Who uses IFCs? IFCs are used by business organisations and by individuals, but often for different reasons...
Companies
Many companies use IFCs, because using an IFC helps
them to conduct their business more efficiently and
successfully than if they tried to operate exclusively
from their home country. (The term ‘companies’
or ‘offshore companies’ is used here, although it
refers to any type of business entity. Not all business
entities have a company structure.)
Companies that make use of IFCs include
international trading companies, financial
institutions and shipping companies. A common
method of using IFCs is to set up one or more
companies in one or more centres without actually
setting up operations there. However, some
international companies have actually set up an
office offshore, for treasury management operations,
as a regional headquarters, or as a marketing,
trading, administrative or transshipment centre.
Individuals
Individuals also use IFCs. Wealthy individuals might
use an IFC to manage their assets or their income
with greater freedom from regulation than if they
kept their assets or income ‘onshore’. For example,
individuals with professional skills such as engineers
and medical practitioners, and senior business
executives, might arrange for some of their income to
be paid into an offshore bank account or an offshore
company. Individuals might choose to transfer some
of their wealth to an IFC, possibly by moving money
into an offshore bank account or by setting up an
arrangement called a trust or private foundation.
Why use an IFC?
Companies and individuals each have their own reasons for using IFCs. Some of these reasons are the same
and some are different. They can be summarised as follows:
Companies
- To manage tax affairs efficiently
- To hold assets abroad, for example in an offshore bank account or an offshore company
- To invest abroad
- To attract inward investment into the company’s own country
- To trade internationally
Individuals
- To manage tax affairs efficiently
- To hold assets abroad, for example in an offshore bank account or an offshore company
- To invest abroad
- To manage personal wealth, for example making arrangements for inheritance
Offshore companies
Both companies and individuals using an IFC might do so by setting up an offshore company. This is a company that is registered in the IFC.
Companies and other entities that are set up in an IFC must be registered with the authorities and given a licence to operate, and it must usually pay an annual licence fee. Such fees tend to vary with the type of entity and its size, but they are usually low – perhaps between a few hundred dollars and about $1,500 each year.
The company will be subject to the laws of the IFC, such as those relating to tax and the public disclosure of information about its financial affairs, ownership and operations.
Owners and directors
A company can have any number of owners (shareholders). Many have just one owner, but companies can also be used by a number of investors to share in the ownership.
Companies must also have directors, who are legally responsible for leading the company on behalf of its owners. The owners of a company can also be its directors; alternatively the directors can be appointed by the owners to direct the company’s affairs in the interests of the shareholders. When an offshore company is established, one of the appointed directors might be a local person who works for a professional firm but who is appointed to represent the interests of the company’s owners. A director who is appointed to represent the interests of a particular owner is called a ‘nominee director’. Investment of capital and transfer of assets or rights.
When a new company is established, the shareholder or shareholders provide some capital. This involves either transferring some assets to the new company or putting new money into it. The amount involved might be very small, around $1 or so in cash, or extremely large, such as the transfer of one or more items of international real estate. The assets transferred may also be rights such as rights to the ownership of intellectual property. So a company or individual setting up an offshore company will transfer assets to the new company, and ‘move the assets offshore’.
Income, profits and dividends
Once established, companies earn income. This could be income from business activities, or income generated by the company’s assets, such as rents from real estate, interest from financial investments or royalties from intellectual property. Companies make profits from the income they earn and can pay dividends out of the profits to their shareholders. Dividends are paid at any time that the directors decide: if the directors represent the shareholders, this means that companies will pay dividends at times that the shareholders decide.
Company structures
When there are two or more shareholders in a company, there must be rules for deciding the share of the company’s profits and dividends that belongs to each shareholder. When the company is set up, the owners might also wish to ensure that some shareholders have more voting rights in the company than others.
Company structures are flexible and it should be possible to establish a company that provides different rights to each shareholder. One way of doing this is to give one shareholder a larger number of shares: a general rule is that an ordinary shareholder with two shares has twice the rights of an ordinary shareholder with just one share.
Another way of organising the different rights of shareholders is to create different classes of shares, so that shareholders in each class have different entitlements to dividends or different entitlements to vote on the company’s future affairs.
