6 most popular offshore jurisdictions & how to choose where to incorporate
This article considers the 6 most popular jurisdictions for the purpose forming a company & how to chose where to incorporate a new business venture.
The following are the most common offshore jurisdictions in which to incorporate a business:
These jurisdictions stand out for popularity in terms of the number of offshore companies formed annually there. A few years ago, The Cayman Islands and Bermuda gained first places, and while there are still many companies there, they are no longer the most prevalent new offshore incorporations. The cost of formation in the Cayman Islands is significantly higher than other jurisdictions, while Bermuda has moved away from tax exempt trading companies. The two may still be attractive to some business owners but are becoming niche jurisdictions. This shows that low running costs and maintenance fees are the main factors that attract new incorporations; but what about factors aside from cost?
The reputability of a jurisdiction is important for both business to customer & business to business (B2B) companies. It is also hugely important when conducting business to government work.
Some countries, such as those in Scandinavia have certain rules for invoices that come from offshore jurisdictions. These accounts are subject to further analysis and as a result of this many firms are deterred from doing business with offshore companies. To overcome this, many business owners opt to incorporate an onshore invoicing entity owned by the offshore entity. This may bring additional costs and complexity, which is generally not appropriate for smaller businesses, however, it may be the only solution for those thinking about conducting and managing a business in Scandinavia.
Reputability also affects how likely banks are to accept new customers. While there are banks willing to open an account for almost anyone, others take a more cautious approach.
When assessing a jurisdiction for incorporation, there are a number of factors which need to be considered. These include:
- Political stability. Is the government going to be around for the next few years? Are there any significant international or internal conflicts?
- Geographical stability. You wouldn’t want your bank to disappear in a natural disaster.
- Financial stability. You might not bank in the country; maybe you just have a company there, so would a fiscal collapse affect you? While it’s unlikely to happen to non-resident companies (including IBCs), tax resident companies are at threat to become subject to capital restrictions. A financial recession in your company’s jurisdiction may impact its reputation towards potential clients and business partners.
- Common sense & research. What is already well-known about the jurisdiction?
- Transparency. While seeking high privacy can be beneficial for certain business owners, this can impact how you are perceived by other businesses and clients.
- Is it a dictatorial state or a democracy? This impacts how the international community views the jurisdiction.
Choosing where to incorporate your business is not a simple decision. It should be made with a qualified adviser or service provider, after doing extensive research. Contact us if you have any further questions of a business nature or otherwise.
- The OECD
- The World Bank‘s annual ease of doing business report.
- The FATF
- The Economist‘s Democracy Index.
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