Offshore: Choosing the Right Jurisdiction for International Business. Cal Evans Gresham International.
The idea of setting up an offshore company has changed considerably over the last decade. There was a time when the conversation was dominated almost entirely by tax: find a jurisdiction with a low or zero corporate tax rate, establish a company, open a bank account and start trading. That approach is increasingly outdated. Modern international businesses have to consider banking, economic substance, tax residence, management and control, beneficial ownership reporting, payment processing, licensing, reputation and the location of their customers and management. As a result, asking where the “best” offshore jurisdiction is has become a much more complicated question.
At Gresham International, we have worked with international businesses and entrepreneurs across a wide range of jurisdictions, and one of the most important lessons is that there is no universally superior offshore location. A jurisdiction that works extremely well for an investment holding company may be completely unsuitable for a technology business receiving thousands of customer payments every month. Equally, a country that makes sense for an entrepreneur physically relocating their operations may offer few advantages to somebody who intends to continue managing the entire business from London, New York or another major tax jurisdiction. The structure has to follow the commercial reality of the business rather than the other way around.
The British Virgin Islands remains one of the most recognisable international corporate jurisdictions and continues to have an important role in cross-border structuring. BVI companies are widely used as holding companies, special purpose vehicles, joint venture companies and investment vehicles. Its corporate legislation is familiar to international professional advisers and the jurisdiction has a long history of servicing international structures. That does not mean, however, that every entrepreneur looking for an offshore company should automatically establish in BVI. A company that intends to employ a large workforce, maintain extensive operational infrastructure or rely heavily on mainstream payment processing may find another jurisdiction more commercially practical. BVI can be particularly effective where the company has a clearly defined role within a wider structure rather than simply being selected because it is traditionally associated with offshore business.
The United Arab Emirates has emerged as a very different proposition. Rather than simply offering a jurisdiction in which to incorporate a company, the UAE has developed into a genuine international business centre where entrepreneurs can establish companies, obtain residence, employ staff, lease offices and manage businesses from within the country. Dubai in particular has become an important hub connecting Europe, Asia, Africa and the Middle East, while the different Emirates and free zones provide a broad range of corporate options. The introduction of UAE corporate tax means that the old description of the UAE as universally “tax free” is no longer accurate, but that has not removed its attraction. For many international entrepreneurs, the combination of infrastructure, connectivity, banking, residence options and a comparatively competitive tax environment can make the UAE considerably more useful than a traditional offshore company located somewhere with which the business has no genuine connection.
Gibraltar is another jurisdiction that can be extremely useful when selected for the right reasons. Its English-law heritage, established professional-services sector and experience in areas such as financial services, insurance, gaming and digital assets have given Gibraltar a specialist position within international business. It should not simply be viewed as somewhere to establish a company because of taxation. The source of a company’s income, the location of its activities and applicable regulatory requirements all need to be examined carefully. Where Gibraltar does fit the commercial model, however, it can provide a recognised and sophisticated jurisdiction for particular international activities, especially where businesses value its legal system and specialist regulatory experience.
The Cayman Islands occupies yet another part of the international market. Cayman is one of the world’s major jurisdictions for investment funds, private equity structures and institutional finance, and its importance cannot realistically be assessed by comparing basic company-formation fees with cheaper offshore centres. If somebody simply wants to establish a small consulting company, Cayman may offer little reason to justify the additional expense. If the objective is to establish an investment vehicle that will interact with professional investors, fund administrators, international law firms and financial institutions, the calculation can be entirely different. This is a useful example of why the cheapest jurisdiction is not necessarily the best jurisdiction. Familiarity, reputation and acceptance by counterparties have their own commercial value.
Seychelles continues to offer relatively accessible international corporate structures and can have a legitimate role in holding, private wealth and asset ownership arrangements. It also has foundation legislation that can make it relevant to certain succession and wealth-planning structures. The important issue is identifying what the Seychelles entity is actually expected to do. A private holding vehicle that conducts relatively few transactions has very different requirements from an operating company that needs extensive banking facilities, employees and payment processing. Selecting Seychelles because the incorporation cost is attractive, without first considering those operational requirements, can create significantly more expense later.
Nevis and the wider Federation of St Kitts and Nevis are frequently considered where asset protection and private wealth structures are involved. Nevis LLCs have become well known internationally in asset-holding structures, while the jurisdiction’s trust legislation can also be relevant to estate and succession planning. This highlights an important principle in international structuring: the entity generating commercial liabilities does not necessarily need to be the entity holding valuable long-term assets. An operating company may enter contracts, employ people, receive customer funds and inevitably encounter commercial risks. A separate holding structure may exist for an entirely different purpose. Attempting to make one offshore company perform every possible function can defeat the purpose of structuring in the first place.
