OFFSHORE ACCOUNTS

What are tax havens and offshore accounts?

According to the ICIJ, tax havens or offshore financial centres are typically countries or
places with low or no corporate taxes that allow outsiders to easily set up businesses there.

"Tax havens also typically limit public disclosure about companies and their owners. Because
information can be hard to extract, tax havens are sometimes also called secrecy
jurisdictions," it says.

Offshore bank accounts and other financial dealings in another country can be used to evade
regulatory oversight or tax obligations.

Companies or individuals often use shell companies, initially incorporated without significant
assets or operations, to disguise ownership or other information about the funds involved.

Tax heaven countries are usually those countries which have very low and even no corporate
taxes which allow people from outside to easily set up their business here. They typically
restricted public expose to companies and their owners and that’s why information about
these companies are hard to extract. They are also called secrecy jurisdiction.

That’s why offshore bank accounts and financial dealings in another country are mostly used
to avoid local tax obligations and regulatory oversight. For this purpose, they mostly sue shell
companies which are paper based, have no physical existance to incorporated their assets and
information about all the funds involved in their business.

Where are offshore accounts held?

Those looking to hide assets establish accounts in countries like Panama, the Cayman Islands,
the British Virgin Islands and Bermuda, where the banking laws are designed to vigorously
protect account owners’ identities.

There also are havens like the Isle of Man off Britain, Macau off China and the Cook Islands
in the South Pacific

Some European countries like Switzerland, Luxembourg and Monaco have also served as
havens for those trying to avoid taxes, though many nations have tightened banking laws to
combat tax cheating.
Some Europen countries like Monaco, Luxemberg and Switzerland also serve as tax heaven
countries to avoid taxes, though they have tightened banking laws.

Is it illegal to set up an offshore company?

Under the law, setting up an offshore company is not an offence or crime if the company is
not involved in any illegal activity. However, those who have not declared these companies
in their returns as assets can face legal action.

The News International's Umar Cheema, who was part of the research, writes that in

Pakistan, the law requires the owners of such companies to declare them to tax authorities
and the Security and Exchange Commission of Pakistan (SECP).

Legal aspect of Offshore companies.

Setting up an offshore company is totally legal but it should be under the law and not
involved in any crime or illegal activity. Those companies who will not return imposed fee or
tax to government for their assets can face legal actions.

Government also encourage business people to make offshore structure to expand their
business and involved in international projects. The only condition is that they should follow
their country’s rules and regulations for offshore companies. So, that the situation of law and
order as well as business become satisfied and encourage other people to start their ventures
too.

"Once that is done, there should be no legal implications unless a misrepresentation of facts is
spotted in the declaration," he says, noting that for businesspeople, the offshore structure is
helpful in expediting international projects.

For example, Finance Minister Shaukat Tarin said that the companies he was associated with
were opened with the approval of the central bank at a time when he was trying to attract the
investment of a foreign group for Silkbank.

According to the finance ministry's website, Tarin has been the main sponsor for the bank
since March 2008.

However, the minister said that the deal fell through due to a law and order situation in the
country and the companies were closed down. No accounts were created and not a single cent
went in or came out, he said.

Legitimate uses for offshore accounts

Companies or trusts can be set up in offshore locations for legitimate uses such as business
finance, mergers and acquisitions and estate or tax planning, according to the global money
laundering watchdog, the Financial Action Task Force.

Further, wealthy people who live in countries with unstable political situations, high levels of
corruption, or high levels of criminal activity such as kidnapping or extortion could use
offshore accounts and the secrecy they provide for protection, and not necessarily to avoid
taxes.

Usually, these companies are opened by wealthy people who’s country situation is not
suitable in terms of politics, criminal activity, corruption, extortion and taxes. They started
their offshore accounts to provide protection to their assets and grow their business.

Cheema writes that Pakistani businessmen also opt for offshore companies as the country's
economy is undocumented and "red-tape is pervasive".

"There is an incentive in evading taxes instead of paying them. Things are made difficult for
those who want to comply with the laws. Consequently, many people opt for such structures
where ease of doing business is promised," he noted.