Companies and the law
An important point to understand about a company is that it is a person whose existence is recognised by the law. When the owner transfers assets into it, the company becomes the legal owner of the assets. The legal owner of the company is not the legal owner of the assets of the company.
- Like any other person, it has the legal right to own assets and to borrow money. It can do business and make contracts with other persons (individuals or companies).
- If there is a legal dispute, the company itself takes legal action or must defend any legal action, and the company itself is liable for any wrongdoing or breach of contract.For example, a company might transfer a property (an item of real estate) to a new company that it has set up in an IFC. The new company would be the owner of the real estate. Anyone wishing to buy or rent the real estate would have to deal with its owner, the new company.
This aspect of companies has some important implications:
- A new company might be established offshore to carry on trading activities. Anyone who trades with the offshore company might be interested in learning the identity of its owner. However, since they would be trading with the company, they have no right to be told who the company’s owner might be. Protecting the identity of the ultimate owner of a business in this way can be an advantage in international trade and commerce.
- If the company gets into a dispute about a business transaction with a customer or a supplier, the shareholders themselves are not directly involved in the dispute. In any legal action, the company acts in its own name. What are the reasons for using an IFC? A decision to establish a company, partnership or trust in an IFC can be for one or more of the following:
- tax reasons
- secrecy or confidentiality
- security
- lower transaction costs
- limited regulation and low costs
- flexibility in the choice of financial structure or type of financial entity
- better opportunities for financial planning
- limitation of liability
- risk mitigation
- an infrastructure of support services and communications systems.
Tax and IFCs
The most common reason for using IFCs is to organise tax affairs more efficiently. IFCs are sometimes called tax havens or tax shelters, because they offer foreign companies or individuals an opportunity to protect their income or their wealth against the tax demands of the government in their own country. For many people, transferring assets offshore can provide opportunities for reducing or postponing tax payments. If tax payments are postponed, this provides time to invest the money to earn a return before it is needed to pay the tax.
What is taxed?
Within most countries, there is a system of taxation. Items that are generally subject to tax are:
- tax on the profits earned by a company
- dividends paid by a company to its shareholders: tax is payable by the shareholder, but the law might require the company to collect some of it
- interest paid to investors
- royalties paid by a company to the owner of the intellectual property
- profits that a shareholder might make on the sale of his shares
- tax on an inheritance after an individual dies. When companies or individuals consider using an IFC, they will be interested in:
- whether using the IFC will enable them to reduce or defer their liability to pay tax, and
- whether they will be required to pay tax to the authorities in the IFC, in addition to the tax authorities of their own country.
Tax within an IFC
There are other reasons than tax for using an IFC. Even so, tax is a very important issue and often the most important one for going offshore. IFCs seeking to attract foreign individuals and companies must have tax laws that do not penalise them for transferring their wealth or business operations to the centre.
Tax is a complex issue.
Tax rules vary between countries and IFCs and they differ greatly in detail. Any company or individual who is thinking of using an IFC should therefore take expert tax advice before deciding on the most suitable offshore arrangements.
Rates of tax and international competition on tax Rates of tax differ between centres:
- some centres charge tax but at lower rates than other countries
- other centres charge no tax at all on profits, dividends, interest or royalties income.
As international trade and finance grew in size, IFCs attracted an increasing share of it, taking business away from the industrialised countries. In order to compete with established IFCs, ‘onshore’ countries began to reduce their own tax rates. Success in attracting business and finance is more and more a matter of which centre can offer the ‘best deal’ on tax.
It might be easy to imagine that in international trade and finance a distinction can be made between ‘hightax’ countries and low-tax or nil-tax IFCs. However, the reality is more complex. Many countries offer tax incentives of one kind or another, such as low rates of taxation or tax concessions, to attract inward investment. In the European Union, for example, the Republic of Ireland has been successful at attracting inward investment by offering special low-tax incentives as well as the advantages of locating a business operation within the Euro currency zone of the European Union.
