Operating a tax free offshore company has become difficult. However, it still is possible to reap the rewards of several offshore financial centers. Especially when it comes to operating non-financial and active entities. The legal implications of these company structures are less problematic because of their activities. It is assumed that active companies invoice for executed work and can justify their earnings in a sound and legal way.
Using an offshore company works best for cross border and genuine corporate activities. It is subject to both common and civil law legal systems. This may create challenges but also allows for furthering regulatory arbitrage, which can be advantageous in global business. However, the offshore industry is of substantial importance to money laundering. Therefore, financial regulation includes hallmarks for activities often carried out from offshore financial centers and tax havens.
Financial privacy and bank secrecy are the main pillars of the offshore financial industry. Efforts to mitigate risk and avoid misuse make it difficult to maintain banking relationships with global financial institutions. A consequence is that consultants, solo entrepreneurs and small business owners that run an offshore company experience intense control by their financial institution and may even see limitations for their banking activities.
One of the main legal concerns for these jurisdictions is an effective safety-net to combat money laundering and terrorism financing. Their corporate registry and company law is based on local conduct, while their international business regulation is sometimes codified in specialized acts and due to the scope and nature of the common law system also part of international case law.
Abuse of the financial system may result in social disintegration. It can undermine government structures and therewith influence public spending and taxation. Disruption of community cohesion may lead to a further deviation of desired human conduct. To streamline processes and protect the integrity of the global financial sector, several initiatives and legal frameworks are installed. Even though abuse is restricted, legitimate entrepreneurs can be part of this regulatory and legal scrutiny too.