Choosing the right jurisdiction for registering an offshore company is one of the key steps when starting an international business. Today, you can set up a classic offshore company in several jurisdictions. Each offers attractive conditions and a stable legal system. However, every jurisdiction also has its own disadvantages and restrictions. In this article, we will review the countries that are traditionally seen as the best options for classic offshore company registration.
- Classic offshore jurisdictions offer no corporate tax but many have shifted to the territorial taxation principle.
- All offshore zones now require maintaining accounting records; Seychelles and Panama mandate on‑site storage with the registered agent.
- Most jurisdictions require keeping registers of beneficial owners, often submitted to centralised government databases.
- There is a growing economic presence (substance) requirement: office, employees, expenses or board meetings in the jurisdiction.
- Bearer shares have been abolished widely; share capital rules remain flexible, often only one issued share must be fully paid up.
- Jurisdictions differ in specifics: e.g. Panama needs three directors, Belize has advance fees, BVI/Cayman use English law.
What is a “Classic” Offshore?
“Classic” offshore jurisdictions, or classic offshore zones, are countries or territories with no corporate tax and strict confidentiality for company and financial information. Companies registered in these countries are also called offshore companies.
Classic offshore jurisdictions are different from “non-classic” ones. Non-classic jurisdictions are standard countries that may offer low taxes, various benefits, exemptions, or territorial tax systems, such as Hong Kong or Singapore.
Usually, you can register an offshore company as a private limited company. In some countries, these companies have a special status as “International Business Companies” (IBC).
Although classic offshore companies are very similar in their status and obligations to local authorities, there are important differences in some cases that you must consider.
Taxation of Classic Offshore Companies
A key feature of a classic offshore is the complete absence of corporate taxes. In some jurisdictions, these tax benefits are still guaranteed by law. However, in recent years, the tax rules in many classic offshore jurisdictions have changed significantly. The main features of taxation in popular offshore jurisdictions are shown in the table below:
| Jurisdiction | Taxation Features |
|---|---|
| Seychelles | The territorial principle of taxation applies to Seychelles offshore companies. Standard rates:
|
| Belize |
Belize charges a Business Tax, which all Belizean companies must pay on their worldwide income. Rates vary depending on the type of company activity. |
| Panama |
Panama uses the territorial principle of taxation. Only income earned from operations within Panama is taxed. The corporate tax rate in this case is 25%. |
| Marshall Islands | Marshall Islands companies doing business in the country are taxed as follows:
|
| BVI and Cayman Islands | BVI offshore companies and those registered in the Cayman Islands are still not subject to taxation. |
Thus, in many classic offshore jurisdictions, the territorial principle of taxation is now applied.
Financial Reporting and Record Keeping
Currently, the laws of all offshore zones require offshore companies to keep accounting records.
In most cases, accounting documents can be stored anywhere, provided the registered agent always has information about the actual storage address. However, the laws of Seychelles and Panama require that accounting documents must be kept directly at the office of the registered agent in these jurisdictions.
As for preparing financial statements, the following changes should be noted in this area:
| Jurisdiction | Maintaining Registers of Beneficial Owners |
|---|---|
| Seychelles |
Registers of beneficial owners must be kept at the offices of registered agents. These agents submit the information to Seychelles authorities responsible for creating a centralised database of beneficial owners. Beneficial ownership data remains confidential and is not available to the general public. |
| BVI |
BVI has also created a centralised database of beneficial owners. Registered agents must submit information within 30 days of company registration or any changes. BVI law allows for expanded access to this information. Those who prove a legitimate interest may obtain access. |
| Marshall Islands |
Offshore companies in the Marshall Islands must collect and keep information about their beneficial owners. Currently, the law does not require automatic submission of this information to the authorities or the creation of a centralised database. |
| Cayman Islands |
Offshore companies in the Cayman Islands must collect and keep information about their beneficial owners. This information is submitted to the relevant government authority and a centralised electronic platform is created. Access to the data is not public by default. However, the Cabinet may allow the competent authority to grant access to those who prove a legitimate interest. |
| Belize and Panama |
In both jurisdictions, companies must collect and keep information about their beneficial owners. Both also require that this information is submitted to government authorities to create a centralised database of beneficial owners. |
Economic Presence in the Country of Registration
One of the recent trends is the requirement for offshore companies to ensure economic presence (substance) in their country of registration. In other words, companies must show that they operate from the country where they are registered. This may include:
- having an office and employees in the country of registration;
- incurring operational expenses for activities in that country;
- carrying out management functions (such as holding board meetings) from the country of registration.
In most classic offshore jurisdictions, the requirement to ensure economic presence only applies to companies involved in certain types of business activities. This regime is followed, for example, in:
- Belize;
- BVI;
- Cayman Islands; and
- Marshall Islands.
Unlike these jurisdictions, Seychelles does not require economic presence. However, meeting this requirement allows companies to benefit from a more favourable tax regime, which may be relevant for some businesses.
In the past, classic offshore jurisdictions allowed the issue of bearer shares. These are shares without the owner’s name or details, offering confidentiality and seen as a major advantage of offshore companies.
However, today, the use of bearer shares is being abolished everywhere, following the FATF Guidance on transparency and beneficial ownership. As a result, the laws of many classic offshore jurisdictions now directly ban the issue of such shares.