IFCs and tax neutrality
IFCs provide an opportunity for efficient management of tax affairs because many of them are ‘tax neutral’. This means that if a foreign company or individual uses an IFC, it will not result in more tax having to be paid. As a general rule, tax neutral IFCs do not charge tax on companies or other financial structures. This means no tax in the IFC on:
- the profits of companies registered in the IFC
- interest or royalties paid by offshore companies
- interest earned by investors in offshore investment organisations
- the payment of dividends to foreign shareholders
- the profits made by a shareholder when selling shares in an offshore company.
This does not mean that by setting up an offshore company or other entity (such as a trust) tax payments can be avoided. It simply means that the IFC will not charge any additional tax.
For example a company in China that sets up an offshore company is still subject to the tax rules of its own country, and must pay tax on the income it receives from its offshore activities in accordance with those local tax rules. Similarly individuals using an IFC are subject to their local tax laws, and will be required to pay tax on income earned offshore when they transfer it back to their own country.
There may be opportunities to reduce the total amount of tax payable by using an IFC. Alternatively it should be possible to defer payments of tax until the income is transferred back from offshore. The management of tax affairs must be conducted within the law, and in a way that the law permits.
Tax avoidance and tax evasion
There is a big difference between tax avoidance and tax evasion.
Tax avoidance means making arrangements that comply with tax laws but which nevertheless enable an individual, a company or another type of entity to avoid paying some tax, or at least to defer the payment of tax. The key point to recognise about tax avoidance is that it is legal.
The tax authorities in a country might have concerns about a particular tax avoidance scheme, and question its legitimacy. Governments could even consider a change in tax laws in order to reduce the scope for tax avoidance through schemes involving IFCs.
IFCs can be used for tax avoidance, but the rules may change at any time. It is therefore important to emphasise that anyone planning to reduce or defer tax liabilities through a tax avoidance arrangement needs to obtain professional advice from an expert.
Offshore arrangements that are designed purely for the purpose of avoiding tax could be inadvisable becauseif the tax laws are changed, the reason for using the IFC will disappear.
Tax evasion is very different. It involves arrangements by an individual or organisation that are in breach of the tax laws (and possibly other laws) of their home country, and which are intended to hide wealth or income from the authorities in order to escape tax. Whereas tax avoidance is legitimate, tax evasion is a criminal offence.
IFCs are sometimes accused of providing assistance for tax evaders, by helping them to hide their income and wealth from the tax authorities in their own country. The governments of IFCs deny this charge. It is certain that measures to prevent or detect tax evasion will continue throughout the world, as the global economy develops. Any person who uses an IFC to evade tax is exposed to criminal prosecution if the crime is discovered, and the risks of discovery for tax evaders can be expected to grow over time as anti-evasion regulations are increased.
Saving tax and deferring tax payments
Tax laws vary between countries, and this means that the opportunities for deferring tax payments or avoiding tax altogether can differ.
As a general rule, companies or individuals who put money into an IFC will not have to pay tax as long as the money remains offshore. However, if money is returned to the company’s or individual’s own country, it will become liable for tax in accordance with the national tax laws.
The payment of tax is therefore deferred, but it is payable eventually. Even so the ability to defer tax payments can be an advantage. First of all, it gives the individual or company much greater control over managing their tax affairs by providing some choice in when to pay the tax. Secondly, since the money has not yet been paid to the tax authorities, it can be invested to earn more returns.
Achieving a reduction in the total tax liability might also be possible. This will depend on the nature of the offshore arrangement. For example it might be possible for an individual to plan the avoidance of inheritance tax (death duty) through an offshore trust arrangement. Similarly it might be possible for a company to avoid or reduce tax on profits through an appropriate structuring of a group of companies, including one or more offshore companies.
Secrecy or confidentiality
Every country has regulations about the amount of information that must be registered and made public by companies and other entities. Many countries have rules, for example, on the disclosure of the identity of the shareholders in a company and the company’s directors. Similarly many countries give tax authorities the right to obtain information from banks about the bank accounts of individuals, so that they can investigate the individual’s tax declarations.
The rules on disclosure in IFCs (and some onshore centres) are much less strict than in many other countries, and can therefore allow more secrecy and confidentiality in financial dealings.
