Before entering the international market, an entrepreneur should understand: 1) the concepts of “offshore”, “midshore” and “onshore”; 2) in the current requirements for deoffshorization; 3) in the “black”, “grey” and “white” lists of jurisdictions. At the same time, contrary to popular belief, offshore schemes for business are still very relevant in 2022. The main thing is to use individual rather than general solutions, as well as enlist the support of experts, such as lawyers and specialized lawyers for supporting international business of Lawrange JSC.



How do offshore companies work?


The concept of “offshore” is associated mainly with tax evasion. Consider a classic example. An entrepreneur from a CIS country registers a company in Cyprus, where taxes are lower than in the country of origin. Income taxes will be charged both under Cypriot laws and under the laws of the country of tax residence of the entrepreneur (that is, at the source). However, if the countries have signed an agreement on the avoidance of double taxation, then taxes can only be paid in Cyprus.


In fact, in addition to such tax savings, offshore companies make it possible to solve many diverse business problems. And when the focus is on taxation, then instead of tax evasion, which is not welcomed by the international community, you can use legitimate methods of tax optimization.


Note! The need to register a company in a particular jurisdiction may arise: a) to use a specific organizational and legal form of doing business (for example, English and Scottish partnerships); b) to obtain a license for a certain type of activity (for example, for online casinos, cryptocurrency operations, provision of forex broker services); c) for the development of a specific project (startup).


The so-called offshore schemes are comprehensive solutions for international business to optimize taxation and build work with foreign counterparties. Today, such schemes are developed in the Lawrange law firm on a personal basis, taking into account many factors. For implementation, partners are involved in the jurisdiction that is involved in the scheme (including – we can talk about several jurisdictions).


To get the best result, consider:

  • specifics of the company’s activities;
  • tax residence of beneficiaries;
  • availability of agreements on avoidance of double taxation;
  • the wishes of the owner (or owners) of the business;
  • the current situation in the jurisdiction with the exchange of tax information (exchange agreements can only be signed, ratified or already in force);
  • prospects for opening a bank account for the company;
  • general tax and investment climate in the country;
  • specific risks associated with a particular jurisdiction.



Is it worth registering a company in a tax-free jurisdiction?


About ten or twenty years ago, businessmen actively registered legal entities in those jurisdictions where the income tax rate was close to zero. In those days, companies in the country of incorporation did not have real offices, did not hire employees, and often did not submit financial statements.


Moreover, at the dawn of offshore business, an entrepreneur could easily buy a ready-made company from intermediaries with an account in a prestigious bank. Representatives of banking institutions were willing to cooperate, not particularly interested in the origin of the funds in the account and the identity of the business owners. When filling out an application when opening a corporate bank account, it was enough to indicate “export-import operations” in the “business description” column.


Note! In the early 2000s, the world community came to the decision to limit business activities through offshore companies. International organizations such as the OECD (Organization for Economic Co-operation and Development) and FATF (Financial Action Task Force on Money Laundering) have introduced the practice of publishing “black” and “grey” lists of so-called “tax havens” or “safe havens”. The inclusion of the country in such lists of offshore zones entailed sanctions and refusal of cooperation from the world community. At the same time, each state separately adopted its lists at the legislative level based on the recommendations of the OECD and FATF.


As a result, the advantages of registering a company in a tax-free jurisdiction were leveled. Reputable banks will refuse to open an account for such a company. Solving the issue with the account can turn into a multi-month marathon for an entrepreneur with an unpredictable result. At the same time, the use of a payment system as an alternative does not solve all problems.


The situation worsened even more after 2018, when a scandal broke out around Latvian banking institutions. The “chain reaction” spread to the banks of Cyprus, as well as other financial institutions of other countries. The time of “simple” offshore solutions is forever in the past. Now, answering questions about what offshore is and how it can be suitable for business, it is necessary to think about complex multi-level schemes that only experienced specialists can draw up.



The most commonly used offshore schemes


When implementing individual solutions, it is advisable to first study what has been developed earlier. According to JSC Lawrange experts, the following offshore schemes deserve attention:


  • Export-import using an intermediary company – the details of this scheme will be presented below.

  • Conclusion of an agency agreement.

Registered company Ltd in the UK (onshore jurisdiction). She has a corporate bank account. An offshore company concludes an agency agreement with an English company – gives an instruction to act on its own behalf. The income of the English company will be only the amount of the agency fee. At the same time, the English company submits reports and pays taxes on income.

  • Owning real estate abroad through an offshore company.

