Before we begin, let us explicate the meaning of the word ‘offshore’ as we are going to use it. We will use it with reference to zero-tax jurisdictions that offer a high level of corporate information confidentiality and put forward soft reporting requirements.
It must be admitted, however, that offshores started to lose their attractiveness beginning the 2010s. Many of them launched legislative reforms that affected their tax systems, the legal status of corporate entities registered on their territories, and their banking sectors. These reforms were aimed at fighting money laundering practices in the first place. It would be too naïve to claim that offshore jurisdictions started those reforms on their own initiative. Rather, they were pressured by such international organizations as G20, the EU, the OECD, and FATF. As a result, many offshore countries have now modified their legislations in a way that makes them ‘less offshore’. They have had to come up to international standards.
Below we discuss what the legislative reforms in offshore jurisdictions have led to. You will see that they still offer numerous advantages to company owners even though their number and extent has decreased. Offshore Pro Group experts specialize in offshore company registration and you can learn a lot about the process at their website.
Tax exemption
Tax exemption is probably the first thing that you would expect to find in an offshore jurisdiction. It is still possible to register an offshore company that would be tax-exempt but some new legislative norms have to be taken into consideration.
Taxes for offshore companies in Seychelles
Seychelles, an island state in the Indian Ocean, used to levy no taxes on International Business Companies (IBC) registered there.
However, in 2019, the authorities of Seychelles reformed the country’s legislative system. They attempted to move from the classic offshore taxation model to the territorial principle of taxation. In accordance with this principle, only the income made in Seychelles is taxed in the country. Income derived from outside Seychelles is not taxed in the country. The following tax rates apply to incomes made in Seychelles: 15% on the first 1,000,000 SCR (approximately 75,000 USD) and 25% on anything exceeding this amount. The tax rates have been applied since January 2022. Before that time, they were 25% and 30% respectively.
Thus, it is possible to have a tax-exempt company registered in Seychelles. At the same time, there is something you should be aware of. In accordance with the amendments to the Business Tax Act of 2021, Seychelles companies that are part of ‘international groups’ and that do not have ‘sufficient economic substance’ in Seychelles are going to be taxed on their global incomes. This includes passive incomes such as interests and dividends. So much for the territorial principle of taxation!
Taxes for offshore companies in Belize
Belize in Central America now levies a corporate income tax on all companies registered on its territory. All companies including former IBCs have to pay a Business Tax.
The company’s global income serves as the taxable base and no cost deduction is possible.
The standard tax rate is low, however – only 1.75% and the non taxable income is 37,500 USD. The rate applies to trade and commercial companies and financial, telecommunication, tourist, gambling, and leasing companies pay the tax at higher rates.
In addition, all Belizean companies have to apply for a Tax Identification Number and file annual tax returns.
Taxes for offshore companies in St Vincent and the Grenadines
It will be safe to claim that St Vincent and the Grenadines in the Caribbean used to be an offshore jurisdiction. Previously, locally registered companies were tax-exempt even though only for a limited period. Today, the territorial taxation system is applied in the country. The tax rate is 30% (after cost deduction). Resident companies pay taxes on their global incomes and non-resident companies are taxed only on the incomes made in St Vincent and the Grenadines.
Taxes for offshore companies in St Kitts and Nevis
The taxation system in the Caribbean Federation of St Kitts and Nevis is also based on the territorial taxation principle. Tax residents of the country pay taxes on their worldwide incomes. The tax rate is 33% (of net profit). Non-resident companies pay taxes only on the incomes made in St Kitts and Nevis. In addition, non-residents have to pay a withholding tax of 15% on dividends, royalties, and interests.
Taxes for offshore companies in the BVI and Caymans
Companies registered in the British Virgin Islands and Cayman Islands are still exempted from income taxes.
As you can see, the legislations of offshore jurisdictions have been changing in dissimilar ways. Belize has abandoned zero taxation and stopped registering IBCs, which turns it into an onshore jurisdiction. Admittedly, the tax rates are low so Belize is a low-tax onshore jurisdiction. Seychelles, St Vincent, and St Kitts apply different variants of the territorial taxation system. They tax only the profits made within their respective territories. The BVI and Caymans, in their turn, remain offshore jurisdictions in the full sense of the word.
Division of companies into local and international companies
It used to be typical of many offshore jurisdictions to divide companies into ‘local’ and ‘international’ ones. Local companies were entitled to do business locally (in the country of their domiciliation) and international companies could do business only outside the country of their registration. The IBC status turned the company into an offshore company and made it tax-exempt.
Currently, only Seychelles preserve this division if we speak about the most popular offshores. Companies working in the country are registered in accordance with the Companies Act of 1972 while offshore companies are registered in accordance with the IBC Act of 2016. A local company can be converted into an IBC and vice versa.
The ban on domestic operations for IBCs registered in Seychelles was lifted in 2019. Now such companies are entitled to conduct business operations both abroad and inside Seychelles. Some types of business activities require licenses as they have always had.
Speaking about Belize, it passed a new Companies Act in 2022 that gave a unified status to all companies registered in the country. Before that time, there had been local companies working inside the country and international companies working outside Belize exclusively. In accordance with the new law, former IBCs and local companies now have the same status and their activities are regulated in the same way. In view of this fact, the ban on domestic operations has become irrelevant.
As far as the British Virgin Islands is concerned, the division of companies into ‘local’ and ‘international’ ones was abandoned back in 2024. All companies in the BVI are now registered as Business Companies, all of them have equal legal capacities, all of them are entitled to conduct business operations anywhere in the world including the country of incorporation, and all of them are exempted from income tax.
