Philipp.Jumpertz

Hey I'm Philipp,

I consider myself an unpaid offshore neutrality lobbyist.

From my understanding, with global tax rates ranging from zero to almost 50%, this topic will probably always spike emotions. But I believe that we should at least stick to the facts.

As a perpetual traveling citizen of Germany and resident in Panama, engaging in offshore business, I am working closely with attorneys in offshore and onshore jurisdictions.

After learning at first hand, that offshore is all about regulations and compliance, I am now aiming to increase clarity by providing insights and referring to the legal grounds in wikipedia.

With the full scope of offshore fragmented over dozens of articles, I use my user page to provide a weighted overview.

Offshore 101

Offshoring is the process of moving business process from one jurisdiction to another, typically to achieve strategic advantages (see also: regulatory competition, tax competition). In this context the destination jurisdiction is "off shore" from the current jurisdiction.
Offshore companies (as well as offshore banks, offshore trusts etc.) are legal entities, established under the laws of a jurisdiction that prohibits any local business activities (see also: international business company, international banking license). In this context the entities are "off shore" from the jurisdiction of establishment, meaning that they are prohibited from any local business relationship with citizens and residents.

Offshore Jurisidictions

Jurisdictions providing the establishing of legal entities offshore, are referred to as offshore financial centers (OFC or offshore jurisdictions). Their economies are specialized in providing financial and corporate services, such as company incorporations, banking or the registration of vessels and aircrafts.

Typically OFCs charge a yearly franchise fee, while usually little or no tax on corporate and/or personal income are levied (see also: territorial taxation, tax haven).

Legislation requires registering legal entities with an registered agent, which has to be a lawyer licensed in the jurisdiction.

Registries contain information about the the registered agent and the directors, with their full name and identification number (government-issued identity document, photo id, passport, id card, Cédula).

Since the registry is not designed to store physical addresses of the company itself or its registered agent or its directors, offshore companies meet the criteria of a shell corporation.

Information about the shareholders / beneficial owners and articles of incorporation are stored with the lawyer, serving as registered agent. Even though this has been subject to increasing KYC regulations, it is still often described as anonymity or secrecy.

Misuse of offshore entities

hiding undeclared income
money laundering
terrorism financing

While legal entities can still be easily established, corporate service providers and financial service providers face increasing regulations regarding AMLCFT, AML (Anti-Money Laundering), CFT (Combatting the Financing of Terrorism), KYC (know your customer / know your client).

KYC requirements of corporate service providers (such as lawyers and law firms)

proof of identity
proof of address (utility bill)
bank reference letter
professional reference letter / personal reference letter
criminal record

KYC requirements of financial service providers (such as banks and non-banks)

beneficial owner(s)

Compliance with regulations, internal risk-assessment and growth strategies of financial service prover lead to differences in acceptance of clients, required information at account opening and during ongoing operations, as well as pricing policies, depending on the jurisdiction.

Examples:

PayPal accepts clients signing up from many low-tax and no-tax jurisdictions, the fees vary between 1,4 and 5,7 percent. Functionalities as connecting bank accounts or credit cards might differ between jurisdiction. Information regarding the beneficial owner are not required at account opening.
Stripe accepts clients signing up from only limited no-tax jurisdictions. While for most jurisdictions ownership informations about entities holding more than 25% of shares or executive power are required, clients from USA and Canada have to provide a tax ID and SSN/SIN.
PaySera accepts clients from most jurisdictions to sign up a personal account. Once the personal account is fully verified by providing id and performing a verification video call, clients can request opening an business account for offshore companies. Speaking of personal experience, account opening will proceed within 5-7 work days.

It can be assumed that also the flagging of transactions and suspicious activities depends on the client's jurisdiction.

Increasing regulations

United States: USA Patriot Act of 2001
Seychelles: Anti-Money Laundering Act, 2006
Cyprus: The Prevention and Suppression of Money Laundering Activities Law of 2007
United Kingdom: The Money Laundering Regulations 2007
Belize: Money Laundering and Terrorism (Prevention) Act, 2008
British Virgin Islands: Anti-Money Laundering and Terrorist Financing Code of Practice, 2008
New Zealand: Anti-Money Laundering and Countering Financing of Terrorism Act 2009, No 35
Panama: Law No 2 of 1 February 2011

Vetting of legal entities

book-keeping

tax filings

physical address

registered agent

directors

shareholders

partners

Jurisdictions offering no-tax legal entities

Countries, territories and jurisdictions considered offshore:

