In selecting an Offshore Jurisdiction it is important to consider your or your client’s needs and reasons for using an offshore financial center. J. Kevin Higgins in his book “Offshore Financial Services”, list eight essential elements in choosing an offshore jurisdiction.
1. The legal and regulatory system
2. The political and economic stability of the jurisdiction
3. The tax environment
4. The confidentiality provisions
5. The infrastructure
6. The geographic location
7. The costs, and
8. The multiple jurisdictional potential
The legal and regulatory system needs to be modern, credible and functional. By modern it should have up-to-date financial laws covering such areas as banking, trust and securities issues. A credible jurisdiction would be one free of corruption and fair in it’s international operation. A functional regulatory system is one with effective guidelines but one that is not buried in excessive bureaucratic controls or procedures.
Political and economic stability refers to the probability of the chosen jurisdiction being subject to invasion, war or other political instability. You must also consider the exchange controls and other restrictions on the free movement of capital or labor. A jurisdiction such as The Bahamas offers an independent self-governing status which is a positive attribute.
There are two main types of tax environments, those that have no taxes and those that have relatively low taxes. You must consider your or your client’s tax liability in their home residence in relation to the considered foreign jurisdiction. You must always be aware of the potential for lawful tax avoidance and the potential for unlawful tax evasion.
The confidentiality concern has given rise to what we often call Private Banking and Bank Secrecy provisions. English Common Law, such as found in The Bahamas, can impose civil as well as criminal penalties for violation of confidentiality provisions.
The infrastructure encompasses the physical, professional and social environment of the offshore jurisdiction. The chosen jurisdiction should be technologically advanced with modern communication such as phones, faxes and e-mail availability.
The jurisdiction should be easily accessible by airline and provide adequate on site transportation. Health care facilities, leisure and recreational activities should be considered as well.
The geographic location plays very much into the infrastructure. If the offshore center’s location is in an area of political unrest, this can cause a great concern for you or your client. Once again, an area such as The Bahamas offers a more stable and independent environment.
Costs can include but are not limited to Government fees, management fees and other service fees such as legal or audit fees, utilities, labor, office expenses and general cost of living.
Multiple jurisdictional potential allows for the minimization of risk in the event of an unusual event. An example could be an International Business Company controlled by a Trustee in one jurisdiction owning a Foreign Limited Liability Company in another jurisdiction with the ability to move to even another jurisdiction in the event of political, economical or other related unrest in the host jurisdiction.
Contributed by:
Bill Davis
Asset Management, Inc.
www.assetm.com