Georgia has also become increasingly interesting, although it is not generally described as a traditional offshore jurisdiction. For technology companies, consultants and international service businesses, Georgia can offer relatively low operating costs, straightforward company formation and access to a growing technology and professional-services sector. Its significance illustrates how international structuring is moving beyond the traditional offshore model. A modern international group might use one jurisdiction for investment or asset ownership and another for genuine operational activity, including developers, employees and contractors. The important issue is ensuring that each entity has a genuine commercial purpose and that the tax and legal consequences of transactions between those entities are properly considered.
Hong Kong and Singapore demonstrate another side of the same discussion. Neither needs to be marketed as a traditional offshore centre to compete for international business. Both have sophisticated corporate environments, substantial financial sectors and strong connections with Asian markets. Establishing and operating companies there can be more expensive than using a basic offshore jurisdiction, but the additional cost may be justified where a business requires institutional credibility, substantial banking relationships or access to customers and investors in Asia. Saving a few thousand dollars in annual company costs becomes irrelevant if the resulting structure makes it materially harder to bank, raise investment or contract with major counterparties.
Tax obviously remains part of the equation, but it should rarely be the only consideration. Incorporating a company in a low-tax jurisdiction does not automatically create a low-tax business. The residence of the owners, the location from which the company is managed, permanent establishment rules, controlled foreign company legislation, transfer pricing, withholding taxes, VAT and other domestic tax rules can all affect the ultimate position. Two entrepreneurs can own identical companies incorporated in exactly the same jurisdiction and face completely different tax consequences because they personally live and manage their businesses in different countries. This is why simply searching for a list of “zero-tax countries” is not a substitute for international tax planning.
Banking has become equally important. Before establishing an offshore company, a founder should have a realistic idea of where that company will bank, how customers will pay it, which currencies it requires, whether it needs merchant processing and what level of transaction activity is anticipated. This is particularly important for businesses operating in industries that financial institutions consider higher risk, including certain areas of digital assets and financial technology. A beautifully designed corporate structure is of very little practical value if the company cannot efficiently receive or distribute money. In many cases, a slightly more expensive jurisdiction with better banking and payment infrastructure produces a substantially better commercial outcome.
There is also a strong argument for simplicity. International structures can become unnecessarily complicated very quickly. Adding companies, trusts, foundations and holding vehicles may look sophisticated on an organisational chart, but every additional entity creates administration, accounting, reporting, banking and compliance obligations. Complexity should therefore have a purpose. There may be very good reasons to separate operating activities, intellectual property, investments and valuable assets, particularly as a business grows, but every entity should be capable of answering a straightforward question: why does this company exist?
After more than a decade working around international business, legal services and the digital-asset industry, Cal Evans and Gresham International have seen the offshore sector move significantly away from the old model of simply incorporating in the jurisdiction advertising the lowest tax rate. The better approach is to start with the commercial objective and work backwards. Where are the customers? Where are the founders? Where will the business actually be managed? Does it need employees? Does it require investment? What banking facilities will it need? Will intellectual property be created? Is the activity regulated? Only once those questions have been answered does it make sense to decide where the company should actually be established.
So, where is the best place to set up an offshore company? For a holding company, BVI might be an excellent answer. For an investment fund, Cayman may be considerably more appropriate. For an entrepreneur genuinely relocating and building operations in the Middle East, the UAE may offer a far stronger proposition. Gibraltar can work well for certain specialist international businesses, while Seychelles and Nevis may have specific roles within private holding, succession or asset-protection structures. Georgia can be interesting for genuine operational activity, while Hong Kong and Singapore may justify their additional cost where Asian market access, banking and commercial credibility are priorities. None is automatically the best, and none should be selected simply because somebody on the internet describes it as “tax free”.
The best jurisdiction is ultimately the jurisdiction that fits the business. Good international structuring is not about creating the largest number of offshore companies or finding the most exotic location. It is about creating a structure that can actually operate, bank, contract, grow and withstand scrutiny. That approach may not be as exciting as promising a universally tax-free offshore company, but it is considerably more useful for anyone intending to build a serious international business.
Gresham International works with entrepreneurs, companies and international groups on international corporate structuring, cross-border business and digital-asset matters. Further information about Gresham International and Cal Evans can be found by contacting us.
Disclaimer: This article is provided for general informational and educational purposes only and does not constitute legal, tax, financial, investment or other professional advice. Corporate, regulatory and tax treatment varies according to individual circumstances and jurisdiction, and applicable rules can change. Independent professional advice should always be obtained in the relevant jurisdictions before establishing or restructuring an international business.
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