Tax friendly jurisdictions are often considered tax havens, banking havens or offshore financial centers. Countries providing access to domestic corporate registration often do so in conjunction with tax residence programs, citizenship by investment and other alternative ways to support Foreign Direct Investment. The theory goes that even where international business corporations execute no local business, they still require domestic services. The result is that companies in offshore jurisdictions pay periodic government fees, may appoint local nominees, and create further local substance by hiring professionals on location. Disputes and other conflicts may be settled in local courts, creating a further upswing in local activities.
The downside of the local advantages is that activities are not taxed where business activities were executed but where management resides. Taxation in this way is translocated to other countries and the actual beneficial tax authority misses on important payments from local companies that move income to holding companies. In the European Union for example, this strategy is halted by the automatic exchange of information via the common reporting standard and the rules on DAC6. Aggressive tax planning and illegal transfers are therewith made difficult.
Several jurisdictions and offshore financial centers have for long been abused by obscure actors with illicit motives. Even though this does not apply to the complete industry, activities in these jurisdictions are placed under a magnifier. Therefore, those working with these jurisdictions need to follow the rules in order to comply with international standards to avoid regulatory scrutiny.
Most offshore jurisdictions operate a legal system based on UK common law. As such, the British common wealth supports international company formation and furthers opportunities for global business. This website provides information on a variety of offshore jurisdictions and the requirements to operate a legitimate international business. However, entrepreneurs who wish to utilize the advantages of internalization should consult an expert before they decide to incorporate.