How the Term “Offshore” May be Applied to your Business
February 18, 2016
The word “offshore” came to us from the times of colonial era and its original meaning didn’t change much having reached the present day. This term was used to identify activities which took place away from the sea country coast.
Offshore was derived from the phrase “off the shore” and had several meanings. First refers to certain range of business activities organized outside the resident country with the aim to get a tax relief or some other benefits. The second meaning of the word “offshore” covers oil and gas producing activities as well as wind energy transformation carried out at the sea shelf.
As a financial concept the term offshore is used figuratively and covers overseas business activities such as opening bank accounts offshore, setting up companies or corporations, investing funds, depositing funds, insurance, real estate deals.
The word “offshore” was ex cogitated by British business people at the time when the United Kingdom had a lot of overseas colonies. Such islands as Bermudas, British Virgin Islands (BVI), Cayman Islands, Channel Islands or the Island of Man belonged to the British Empire and had very attractive tax systems. So British businessmen residing on the main island who invested money into these areas or transferred money to islands’ banks were called to be engaged in “off the shore” or just “off shore” activities. Later on the term was used for the broader range of overseas business activities.
From the year 1980 the term started to be principally used to denote a certain type of business. A business organized on a certain territory offering tangible benefits which could not be obtained in a resident country started to be called “offshore company”. Business owners got the opportunity to easily open offshore companies, enjoy a tax breathing room, avail of anonymity and bank secrecy guarantee within the framework of the benefits provided by such territories.
A term “offshore financial centre” (OFC) was coined to designate these favorable areas. They are also called offshore jurisdictions or tax havens. So the term also covers all services and opportunities provided by offshore jurisdictions and the industry entirely.
Most of OFCs are the islands and territories surrounded by the sea justifying the meaning of the term “off the shore” but there are some continental countries also referred to low tax areas.
Here is the list of offshore jurisdictions officially provided by International Monetary Fund:
- British Virgin Islands
- New Zealand
- Cayman Islands
Just to Make it Clear
Let’s say a French resident decides to set up an offshore company to gain the tax benefits or to open an offshore bank account and he or she chooses Mauritius as a destination point. Such activity would definitely fit the offshore industry’s concept.
Should he decide to set up a company or to open an account in Italy, this would have nothing to do with offshoring. The reason is that the businessman would not get any significant benefit or confidentiality guarantee as if he opened a company or signed a deal with a bank in Mauritius. Italy as a member of the European Union signed a plenty of information sharing agreements and economic cooperation with other members of the EU.
The commercial activity or investments carried out within the territory of residence or within any other country with a tax system which doesn’t provide any tangible benefit is called onshore.
It is quite easy to get confused when deciding whether the activity should be named onshore or offshore. With the advent of jurisdictions offering specific advantages except of fiscal benefits for outside investors it is quite difficult to delineate these concepts. Some countries provide high level of banking secrecy such as Cyprus, United Kingdom and Switzerland while Ireland, for example, attracts artists, singers and writes with a loyal tax policy. Besides, different organizations publish lists of low-tax jurisdictions which slightly differ from one to another.
So, Offshore is specific type of business, which is organized on a certain territory with offered benefits that could not be obtained in a resident country. There are offshore jurisdictions officially provided by International Monetary Fund. They have different directions and can provide various business opportunities. Offshore as one business organization keeps holding its popularity. As you can see offshore business has many advantages such as: low taxation of companies and as a result high profits, maintaining the confidentiality of commercial information, simplicity and speed of company establishment. Offshore opens for their owners a variety of possibilities for trading, insurance, registration of transport etc.