What does offshore web hosting mean?
May 4, 2016
The term offshore means various things.
If referred to financial services, it primarily means secretive jurisdictions with low taxes and legislation favorable for legal entities’ registration and opening an offshore bank account. The first jurisdictions people often think about are the BVI, Cayman Islands, Switzerland, Seychelles, and Belize.
If we speak about the web hosting offshore stands for beneficial business taxes, privacy guaranteed by the law, relaxed legislation for some content types (gambling, adult entertainment, etc.), little or no censorship and freedom of speech.
However, many of the companies dealing with web hosting use data centers, with the servers in non-offshore locations, like the USA or the UK, though claiming to work in attractive jurisdictions.
Can server location influence the taxation?
It’s quite a tricky thing, it did not matter for a number of years, but certain tax authorities have accepted that the server location for the 100% online business can be considered the place of operations. The high tax jurisdictions do not have such advantageous rulings and consequently, you may avoid facing troublesome rules used for permanent establishments if you live in a low-tax jurisdiction and host your purely virtual business in a separate hub.
Local lawyers can provide more information on the matter.
Can server location affect confidentiality?
For sure it can, though measures should be taken to ensure this confidentiality. German and Austrian confidentiality and data protection legislation is, for instance, extremely strict, but the traffic going to, from, and through the countries is not secured as well as the servers there. The minimum requirement is that all traffic is encrypted by means of transmission encryption like TLS/SSL (HTTPS). The data can be encrypted as well; file system encryption is of help here. Email content is possible to encrypt with PGP/GPG technologies, but it’s difficult to perform and requires the manual interference of the senders and receivers.
There is no system, which is totally secure. Mind the possible risks and remember that encryption may lead to data loss if gone in an improper way. The combination of proper data protection legislation and location of the server offshore can help to form a technical architecture with perfect data protection, great confidentiality, and other advantageous solutions.
What is the allowed content?
The permitted content depends on the location you are in. Adult content is particularly forbidden or strongly regulated in such countries as the United Kingdom and Germany, where they have strict obscenity laws and also the countries, which oppose it strictly.
Gambling (operators as well as the affiliates) can face difficulties in the jurisdictions which take a hardline approach to gambling and everything what is related to it.
Offshore hosting may be inconvenient for politically related content for both legal and technical reasons.
The USA is popular due to the freedom of speech regulations, and it’s a home of many websites and formations which are forbidden or cumbersome to operate in Europe, for instance. Still it cannot guarantee the government prohibition. Iceland has recently gained popularity due to claiming itself an alternative to the United States for the freedom of speech and whistle-blower protection legislation.
There are also countries where pretty much of anything goes if you prevent locals from your servers’ contents access, don’t speak against the local system or critisize it, and keep away from the most egregious national taboos (no adult content in Iran, for instance). Your host or data center may also influence a lot, ensure you’ve read the fine prints as to the additional terms, conditions and requirements.
Offshore Server Locations
Lots of people wish to have their servers hosted in the jurisdictions their IBCs or offshore companies are registered. Usually, it’s Seychelles, Belize, or the British Virgin Islands.
Mind that to host something a data center is needed and there is nothing of the kind in Seychelles or Belize worth speaking about. The Seychelles Republic lies on an islands archipelago far off the east coast of Africa. The internet connectivity there comes primarily from satellites and a single submarine cable to Tanzania. Belize is covered with jungle and its infrastructure is poor.
The Internet speed in the country is terrible.
The hosting options in BVI are extremely expensive and mostly large banks and corporations can use them. Even resident companies often host in the United States, which is the interconnection point for the majority of Americas traffic. Almost all traffic between the Americas and other continents go through the USA.
Somewhat well-connected and relatively suitable locations may be considered the following:
- Malaysia (not Labuan)
- the Netherlands
The ECJ – European Court of Justice has recently decided that the EU and the US Safe Harbor agreement is illegitimate. It allowed the data transmittance from the European Union into the United States, due to the stronger data protection legislation in Europe.
The Court found the document unlawful as the companies self-certified for Safe Harbor were unable to guarantee easy government insight into the information on European persons.
Information security is a problematic issue and can be the main challenge, particularly with the offshore servers.
The server, in the remote location can result in long loading time of the data, especially for the overseas visitors. Latency and bandwidth aspects can also be challenging, but they can be partly resolved with a content delivery network (CDN). It is a 3rd party hosting parts of your infrastructure locally to lessen the loading time.
Cloud or Distributed Hosting
Cloud hosting has no clear definition but often stands for the distributed hosting, a technical architecture, when the information is kept on numerous servers in geographically varied locations. It can be compared to a CDN, mentioned above.
Such hosting can be tricky you may face difficulties with finding out where your data is at a certain moment and in what dominion your application is. The laws can differ to a great extent between states or even certain territories of some countries.
An off shore server can result in great expenses and negative user experience for your visitors. Still in certain situations, the disadvantages can be compensated by benefits in confidentiality, taxation, or regulatory rewards like allowing content not suitable elsewhere.