Bahamas
Belize
BVI
Costa Rica
Cyprus
Dominica
Gibraltar
Hong Kong
Marshall Islands
Nevis
Panama
Seychelles

Jurisdictions offering tax transparent legal entities

Jurisdiction considered onshore, offering tax-transparent legal entities that can be established by offshore entities and therefore inheriting their tax status from offshore jurisdictions:

Canada: EPC
Denmark: K/S
Ireland: L.P.
Netherlands: CV
Hong Kong: Ltd
Singapore: LLP
Sweden: KB
England: L.P.
Northern Ireland: L.P.
Scotland: L.P.
Wales: L.P.

Banks and NBFIs

PaySera
Revolut
Euro Pacific Bank
PayPal
Stripe
Braintree

Panama

Panama banking law (official english translation)

List of banks operating under international banking license (offshore banks)

List of banks operating under general banking license (full-banks)

Perpetual traveling 101

Perpetual traveling, a concept closely tied to the flag theory, can be used to legally avoid corporate and personal income tax.

This is achieved by creating low or no tax liabilities in the jurisdiction of citizenship, and no tax liabilities in the jurisdiction currently staying in.

Tax liabilities in the jurisdictions currently staying in

In most jurisdictions no tax liabilities are created when staying less then 183 days per year.

Notable exceptions are Switzerland with 90 days, Germany's gewöhnlicher Aufenthalt concept and the United States with the substantial presence test.

Tax liabilities in the jurisdiction of citizenship

Perpetual travelers working self-employed, usually also meet the criteria of offshoring, since the business processes are usually moved to the jurisdiction they are currently staying in. This might be no tax liabilities anymore in the jurisdiction of citizenship.

Jurisdictions with no personal income tax or no tax on foreign income

Antigua and Barbuda	No personal income tax.[3][4]
Bahamas	No personal income tax.[5]
Bahrain	No personal income tax.[5]
Brunei	No personal income tax.[5]
Cayman Islands	No personal income tax.[5]
Kuwait	No personal income tax.[5]
Maldives	No personal income tax.[5]
Monaco	No personal income tax.[6]
Nauru	No personal income tax.[7]
Oman	No personal income tax.[5]
Pitcairn Islands	No personal income tax.[8]
Qatar	No personal income tax.[5]
Saint Barthelemy	No personal income tax.[9][Note 1]
Saint Kitts and Nevis	No personal income tax.[12]
Somalia	No personal income tax.[13]
Turks and Caicos Islands	No personal income tax.[14]
United Arab Emirates	No personal income tax.[5]
Vanuatu	No personal income tax.[15]
Vatican City	No personal income tax.[16]
Wallis and Futuna	No personal income tax.[17]
Western Sahara	No personal income tax.[18]
Angola	Territorial taxation.[5]
Anguilla	Territorial taxation.[19]
Belize	Territorial taxation.[20]
Bermuda	Territorial taxation.[5]
Bhutan	Territorial taxation.[21][22]
Bolivia	Territorial taxation.[23][24]
Botswana	Territorial taxation.[5]
British Virgin Islands	Territorial taxation.[5]
Costa Rica	Territorial taxation.[5]
Democratic Republic of the Congo	Territorial taxation.[5]
Djibouti	Territorial taxation.[25]
Georgia	Territorial taxation.[5]
Guatemala	Territorial taxation.[5]
Guinea-Bissau	Territorial taxation.[26][27]
Hong Kong	Territorial taxation.[5]
Lebanon	Territorial taxation.[5]
Macau	Territorial taxation.[5]
Malawi	Territorial taxation.[5]
Malaysia	Territorial taxation.[5]
Marshall Islands	Territorial taxation.[28]
Micronesia	Territorial taxation.[29]
Namibia	Territorial taxation.[5]
Nicaragua	Territorial taxation.[5]
Palau	Territorial taxation.[30]
Palestinian Authority	Territorial taxation.[5]
Panama	Territorial taxation.[5]
Paraguay	Territorial taxation.[5]
Saint Helena, Ascension and Tristan da Cunha	Territorial taxation.[31][32]
Seychelles	Territorial taxation.[5]
Singapore	Territorial taxation.[5]
Somaliland	Territorial taxation.[33]
Syria	Territorial taxation.[34]
Tokelau	Territorial taxation.[35]
Tuvalu	Territorial taxation.[36]
Zambia	Territorial taxation.[5]
Philippines