For example, a company set up in an IFC may not be required to make public any details of the owners of the company or its directors. These details, together with a copy of the constitution of the company, could be held at the office of the company’s registered offshore agent and kept confidential. This means that the authorities in the ‘home country’ of the individual or the company have no means of finding out how much wealth is held – or where – by its citizens until the money is eventually returned to the country. Similarly, many IFCs have had banking ‘secrecy’ laws which specify the circumstances in which banks may lawfully release data about a customer’s bank accounts without his or her prior permission. In Switzerland there are strict secrecy laws that make it an offence to divulge client information.
This tradition of secrecy has been heavily attacked by most major industrialised countries, which have been particularly concerned about tax evasion by their citizens. As a result some IFCs have agreed (under pressure) to release details of banking records and foreign ownership of bank accounts. So although an IFC will often offer confidentiality, there is always the possibility that details might eventually be disclosed to foreign governments.
Security
While there is risk in all financial dealings, there is also likely to be some risk in transferring assets to an offshore company or trust. It is important to understand what these risks might be, and select an IFC where:
- many of the risks are low, and
- if anything does go wrong, there are ways of taking action to put things right.Anyone using an IFC for the first time should always ask about measures to protect their assets and interests, and also the actions that could be taken in the event of a problem arising.
Security from political stability
Successful IFCs have stable political systems, where continuity of systems of government is assured. Investors in IFCs need to know that their interests will not be at risk from major political changes, and the threat of seizure or taxation of their assets.
Security provided by the law
The success of IFCs in attracting business and investment depends on providing a secure environment for money. An obvious risk is that money transferred to an IFC might be stolen. For IFCs to succeed in attracting foreign capital and business, it is essential that the wealth of foreign companies and individual investors should be protected from fraud and corruption. An investor in an IFC needs to have confidence that his money will not be taken from him or used for the benefit of someone else.
If the government and regulatory structure of any jurisdiction is weak, it will have difficulty in attracting and retaining foreign business and capital. A notable feature of the most successful offshore and onshore centres is therefore a sound legal system, ethical business practices and regulation of the financial markets. Their legal systems give strong protection to the owners of companies, investors in investment funds and individuals putting money into banks or entities such as trusts and private foundations.
Company law in an IFC should protect shareholders from fraudulent activity by company directors. The law also limits the potential loss of a shareholder to the amount of money invested in the company, not to any losses that the company might subsequently make. IFCs that have a law of trusts also provide strong legal protection to ensure that trusts are managed properly. (Trusts are explained later.)
The security of the law is also a reason why companies might wish to use an IFC for investing in a country with a political and legal system that is insecure or unreliable. For example, a Chinese company might wish to establish a joint venture with a company in a country in South America, say, where the political regime is insecure or the judicial system is considered unreliable or more likely to favour the local company in the event of a dispute.
By setting up the joint venture as a company registered in an IFC, both parties will obtain the security of a neutral centre for their agreement, supported by a fair and reliable legal system.
Resolving legal disputes IFCs, like many other industrialised countries, rely on the strength of legal systems to protect companies and individuals from injustice and unfair practices. For example if two companies are in dispute about a business transaction, they should be able to use the law to resolve the dispute in a fair way, and with reasonable speed.
Every IFC has its own legal and judicial system, but in international trade there are often arrangements for the referral of major disputes or complex disputes to the legal and judicial system of another country. So if there is a legal dispute relating to an offshore company or trust, the dispute may be referred to the local courts in the IFC. However, a contract between the shareholders in an offshore company could stipulate that any dispute that arises between them that cannot be resolved by a local court should be referred to another legal jurisdiction.
This might happen, for example, when two separate companies set up a jointly owned company in an IFC for the purpose of operating a joint trading venture. A dispute might arise between the joint venture partners, for example about how the company should be directed or financed. Their joint venture agreement might include a provision that disputes should be referred to the courts in a particular country and subject to the laws of that country.
Similarly a common feature of contracts involving an offshore company is that the contract provides for disputes between the two parties to the contract to be referred to a particular country’s legal system for resolution. Some countries are widely perceived as a reliable legal centre for resolving international commercial or financial disputes, because of their well-established legal systems for dealing with them. For example, in IFCs such as the Channel Islands (Jersey and Guernsey) and the British Virgin Islands, the legal appeals process could provide for appeals to be taken if necessary to the courts in the United Kingdom.
