Offshores: is it worth registering in 2024?

In 2024, the topic of offshore companies continues to be the focus of attention of entrepreneurs and investors worldwide due to the optimisation of taxes, confidentiality and simplified corporate reporting of such structures. However, global changes in international tax regulation and transparency policies are forcing us to rethink strategies for doing business through offshore companies. Antwort Law has extensive experience working with offshore jurisdictions. We will happily tell you what factors should be considered in 2024 before registering such a company.

Classic examples of offshore jurisdictions include the British Virgin Islands, Bahamas, Seychelles, and Cayman Islands, which have zero income tax rates for foreign companies. Some offshore companies still provide a high level of privacy for their owners, and in many cases, offshore companies face fewer regulatory requirements than companies in high-tax jurisdictions.

However, since the early 2010s, the global community has significantly increased efforts to combat tax evasion and money laundering through offshore accounts and companies. Two key moments in this fight were the introducing of the Common Reporting Standard (CRS) and the developing of the Base Erosion and Profit Shifting (BEPS) Action Plan.

Common Reporting Standard (CRS)

Developed by the Organization for Economic Co-operation and Development (OECD) and first adopted in 2014, CRS aims to facilitate the automatic international exchange of financial account information between countries. By 2024, more than 100 jurisdictions have signed the agreement, committing to annually sharing account information, including information on foreign accounts, balances and asset income. This allows tax authorities to obtain information about their taxpayers' assets held abroad, making it much more difficult to use offshore tax havens for tax evasion.

BEPS Action Plan

The BEPS Action Plan was introduced by the OECD in 2013 as a response to tax evasion by large multinational corporations through loopholes in international tax laws. The BEPS project proposed 15 actions to close gaps and inconsistencies, allowing companies to shift profits to low-tax jurisdictions. Key aspects include tightening rules on what business structures are considered "economically viable" and introducing disclosure requirements for companies' ownership structures to prevent the use of complex tax evasion schemes.

These international initiatives have led to increased regulation of offshore jurisdictions, requiring them to increase transparency and cooperate with tax authorities in other countries. As a result, it has become more difficult for many companies and individuals to use offshore companies to hide income or assets from their home country's tax authorities.

What risks do you bear as the owner of an offshore company in 2024?

1) Banking: our experience confirms that opening a bank account for such a company has become extremely difficult. Banks are under pressure from regulators to enforce stricter anti-money laundering (AML) and anti-terrorist financing (CFT) measures, leading to stricter KYC (know your customer) procedures. As a result, they become more selective in dealing with offshore companies, which can lead to refusals to open accounts or their closure without prior notice.

2) Reputational: A company's reputation is one of its key assets, and doing business through offshore jurisdictions can negatively impact public perception and trust in the company, especially in the face of increased attention to financial transparency and the fight against tax evasion. Criticism of companies using offshore schemes can come from the public and the media, as well as from partners and clients, which will significantly worsen business relations and may lead to loss of income.

3) Legal: International tax legislation and regulation of offshore zones are constantly changing, creating legal risks for companies. For example, G20 and OECD countries are working to close loopholes in tax laws, allowing offshore companies to minimise tax liabilities. The introduction of a global minimum tax for multinational corporations, proposed by the OECD in 2021, could significantly reduce the benefits of tax optimisation through offshore tax havens. Companies using offshore arrangements may need to reconsider their tax strategies, which will entail additional costs and complications.

4) Financial instability: Offshore financial centres are often located in small countries or territories vulnerable to economic and political crises. For example, the Cyprus financial crisis in 2012-2013 seriously impacted companies and investors who used Cypriot banks for offshore transactions. The risk of political changes or financial turmoil could result in assets being frozen or lost, making offshore jurisdictions potentially risky for long-term capital storage.

In 2024, registering an offshore company should be based on a thorough analysis of all the pros and cons. It is important to consider tax and operational advantages, reputational risks, and potential difficulties with international tax regulation. If you are interested in offshore, seek advice from professionals in international tax planning and legal services to ensure that the chosen strategy matches current requirements and future trends. Antwort Law is a law firm with many years of experience in international tax planning and corporate law, offering comprehensive services for those considering registering an offshore company.

Lidia Ivanova

International lawyer
Antwort Law