Selecting a Jurisdiction

Political and Economic Situation

The prerequisite requirement for anyone wishing to establish their business or private interests offshore is to select a jurisdiction that provides political and economic stability, so that business can be conducted with certainty, confidence and corporate security.

Essential Corporate Characteristics

Many offshore and tax planning jurisdictions have made efforts to ensure that their company law provides the following features:

  • Limited liability.
  • Minimisation of directors liability. Directors are generally responsible for the acts of a company however in certain jurisdictions directors may seek indemnities from both the company and its beneficial owners.
  • Minimal or optional statutory filing obligations.
  • Nominee shareholders allowed.
  • Availability of bearer shares.
  • Disclosure of beneficial ownership either not required or limited to special bodies, such as offshore authorities or central banks.
  • Broad range of permitted company names and suffixes to denote Limited liability.
  • Low capital requirements.
  • Hold directors and/or shareholders meetings anywhere in the world.
  • No requirement for accounting records to be audited.
  • Minimal directors' liability. Directors are generally liable for the company's actions. However, in certain jurisdictions directors may seek indemnities from both the company and its beneficial owners.
  • Directors and/or shareholders meetings can be held anywhere in the world.

Legislation Requirements

The most essential criteria are that the legislation is modern, flexible and well proven with respect to issues such as low share capital requirement, minimal reporting obligations, possibility to hold members and directors meetings anywhere, possibility to appoint nominee shareholders and directors, no obligations to file accounts. Furthermore, the legislation should preferably provide confidentiality and complete privacy regarding a client's business dealings.

Company Law

There are three main models of Company Law:

  • English Common Law.
  • European Corporate Law.
  • US Corporate Law.

English Common Law

Company Law based on English Common Law is the most frequent model for classic offshore jurisdictions. Company Law in this case is based on the UK Companies Act 1948. This Act in turn draws on earlier Acts and many other concepts, such as the acceptance of nominee shareholders. The Joint Stock Companies Act of 1856 introduced the Memorandum and Articles of Association providing incorporation by registration. Examples are the BVI, the Bahamas, Hong Kong, and Belize.

European Corporate Law

Usually it is different for a share company with a lower initial capital and a smaller number of subscribers and a public company which is allowed to issue publicly negotiable securities.

Incorporation procedures in Civil Law jurisdictions have the following features compared to English Common Law:

  • An amount of paid-up capital must be subscribed before Incorporation.
  • A Company' statutes are essentially a contract between subscribers.
  • Procedures are more onerous and time consuming than in English Common Law countries.
  • Incorporation procedures are carried out by a notary.
  • Corporate Law in Civil Law countries demands that the responsibility of a board of directors be shared between an executive and a supervisory board.
  • Directors' powers may be limited.
  • A legal reserve may be required.
  • Liquidation procedures are time consuming and complex.

US Corporate Law

US Corporate Law was incorporated under the influence of both English and Civil Law. Apart from differences in language, terminology and interpretation, US Company Law differs from English Law in a number of significant ways, including:

  • US Corporations have officers in addition to directors.
  • Bylaws are often adopted after incorporation.
  • Directors are often empowered to change bylaws.

Company Law in Liberia, Panama and Nevis has been influenced by US Law.

Double Taxation Avoidance Treaties

The jurisdictions around the world can be categorised as follows: 

  • Treaty jurisdictions.
  • Non-Treaty jurisdictions.

Treaty jurisdiction

Clients wishing to benefit from relief from a double tax treaty must establish a company situated in a Treaty jurisdiction. This is essential for minimum withholding tax on dividend payments and royalties from contracting states. Treaty jurisdictions also convey a non-offshore image and thus provide cosmetic appeal.

Non-Treaty jurisdictions

This type of jurisdiction is mainly used because of the absence of corporate taxes on the company's profits and usually only requires companies to pay a fixed annual license fee.

It is important to assess the taxation implications for the business and to decide whether a treaty jurisdiction is required. Usually, a treaty jurisdiction is not required for international trade, the movement of goods or most services. However, inward investment into certain countries requires a treaty jurisdiction to minimize the impact of taxation.