The British legal system is a common choice, because of its perceived expertise and experience in dealing with international trading disputes between parties in different countries. A contract by an offshore company to sell goods to a foreign customer or to buy goods from a foreign supplier may therefore include a provision that in the event of a dispute between the parties that cannot be resolved in any other way, the matter should be subject to British law and referred to the British courts.
Risks to be aware of
Although IFCs provide the security of a strong legal system and political stability, some risks are unavoidable with offshore investments and these should be considered before investing money offshore.
- Currency risk. When companies or individuals transfer money offshore, or set up a business operation in an IFC, they will often be dealing in a foreign currency. Many IFCs use the US dollar as the main currency for commercial dealing. If an individual or a company chooses to invest in a centre where the predominant currency is the US dollar, there may be exposure to the risk of an adverse change in the value of the dollar. For example, if an investor transfers some money to an IFC and into an investment denominated in US dollars, a fall in the value of the dollar would reduce the returns on investment measured in the investor’s own currency.
- Other financial risks. During the recent turmoil in the financial markets, some doubts were raised about the security of deposits in banks that were struggling financially, notably those in Europe and the US. Although many countries have some form of official protection scheme for bank deposits, not all deposits are protected. Therefore, any individual or company currently wanting to invest in an offshore bank or other financial institution should first consider the risks of that institution failing.
Limited regulation and low costs
IFCs also offer the benefits of limited regulation and low costs of regulation.Regulation of companies Companies are required to register when they are set up, so that their existence is officially recognised. They must then comply with regulations about the way in which their affairs are managed. For example, companies should keep accounting records. In many countries, companies are required to prepare annual financial statements and submit a copy of these to the government authorities. In addition there may be rules about providing information to the authorities about the ownership of companies and the identity of their directors. In IFCs the regulations relating to companies are very limited.
For example, companies in an IFC should be required to maintain financial records, but might not be required to prepare annual financial statements for filing with a local regulator.
Limited regulation of this kind means less administration and lower administration costs. It can also help to protect secrecy and privacy. Freedom of currency movements Individuals and companies may be able to plan their financial affairs with greater flexibility and freedom by operating through an offshore company or other entity. For example, there may be no restrictions on the movement of foreign currencies.
Regulation of investments The laws of some countries restrict the type of investments that an investor is allowed to make. For example, an investment institution might be required by the law to hold a minimum proportion of its investments in particular types of investment, such as shares or bonds listed on a major stock exchange. Alternatively the law might set a limit on the amount that investment institutions can invest in a particular type of investment, such as shares of privately owned companies or bonds without a credit rating. IFCs do not have similar restrictions. Some investors might therefore put money into an investment institution in an IFC in order to avoid them.
Closeness of the regulators
It is sometimes suggested that an important benefit of regulation in small IFCs is that financial regulators are very close to the markets and systems that they regulate. Because there are relatively few people living in the centre, and many of these are engaged in supporting offshore businesses, senior regulators have close contacts with many of the leading businesspeople and professionals. This means that regulators are well positioned to understand the problems and concerns of IFC business, and are probably more willing to respond quickly to any problems that might develop.
Availability of different financial structures
For every company or individual wishing to use IFCs, there could be a particular financial structure in a particular IFC that is best suited to their particular requirements.
It was explained earlier that a common way of ‘going offshore’, for individuals as well as companies, is to set up an offshore company. However, IFCs have demonstrated a willingness to innovate, so that a variety of different types of company are available. There are also different structures available as an alternative to an offshore company. These may differ between IFCs and each centre offers a range of different structures that are permitted under local law.Different types of company Each IFC has its own company law; therefore the rules that apply to companies differ between jurisdictions. Companies can be established with different capital structures, and company law allows variety in the written constitution of each company. For example, the ownership of a company and the rights of the various owners can be arranged to suit the requirements of their founders by having different classes of shares in the company’s capital structure. It should therefore be possible, with expert advice if required, to set up a company with an ownership structure and constitution that meets the needs of its owners.
