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We figured out what offshores are and how they attract world leaders.
In early October, more than 600 investigative journalists released an array of documents from 14 companies that registered and served offshore firms of more than 300 officials from 90 countries. They went down in history as the Pandora Papers. They also mention the President of Ukraine Volodymyr Zelensky and people from his entourage. In particular, according to the documents, the offshore companies of Kvartal 95 in 2021 received $ 40 million from the companies of the oligarch Igor Kolomoisky.
This is not the first offshore scandal. In 2016, over 11 million files were recovered from Panamanian law firm Mossack Fonseca. They demonstrated that prominent politicians, businessmen and the super-rich used offshore accounts. This leak of confidential documents is popularly called "Panamagate". Let's see what offshores are in general and how they attract world leaders.
First, it's worth noting that offshoring is a completely legal phenomenon. Countries that offer special conditions for doing business to non-residents are called offshore. They usually include:
Hong Kong provides the largest offshore company registration advantages among all Asian countries.
According to the US National Bureau of Economic Research, today approximately 15% of all countries in the world are tax havens. Most of them are small and wealthy. Since the offshore company is a non-resident and carries out its operations abroad, it is not bound by local corporate taxes in the country where it is registered. In other words, if the company is registered in the Bahamas, then it is not subject to local corporate taxes, since it is engaged in operations outside the Bahamas.
The Bahamas allows you to set up an offshore company in just a few days.
In this regard, offshore countries are increasingly under pressure to disclose data. For example, the Swiss are known for their strict privacy laws. But Switzerland was forced to pass information on account holders to foreign governments in order to stop tax evasion.
According to the Organization for Economic Cooperation and Development (OECD), in 2019, 100 countries automatically shared information about offshore accounts with tax authorities. In this way, 84 million accounts were disclosed worth over 10 trillion euros. The International Monetary Fund said the use of tax havens is costing governments around the world $ 600 billion in lost taxes annually.
In general, the following approach applies to the use of offshore companies: if a person runs a business or owns real estate in the same place where a bank account is located, and fully declares any income from these sources, then the behavior is fully consistent with the law.
The fight against tax evasion has become a hot topic since the first investigation by the International Consortium of Investigative Journalists in November 2013, which found individuals and legal entities hiding assets offshore in 122,000 companies. By the way, in the same year, the investigation of the so-called LuxLeaks ICIJ showed that multinational corporations such as Amazon, Apple, IKEA, Pepsi entered into secret agreements with the Luxembourg government to avoid paying billions of dollars in taxes.
The G20 leaders proposed to fight corporate tax havens by establishing a global minimum corporate tax rate of 15% for large multinational companies. This plan would make it less profitable to use offshore companies and force businesses to pay more taxes where they actually operate. However, these proposals must be passed by the US Congress. This seems like a cunning maneuver, given opposition from several Republican MPs, who say such measures would make American firms less competitive. Several low-tax countries are also opposed, explaining that it could limit foreign investment inflows.
Most EU countries have approved a new bloc-wide tax transparency instrument, which aims to oblige companies with total revenues of around € 750 million that do business in the EU through subsidiaries to comply with the same rules as EU companies. This association also maintains a blacklist of tax havens. The list includes Panama, Seychelles, Fiji and the US Virgin Islands. Against them, the EU states are asked to impose sanctions.
In early October, more than 600 investigative journalists released an array of documents from 14 companies that registered and served offshore firms of more than 300 officials from 90 countries. They went down in history as the Pandora Papers. They also mention the President of Ukraine Volodymyr Zelensky and people from his entourage. In particular, according to the documents, the offshore companies of Kvartal 95 in 2021 received $ 40 million from the companies of the oligarch Igor Kolomoisky.
This is not the first offshore scandal. In 2016, over 11 million files were recovered from Panamanian law firm Mossack Fonseca. They demonstrated that prominent politicians, businessmen and the super-rich used offshore accounts. This leak of confidential documents is popularly called "Panamagate". Let's see what offshores are in general and how they attract world leaders.
First, it's worth noting that offshoring is a completely legal phenomenon. Countries that offer special conditions for doing business to non-residents are called offshore. They usually include:
- favorable tax legislation (therefore they are also called tax havens);
- less stringent rules (for example, regarding reporting);
- minimum risks;
- cost savings;
- asset protection;
- confidentiality.
Types of offshoring
There are several types of offshoring: business, investment and banking.Offshore business
Companies with significant sales abroad can take advantage of the opportunity to maintain profits in offshore accounts in countries with a lower tax burden.Hong Kong provides the largest offshore company registration advantages among all Asian countries.