Another important feature of classic offshores is the lack of a requirement to pay up share capital. This allows an offshore company to start business almost immediately after registration.
In many classic offshore jurisdictions, share capital is still divided into:
- authorised capital (the maximum amount allowed to be issued); and
- paid-up capital (the amount actually paid by shareholders).
In some countries, such as the BVI, the amount of authorised capital directly affects the registration fee and the annual government fee. For this reason, most companies include a standard authorised capital in their constitutional documents. There is no such requirement in Seychelles.
You do not have to issue all authorised capital at once, only part of it (often, just one share is issued). However, all issued capital must be fully paid up.
Simple Process for Ceasing Operations
In practice, most offshore companies can stop their operations quite easily by simply not paying the annual government fee. In this case, the company is struck off the register without the need to go through a formal liquidation process or pay extra costs.
Some jurisdictions are updating their rules on striking companies off the register. For example:
- In Seychelles, companies that do not pay the annual fee within 180 days will be struck off the register the day after this period ends, which is on the 181st day of non-payment. From the date of removal, the company is officially considered dissolved.
- In the BVI, there are different dissolution dates depending on the company’s incorporation date and the deadline for paying the annual fee:
- Companies incorporated from January to June that do not pay the fee by 31 May will be dissolved on 1 November.
- Companies incorporated from July to December that do not pay the fee by 30 November will be dissolved on 1 May of the following year.
Specific Features of Individual Jurisdictions
Along with the general features described above, each jurisdiction has its own points to consider when choosing where to register your offshore company. Here are some of the most important ones.
Panama
One of the main features of Panama is the legal requirement for a company to have at least three directors, regardless of the number of shareholders:
- a president (who usually represents the company in business matters);
- a secretary; and
- a treasurer.
Information about directors in Panama is public and can be obtained by any third party through a request to the register. Also, any documents related to the appointment or resignation of directors must be notarised and entered in the public register. This makes the process of changing directors in Panamanian companies longer than in other classic offshore jurisdictions.
Another feature of Panama is that Spanish is the only official language. This is different from other jurisdictions, where English is the only or one of the official languages. As a result, you must provide a notarised translation when using documents in non-Spanish-speaking countries.
Panama is a party to the Convention on Mutual Administrative Assistance in Tax Matters (the 1988 Convention). It has 10 bilateral Tax Information Exchange Agreements (TIEA) and just under 20 Double Taxation Avoidance Agreements (DTA).
Belize
An important feature of working with Belizean companies is the advance payment system for the annual government fee. Regardless of the company’s registration date, the fee must be paid by 31 July each year.
Until the annual fee is paid in the new calendar year, the company is not in “good standing”. Because of this, it is not possible to request a Certificate of Good Standing or a Certificate of Incumbency for the company.
Another feature of Belize is that business tax is charged on the company’s entire revenue, with no option to deduct any expenses.
Belize is a party to the 1988 Convention and has about 20 Tax Information Exchange Agreements (TIEA), as well as more than 10 Double Taxation Avoidance Agreements (DTA).
British Virgin Islands and Cayman Islands
A notable feature of these jurisdictions is that both are formally under the sovereignty of the United Kingdom as its overseas territories. The main advantage is the use of the English legal system, which is considered one of the most developed for regulating corporate matters and resolving disputes.
On the other hand, it is important to note the ongoing influence of the United Kingdom on the internal policies of these countries.
The BVI does not have any Double Taxation Avoidance Agreements (DTA), but it has about 20 Tax Information Exchange Agreements (TIEA). The Cayman Islands has only one DTA (with the United Kingdom) and about 35 TIEA.
Both countries participate (through the United Kingdom) in the 1988 Convention.
Seychelles
A key feature of Seychelles corporate law is the ability to register a company with a large authorised share capital without significant extra costs. The government fee does not increase in this case. However, you must explain to the registered agent why you need to raise the authorised share capital.
Seychelles has about 30 Double Taxation Avoidance Agreements and takes part in 11 TIEA, as well as the 1988 Convention.
At present, Seychelles is the only jurisdiction that still maintains the traditional division of companies into “local” and “international”. The restriction on international companies doing business within the country has been lifted.
Marshall Islands
The Marshall Islands is an independent country, but it is in a “free association” with the United States. This means some powers are given to the USA, and the USA has some influence over the legal system of the Marshall Islands. However, the Marshall Islands retains control over its own internal policies, including the regulation of corporate matters.
The Marshall Islands participates in the 1988 Convention, does not have any Double Taxation Avoidance Agreements, but has signed about 15 TIEA.
Conclusion
Considering all the similarities and differences between offshore jurisdictions, it is difficult to give a clear answer to the question, “which jurisdiction is better?” The need to use an offshore company and the choice of jurisdiction must always be assessed on a case-by-case basis, depending on the future company’s goals, the owner’s tasks, possible risks, and other factors. This is especially important now, as many traditional features of offshore jurisdictions are becoming less clear, and the benefits are not always obvious.
In any case, it is important to understand that the advantages of offshore companies only work if you take a comprehensive approach, which involves a thorough analysis of the tax, legal, and other risks related to your business.