Illicit uses of offshore accounts

Shell companies and other entities can be misused by terrorists and others involved in
international and financial crimes to conceal sources of funds and ownership.

They’re an ideal vehicle for people “who want to keep their transactions secret to escape law
enforcement or civil liability,” said Jack Blum, a Washington attorney who’s an expert on
financial crime and international tax evasion.

Efforts to crack down on financial havens

The Financial Action Task Force and other regulatory agencies publish assessments
identifying weaknesses in enforcement of anti-money laundering and counter-terrorism
financing efforts of specific countries and territories.

Financial and legal professionals get training on how to spot potential violations, since in
some cases lawyers and bankers are unaware they are handling illicit transactions.

The EU has stepped up efforts to crack down on tax avoidance by multinational corporations.

Offshore company
From Wikipedia, the free encyclopedia
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This article is about offshore in the financial / business sense. For offshore oil production,
see offshore drilling. For wind energy harvesting, see offshore wind power.
The British Virgin Islands Companies Registry.
The term "offshore company" or "offshore corporation" is used in at least two distinct and
different ways. An offshore company may be a reference to:

 a company, group or sometimes a division thereof, which engages

in offshoring business processes.[1]
 International business companies (IBC) or other types of legal entities, which are
incorporated under the laws of a jurisdiction, that prohibits local economic
activities.[2]
The former use (companies formed in offshore jurisdictions) is probably the more common
usage of the term. In isolated instances the term can also be used in reference to companies
with offshore oil and gas operations.

An offshore company is a group or division involved in the process of offshoring businesses.

These are companies formed in offshore jurisdictions as opposed to international business
companies that are united under jurisdictional laws that prohibit resident economic actions.
Companies with offshore gas and oil operations are also referred to by this term.

Companies from offshore jurisdictions[edit]

See also: Conduit and Sink OFCs
In relation to companies and similar entities which are incorporated in offshore jurisdictions,
the use of both the words "offshore" and "company" can be varied in application.
The extent to which a jurisdiction is regarded as offshore is often a question of perception and
degree.[3] Classic tax haven countries such as Bermuda, British Virgin Islands and
the Cayman Islands are quintessentially offshore jurisdictions, and companies incorporated in
those jurisdictions are invariably labelled as offshore companies. Thereafter there are certain
small intermediate countries or areas such as Hong Kong and Singapore (sometimes referred
to as "mid-shore" jurisdictions) which, whilst having oversized financial centres, are not zero
tax regimes. Finally, there are classes of industrialised economies which can be used as part
of tax mitigation structures, including countries like Ireland, the Netherlands and particularly
the United Kingdom, in commentary relating to corporate inversion and the use of British
Overseas Territories for this purpose.

The country, location, and perception all influence the degree to which a jurisdiction and
organisation are regarded offshore. To begin, there are traditional tax haven jurisdictions,
such as the Cayman Islands, British Virgin Islands, and Bermuda, which are known as
offshore jurisdictions, and offshore firms are incorporated in such jurisdictions.
Furthermore, in Federal systems, states which operate like a classic offshore centre can result
in corporations formed there being labelled as offshore, even if they form part of the largest
economy in the world (for example, Delaware in the United States).

Secondly, the states which operate like a offshore centre in fedral system can form a
corporation labelled as offshore e.g. Delaware in united states.
Similarly, the term "company" is used loosely, and at its widest can be taken to refer to any
type of artificial entity, including not just corporations and companies, but potentially
also LLCs, LPs, LLPs, and sometimes partnerships or even offshore trusts.
Sometimes, it also refered to the artificial entity including LLPs, LPs and LLCs and those
companies who have partnership with offshore trusts.