The normal type of company is one limited by shares. With this type of company, ownership is represented by equity shares. The original owners of the company can decide how many shares there will be. Indeed, a company could have just one share and the owner of that share owns 100% of the company. Many offshore companies have a small amount of share capital and just one owner.
However, the share capital structure of a company means that ownership can be shared, and ownership transferred through the sale or gift of shares by a shareholder to another person.
Normally companies have registered shares. This means that the ownership of the shares is recorded in a share register maintained by the company or its agent. If a shareholder wishes to transfer some or all of his shares to another person, the change of ownership must be notified to the company, and the company will amend the share register accordingly. Legal ownership of the shares is not transferred until the transfer has been registered.
Some IFCs (such as the Seychelles and British Virgin Islands) allow some companies to issue bearer shares instead of (or as well as) registered shares. With bearer shares, records of share ownership are not kept in a register. The legal owner of the shares is the person who at any time has possession of the evidence of ownership. At one time, shares were issued as paper documents, and the owner of a bearer share was the person who had physical possession of the share document. In today’s business world, electronic records have replaced paper shares. Ownership of bearer shares is recorded on a computer file kept by a specialist organisation known as a ‘custodian’. Transfers of shares are notified to the custodian, who amends the records of the shareholdings of its clients. However, computer files of the custodian are not an official register of ownership, and bearer shares offer greater confidentiality of ownership details than registered shares.
Limited liability partnerships
Although it is usual for offshore businesses to be established as companies, there are other forms of business structure, such as limited liability partnerships.
A limited liability partnership (also called a limited liability company or LLC) is similar in many ways to a limited company. Like a company, it is recognisedas a person by the law. It can own assets and make contracts in its own name. However, instead of shareholders the entity has business partners. The liability of the partners for the unpaid debts of the partnership is limited to the capital they have invested in the business, in much the same way that the liability of shareholders is limited to the amount of capital they have already provided.
A major difference between an LLP and a limited company is that the profits of an LLP are shared between the partners in an agreed ratio and each partner is personally liable for tax on his share. In contrast, a limited company is itself subject to tax on its profits, regardless of its share ownership. The shareholders are subject to tax only on the dividends they receive or capital gains on the eventual disposal of their shares. If the partners in the LLP are not resident in the IFC, they might not be liable for tax on their share of the partnership profits until these are remitted back to the individual’s own country.
There are several factors that can make a limited liability partnership different from a company:
- A limited liability partnership must have at least two partners, who share in the ownership of the business (not necessarily in equal shares), whereas a company can have just one shareholder who owns the entire business.
- In a limited liability partnership, the partners will be actively involved in managing the business and its operations. With a company, the shareholders may delegate the task of management to professional managers or agents. Many companies are not actively engaged in business operations and so do not need day-today management.
- A limited liability partnership might be the preferred business structure for an international business of professional advisors, such as accountants or lawyers.
Trusts and private foundations
There are also other special forms of financial structure. IFCs with an Anglo-Saxon tradition recognise entities called trusts and have laws relating to how trusts should operate. Trusts may offer advantages to an individual wishing to arrange his financial affairs.
A few centres recognise entities called private foundations. These are similar in many ways to a trust, but they are based on a civil law code rather than the Anglo-Saxon legal system.
Speed of registration
New financial structures must be registered with the authorities of the country in which they are established. For setting up a simple company this can often be done by using an agent such as a lawyer or any of the many specialist companies that offer company incorporation services. Ideally, the agent should be located in the jurisdiction in which a company is being purchased.
A feature of IFCs is that it is normally possible to establish new financial structures offshore very quickly. For example, it is often possible to set up a new company offshore within a matter of just a few days and even on-line in a few hours , when it could take much longer in the owners’ own country.
An infrastructure of support services and communications systems
Well-established IFCs have an infrastructure of professional services and excellent communications links. In a global economy, companies and individuals want the ability to transfer funds quickly and to have control over their assets. To do this through IFCs they need instant access to agents through communications links and they also need the assistance of professional, competent agents in the IFC.
