serious financial services centre. Among the new legislation was the Companies (Special Licenses) Act, which will allow for the incorporation of low tax companies. These companies will be taxed at 1,5 % on their world-wide income, but will also be able to take advantage of any treaties for the avoidance of double taxation signed by the Seychelles.

10/09/2003

Panama increases annual tax

Panama has recently introduced new legislation increasing the fixed rate annual registration fee for offshore companies. The new rate will be 250 USD per year, replacing the previous amount of 150 USD.

10/09/ 2003