Selecting a jurisdiction

The selection of the most suitable jurisdiction for either international trade or investment can often be difficult and requires very careful consideration. Most offshore jurisdictions are free from foreign exchange controls and have introduced company legislation to cater for a diverse range of international business requirements.

It is important to select a jurisdiction that is well suited to specific corporate and personal needs.

1. Political and Economic Stability

The pre-requisite requirement for anyone wishing to establish their business or private interests offshore is to select a jurisdiction that provides political and economic stability, so that business can be conducted with certainty, confidence and corporate security.

2. Legislation

There are now more than 60 jurisdictions world-wide providing offshore company legislation. Some jurisdictions have introduced new and modern suites of corporate legislation, specifically designed for international business whilst others have amended existing domestic legislation to cater for offshore requirements. The most essential criteria is that the legislation is modern, flexible and well proven. Furthermore, the legislation should preferably provide confidentiality and complete privacy regarding a client's business dealings.

3. Desirable Corporate Characteristics

Many offshore and "tax planning" jurisdictions have made efforts to ensure that their company law provides the following features:

  • Limited liability.
  • Minimization of directors liability - directors are generally responsible for the acts of a company. In certain jurisdictions directors may seek indemnities from both the company and its beneficial owners.
  • Minimal or optional statutory filing obligations.
  • Nominee shareholders allowed.
  • The availability of bearer shares.
  • Disclosure of beneficial ownership either not required or limited to special bodies, such as offshore authorities or central banks.
  • Minimal or optional statutory filing obligations.
  • Broad range of permitted company names and suffixes to denote limited liability.
  • Low capital requirements.
  • The ability to hold directors and/or shareholders meetings anywhere in the world.
  • The absence of or the optional requirement for the audit of accounting records.

4. Professional Infrastructure

The ongoing administration of all offshore entities demands both legal and accounting services. Therefore, it may be important to select a jurisdiction that provides a comprehensive selection of legal and accounting firms, which can provide cost-effective services to an international standard.

5. Communications

It is important for a jurisdiction to have state-of-the-art communication facilities. These include air travel, mail services and telecommunication systems so that busies can be conducted in an expeditious manner.

6. Language

While most offshore providers are able to provide multilingual services, the ability to conduct business in English is useful. This may assist in ensuring that client requirements are fully understood without the risk of mistakes.

7. Comparison of Company Law

Company law generally follows three different models:

  • Common Law
  • Civil Law
  • Hybrid

Incorporation procedures in Civil Law jurisdictions are different from those in Common Law countries:

  • An amount of paid-up capital must be subscribed before incorporation
  • A company's statutes are essentially a contract between the subscribers
  • Procedures are more onerous than in Common Law countries
  • Incorporation is facilitated by a notary
  • Corporate law in Civil Law countries often splits the responsibility of boards of directors between an executive and a supervisory board
  • Powers of directors may be curtailed
  • Liquidation procedures are time consuming and complex
  • A legal reserve may be required

8. Double Taxation Avoidance Treaties

The jurisdictions around the world can be categorized as follows:

  • Treaty jurisdictions
  • Non-Treaty jurisdictions

Clients seeking to take advantage of double tax treaty relief need to establish a company situated in a treaty jurisdiction. This is essential for the minimization of withholding taxes on the payment of dividends and royalties from contracting states. Treaty jurisdictions also portray a non-offshore image and thus provide cosmetic appeal.

Non-treaty jurisdictions are mainly used because of the absence of corporate taxes on the profits of the company and usually only require companies to pay a fixed annual license fee.