Offshore investment
Offshore investment accounts are usually opened in the name of a corporation, such as a holding company or limited liability company, rather than an individual. Interest in offshore investments is dictated by the opportunity to take advantage of tax incentives, increase asset protection and confidentiality.Offshore banks
Individuals and companies can use offshore accounts to avoid the disadvantages associated with keeping money in a bank in their home country. The owner of offshore bank accounts is less subject to arrest by the authorities. However, most businesses do this to avoid tax liabilities.According to the US National Bureau of Economic Research, today approximately 15% of all countries in the world are tax havens. Most of them are small and wealthy. Since the offshore company is a non-resident and carries out its operations abroad, it is not bound by local corporate taxes in the country where it is registered. In other words, if the company is registered in the Bahamas, then it is not subject to local corporate taxes, since it is engaged in operations outside the Bahamas.
The Bahamas allows you to set up an offshore company in just a few days.
Examples of offshore zones
Bahamas
The country provides tax exemptions for 20 years for offshore companies and shareholders. The business only has to pay the set annual fee. Companies in this country do not need to publish their accounts and balances. You can set up an offshore company in just a few days, and you don't have to worry about permits, licenses, and the like.Hong Kong
Hong Kong, which is part of the People's Republic of China, provides the largest offshore company registration advantages of any Asian country. The corporate tax rate is 0% for those working outside of Hong Kong. However, if you conduct business within this jurisdiction, you are required to pay 16.5% of the profits in taxes.Cayman islands
This is one of the most popular offshore hedge fund locations. The main reason is the corporate tax rate of 0%. Secondly, there is no income tax, and the fees for registering and renewing offshore companies are lower than in other countries. It also adheres to international tax regulations, unlike other tax havens.Panama
The Republic of Panama is attractive because it provides excellent asset protection against seizure and legal action. In addition, there are fewer government regulations. Companies do not need permission from the government to distribute dividends, issue their shares, and the like. Corporate tax is charged at 0% for income that does not come from a country. Panamanian corporations can engage in the same activities as in the US, EU and Canada.Cyprus
Cyprus' membership in the EU makes it an ideal country to host an offshore company if you are planning to enter European markets. Unlike other EU countries, there are no minimum capital requirements. However, Cyprus is not part of the Automatic Exchange of Information (AEOI). This means that if a person opens an offshore bank account here, then they do not have to provide information about it.Offshore: pros and cons
Offshore proponents argue that such zones improve capital inflows and facilitate international business transactions. Critics point out that the ability to hide the true beneficiaries leads to the fact that offshores are often used to launder money, hide tax liabilities, including by government officials.In this regard, offshore countries are increasingly under pressure to disclose data. For example, the Swiss are known for their strict privacy laws. But Switzerland was forced to pass information on account holders to foreign governments in order to stop tax evasion.
According to the Organization for Economic Cooperation and Development (OECD), in 2019, 100 countries automatically shared information about offshore accounts with tax authorities. In this way, 84 million accounts were disclosed worth over 10 trillion euros. The International Monetary Fund said the use of tax havens is costing governments around the world $ 600 billion in lost taxes annually.
In general, the following approach applies to the use of offshore companies: if a person runs a business or owns real estate in the same place where a bank account is located, and fully declares any income from these sources, then the behavior is fully consistent with the law.
The fight against tax evasion has become a hot topic since the first investigation by the International Consortium of Investigative Journalists in November 2013, which found individuals and legal entities hiding assets offshore in 122,000 companies. By the way, in the same year, the investigation of the so-called LuxLeaks ICIJ showed that multinational corporations such as Amazon, Apple, IKEA, Pepsi entered into secret agreements with the Luxembourg government to avoid paying billions of dollars in taxes.
The G20 leaders proposed to fight corporate tax havens by establishing a global minimum corporate tax rate of 15% for large multinational companies. This plan would make it less profitable to use offshore companies and force businesses to pay more taxes where they actually operate. However, these proposals must be passed by the US Congress. This seems like a cunning maneuver, given opposition from several Republican MPs, who say such measures would make American firms less competitive. Several low-tax countries are also opposed, explaining that it could limit foreign investment inflows.
Most EU countries have approved a new bloc-wide tax transparency instrument, which aims to oblige companies with total revenues of around € 750 million that do business in the EU through subsidiaries to comply with the same rules as EU companies. This association also maintains a blacklist of tax havens. The list includes Panama, Seychelles, Fiji and the US Virgin Islands. Against them, the EU states are asked to impose sanctions.