We are talking about a way to hide the identity of the ultimate beneficiary of the property and reduce the tax base, as well as the possibility of freely selling objects to third parties, and thus receiving a return on investment. In this way, the protection and diversification of assets is carried out. To implement this scheme, Portugal and Spain, Great Britain and Ireland, France and Italy, Cyprus and Turkey are popular.

  • Investment activities.

An individual or legal entity invests in an existing or newly established business abroad in order to generate income. In addition, you can register a company in a jurisdiction with low taxes (for example, in Cyprus), and then, using the double taxation agreement, make investments in your own economy. In fact, this is the repatriation of domestic capital using a low-tax instrument.

  • Cryptocurrency, brokerage, gambling.

The key point here is to register a company and obtain a license in those jurisdictions where it is possible. For example, with the support of the Lawrange law firm, it is possible to register a crypto casino in Costa Rica and Curacao,  obtain a brokerage license, as well as register a crypto company in the UAE. If the focus is on offshore: what it is, and what usage patterns can be, then in 2022, it was the above types of activities that came out on top.



Offshore scheme for the export of goods and services


The bottom line is that in order to save on paying taxes in a jurisdiction with favorable taxation conditions, an intermediary company is created. The export of goods, works or services is carried out through it as follows:

  1. a real seller sells goods to an intermediary at a minimum cost;
  2. the intermediary sells to the buyer already at the market price, receiving most of the profit;
  3. the intermediary company pays tax at a favorable rate (the seller pays tax in his country only on a smaller part of the real profit).


Note! Cash flows using such a scheme can move in two directions. That is, according to such a scheme, not only the export of goods and services, but also import can work successfully. Among the best jurisdictions for registering an intermediary company are Cyprus, Malta, UAE, Singapore, Hong Kong, New Zealand. At the same time, it is sometimes advisable to use a two-level structure, when, in addition to the intermediary company, one more link is added – a “facade” company registered in the UK, Switzerland or Denmark.



Intermediary activity outside Ukraine


Increasingly, registration of a company abroad is used to raise the reputation of a business. Such a step makes it possible to reach clients and partners who were not available due to the low rating of the country of origin. As mentioned earlier, a firm in a high-profile jurisdiction is also sometimes important when using an offshore export-import scheme.


Note! If these goals are pursued, then such prestigious jurisdictions as the United Kingdom, the USA, Denmark, Ireland, and so on should be chosen. At the same time, the cost of maintaining firms in these countries may not be as high as people used to think about it.



Internet business


For many types of business on the Internet, registering a company abroad is a matter of choice, and for some it is a necessity. We are talking about the choice in the case of a product or outsourcing IT company. Extensive opportunities for remote work and provision of services to clients around the planet provide “width of maneuver” when choosing a jurisdiction for incorporation. For example, when developing software, it is worth looking at some states of the USA, Ireland, Poland, Australia, Malta, Cyprus, Georgia and Portugal.


However, when implementing cryptocurrency projects, NFT activities, providing forex broker services and opening an online casino, there are not so many solutions. Therefore, to ensure that you benefit, you should carefully study the legislation and licensing conditions in various countries. At the same time, there are still options available, and Lawrange’s experienced experts know about them.



Asset protection


Continuing the conversation about how offshore can be used, what it is for business, it is necessary to mention the possibilities for protecting assets. In conditions of raiding and a weak judiciary, such a tool is worth a lot. To protect your asset or assets, you can use the following options:


    1. nominee service – attracting a nominee representative with administrative powers to a managerial position to hide the identity of the real owner of the business;
  • pledge of assets to a trustee abroad;
  1. use of a fund or trust – the transfer of assets to a third party so that they cease to belong to the owner from a legal point of view (as a result, they cannot be taken away even through a court of law).



Extraction of passive profit (dividends, interest, royalties) from Ukraine


If you withdraw passive income to a non-resident, you must pay a tax on repatriation. In Ukraine, the rate of this tax is 15%. However, you can find solutions that will save you money. It is based on the existence of an agreement on the avoidance of double taxation. For example, a company is used on about. Cyprus or a British firm that is tax resident in Cyprus. One way to receive royalties at a reduced tax rate is to register a trademark offshore.





Offshore schemes are alive in 2022, but they are becoming more complex and personalized. Classical offshores can no longer be considered as the only possible benefit for business. If the right solution is developed, midshore or even onshore can bring more benefits.


If earlier two or three countries were used in offshore schemes, now we have to build multi-level structures with a “facade” company. When registering a business, it is necessary to prepare for the maintenance of a physical office and the submission of reports. When interacting with banks, you should provide a large package of documentation and understand the likelihood of monitoring transactions. At the same time, the involvement of specialists for the development and execution of offshore schemes allows you to minimize the time and effort on the part of the entrepreneur. He can only formulate business tasks and make a profit.





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