Professional services in IFCs
An IFC consists of a wide range of banks and professional service firms (lawyers, accountants, professional advisors, investment managers, etc.) that exist mainly to provide financial services to foreign clients.
Professional and administrative assistance is essential for anyone wanting to use an IFC. Some specialist organisations in the IFCs help companies and individuals to find this assistance, or can provide the services themselves.
Lawyers
Law firms normally have experts in different areas of the law, and they are able to provide help or advice with issues relating to:
- tax
- company law
- contract law
Tax is an important reason for using an IFC, and it is therefore extremely important that the arrangements for setting up the offshore company or other entitymeet all the requirements for compliance with the tax rules.
Legal assistance could be required with setting up a company, trust or other offshore entity, to ensure that its constitution is written in accordance with the requirements of its founder or owner. It would generally be considered ill-advised to set up any structure offshore – except the most simple – without legal advice and assistance from qualified professionals such as a lawyer or an accountant.
When operating an offshore business involves making legal agreements with other companies or individuals, the assistance of a lawyer with expertise in contract law is almost always required.
Other services offered by law firms include: company formation/secretarial, trust formation, litigation, acting as nominee director or trustee. Other possible areas of advice include: capital markets, corporate and structured finance, funds including hedge funds, insolvency, private equity, ship registration, captive insurance, fund administration, listing/brokering, tax planning, intellectual property.
Accountants
Like lawyers, accountants are professionally qualified specialists whose help is sometimes needed.
Other services offered by accountancy firms include: company formation, insolvency advice, corporate finance advice, tax advice, audit, consulting, financial advisory, risk management, fraud and financial investigation, cross-border asset tracing and recovery, structured finance, mutual funds, special purpose vehicles and pension plans, statutory and regulatory audits, stock exchange listing agent services.
Other service providers
Other service providers, including trust companies and company formation agents (these can be part of a law or accountancy firm or can be independent), are used to assist with a variety of administrative functions that must be carried out in the IFC.
Using a service provider avoids the need to employ someone full time within the centre to do the work.
The administrative services provided include:
- Assistance with the formation of offshore. companies and other structures such as trusts
- Secretarial services and keeping custody of statutory records.
- Providing nominee directors to act as a director for the owners of an offshore company. Nominee directors should carry out faithfully the duties that are formally agreed with the owners of the offshore company. Because they live and work in the IFC they are available at any time to deal promptly with company matters that require attention.
- Administration services, such as book-keeping and invoicing. (These services can be performed by administrators and a professional accountant is not required.)
Companies or individuals wishing to use an IFC should choose the centre with care, because centres differ in what they can provide. The most successful IFCs succeed because of the quality and breadth of the services they provide; however, not all centres are necessarily as good as each other. Some provide better services than others, with a more extensive infrastructure of support services such as banks, law firms and specialist administrators.
Some centres offer services and arrangements that are more appropriate to the particular needs of the company or individual. For example, some centres specialise in shipping registration or insurance companies, or in particular types of investment companies.
International interest in IFCs
The governments of other countries are interested in the activities of IFCs because they see IFCs as competitors for financial business, and they dislike the idea that IFCs could use low taxation or light regulation to win business. Governments have accused IFCs of competing ‘unfairly’ and have tried to apply pressure on them to change their tax laws or increase their regulations of IFC/offshore businesses.
Two international bodies have had some success in negotiating voluntary changes by some IFC in their tax laws or financial regulations:
- The Organisation for Economic Co-operation and Development (OECD). The work of the OECD includes investigating harmful tax laws and practices throughout the world and identifying ‘tax havens’ that do not cooperate with international measures for a more ‘fair’ tax system. It has created a ‘black- and whitelist’ with those countries on the blacklist being deemed to be involved in ‘unfair tax competition’. Some IFCs have done deals with the OECD and agreed, for example, to open up some of their client information in tax matters, to avoid being on the blacklist.
- The International Monetary Fund (IMF). Since
2000, the work of the IMF has included
investigation of financial regulation and
attempting to obtain the voluntary agreement of
jurisdictions for developing and improving their
systems of financial regulation and supervision of
financial institutions. It carries out assessments of
individual jurisdictions, which it then publishes.