Second, states that operate as an offshore centre in the federal system can incorporate an
offshore corporation, such as Delaware in the United States. It was also used to refer to fake
entities such as LLPs, LPs, and LLCs, as well as firms that have partnered with offshore
trusts.
Classifying offshore companies[edit]
Historically, offshore companies were broadly divided into two categories. On the one hand
were companies which were statutorily exempt from taxation in their jurisdiction of
registration provided that they did not undertake business with persons resident in that
jurisdiction. Such companies were usually called International Business Companies, or IBCs.
Such companies were largely popularized by the British Virgin Islands, but the model was
copied widely. However, in the early 2000s the OECD launched a global initiative to prevent
"ring fencing" of taxation in this manner, and many leading jurisdictions (including the
British Virgin Islands and Gibraltar) repealed their International Business Companies
legislation. But IBCs are still incorporated in a number of jurisdictions today including
Belize, Seychelles, BVI Anguilla and Panama.

Historically, these businesses have been classified into two groups:

On the one hand, there are companies that do not associate with people who are residents of
the jurisdiction, and as a result, they are tax exempt in that jurisdiction. These firms are
commonly referred to as international business firms (IBCs). Other than IBCs, there are other
firms that are immune from taxation in their home countries if they solely conduct business
overseas and none of their profits are deported. This is known as offshore jurisdiction, and
the companies that fall under this are referred to as offshore corporations e.g. Offshore
companies of Uruguay and Hong Kong.
Separately from IBCs, there are countries which operate tax regimes which broadly achieve
the same effect: so long as the company's activities are carried on overseas, and none of the
profits are repatriated, the company is not subject to taxation in its home jurisdiction. Where
the home jurisdiction is regarded as an offshore jurisdiction, such companies are commonly
regarded as offshore companies. Examples of this include Hong Kong and Uruguay.
However, these tax regimes are not limited to conventional offshore jurisdictions: the United
Kingdom operates on broadly similar principles in relation to taxation of companies.
Separately there are offshore jurisdictions which simply do not impose any form of taxation
on companies, and so their companies are de facto tax exempt. Historically the best example
of these countries were the Cayman Islands and Bermuda,[4] although other countries such as
the British Virgin Islands[5] have now moved to this model. These could arguably fit into
either of the previous two categories, depending on the fiscal point of view involved.

To the Offshore Company definition, applies five (non-cumulative) limiting conditions: (1)
The government in the country of incorporation does not levy an indirect tax on the OAC
(however, the OSC must pay an annual fee to the government). (2) Separate laws and
regulations apply. (3) The OSC doesn't have its own physical office (address), personnel,
means of communication etc. This means that the OAC must have a representative (registered
agent) and office address (registered office) in the county of the incorporation. (4) The OSC
must be managed and governed by (an employee of) a local trust or law office. (5) There is
an instance of elements that benefit anonymity such as bearer shares and no or limited filing
obligations.

While offshore companies are exempt from certain types of taxation, they are subject to the
following restrictions:
1. They must pay an annual fee to the government because the government does not levy
an indirect tax on these businesses
2. They are subject to their own set of rules and regulations imposed by government.
3. As OSCs do not have their own physical office, means of communication, personnel,
and address, they rely on a registered agent as their representative and base their
office address in the country of integration on the name of that agent.
4. The OSC must be governed and managed by a local law office or trust employee.
5. Anonymity is aided by characteristics such as bearer shares and no or restricted filing
responsibilities.
Characteristics of offshore companies[edit]

Chart of an offshore company structure

Although all offshore companies differ to a degree depending upon the corporate law in the
relevant jurisdiction, all offshore companies tend to enjoy certain core characteristics:

 They are broadly not subject to taxation in their home jurisdiction.(UAE)

 The corporate regime will be designed to promote business flexibility.
 Regulation of corporate activities will normally be lighter than in a developed
country.

However, all offshore companies are different to a degree at which tend they enjoy certain
characteristics which are:

They are not subject to taxation in their home judiciary.

As compared to developed countries, regulation of corporate activities on these companies

are lighter.

The corporate rules are quite flexible for them to promote business.

The absence of taxation or regulation in the home jurisdiction does not exempt the relevant
company from taxation or regulation abroad. For example, Michael Kors Holdings Limited is
incorporated in the British Virgin Islands, but is listed on the New York Stock Exchange,
where it is subject both the U.S. taxation and to financial regulation by the U.S. Securities
and Exchange Commission.
Another common characteristic of offshore companies is the limited amount of information
available to the public. This varies from jurisdiction to jurisdiction. At one end of the scale, in
the Cayman Islands and Delaware, there is virtually no publicly available information. But at
the other end of the scale, in Hong Kong companies file annual returns with particulars of
directors, shareholders and annual accounts. However, even in jurisdictions where there is
relatively little information available to the public as of right, most jurisdictions have laws
which permit law enforcement authorities (either locally or from overseas) to have access to
relevant information,[8] and in some cases, private individuals.[9]
In relation to flexible corporate law, most offshore jurisdictions will normally remove
corporate fetters such as thin capitalisation rules, financial assistance rules, and limitations
on corporate capacity and corporate benefit. A number have also removed or watered down
rules relating to maintenance of capital or restrictions on payment of dividends. Beyond the
common themes, a number of jurisdictions have also enacted special corporate provisions to
try to attract business through offering corporate mechanisms that allow complex business
transactions or reorganisations to occur more smoothly.[10]
Uses of offshore companies[edit]
Offshore companies are used for a variety of commercial and private purposes, some
legitimate and economically beneficial, whilst others may be harmful or even criminal.
Allegations are frequently made in the press about offshore companies being used for money
laundering, tax evasion, fraud, and other forms of white collar crime. Offshore companies are
also used in a wide variety of commercial transactions from generic holding companies, to
joint ventures and listing vehicles. Offshore companies are also used widely in connection
with private wealth for tax mitigation and privacy. The use of offshore companies,
particularly in tax planning, has become controversial in recent years, and a number of high-
profile companies have ceased using offshore entities in their group structure as a result of
public campaigns for such companies to pay their "fair share" of Government taxes.

Offshore companies are usually used for economically benefit, private and commercial
purposes as they have more relaxation in terms of laws, rules, taxations and other thing as
compared to traditional companies. They are also widely used for commercial transactions,
trading vehicles, listing vehicles, stock market listing, holding structures, holding assets and
other ventures. Not only this they are also used to preserve the confidentiality of individual
involve in transactions. For private purposes, they are used for investment of funds and
holding private wealth.
However, the use of these companies become controversial in recent years that they are use
for tax evasion, money laundering, white collar crimes and other fraud because of their tax
planning’s. The one reason of it is also that government wants from companies to pay their
fair share of government taxes.

Detailed information in relation to the use of offshore companies is notoriously difficult to

come by because of the opaque nature of much of the business (and because, in many cases,
the companies are used specifically to preserve the confidentiality of a transaction or
individual). It is a commonly held view that most uses of offshore companies are driven by
tax mitigation and/or regulatory arbitrage, although there are some suggestions that the
amount of tax structuring may be less than commonly thought.[12] Other commonly cited
legitimate uses of offshore companies include uses as joint ventures,[13] financing SPVs, stock
market listing vehicles, holding companies and asset holding structures, and trading vehicles.
Intermediate uses of offshore companies (i.e. uses which might be considered legitimate or
illegitimate depending upon a particular person's view of legitimacy of globalisation and tax
planning) include uses as investment funds and private wealth holding vehicles.
Popularity of offshore company jurisdictions[edit]
In the 3 year period from 2017 to 2019, the following jurisdictions saw the following
numbers of new company registrations:[14]

Approx. No. of New Company Registrations 2017-2019

Jurisdiction No. of New Company Registrations

Hong Kong 436,000

Cayman Islands 42,000

BVI 96,000

Ireland 68,000

Isle of Man 5,600

Singapore 185,000

Still, they have gained too much popularity in recent years due to advantages these
companies have. In between 2017 to 2019, almost 4 lac offshore companies registered in
Hong Kong, 2 lac in Singapore, 96k in BVI, 68k in island, 42k in Cayman islands and 6k in
Isle of Man.