INTERNET LAW - TOP REASONS FOR MOVING AN E-BUSINESS OFFSHORE
INTERNET LAW - TOP REASONS FOR MOVING AN E-BUSINESS OFFSHORE
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Aside from the tax motivation, which is often the main reason why businesses choose to move offshore, and which is detailed in the summary entitled: “A Main Reason to Move Offshore: Avoiding Tax,” there are several reasons why e-businesses might make the move. Some of these reasons are related to the secrecy of offshore banking system, and to the availability of asset protection schemes.
There are various reasons why e-businesses might think going offshore. Given the tax incentives available offshore, it makes sense in any international tax planning to direct profits out of high tax countries to offshore jurisdictions and international business centers, thus taking advantages of the reduced or zero tax rates and double tax treaties, where available. There are also a number of compelling reasons other than tax savings to consider moving offshore. Most of these reasons can be included in the general “costs reduction” category. Doing business online increases efficiency and reduces transactions costs, and such cost savings are compounded when the company is located offshore. The top reasons for moving offshore include: (i) reduction of tax liability, (ii) asset protection, (iii) estate planning, (iv) confidentiality, (v) e-commerce, (vi) wider investments, (vii) currency diversification, (viii) legislative flexibility, (ix) foreign-businesses friendly government.
Why might an offshore government sound attractive?
An offshore government might sound attractive for the following reasons:
An offshore government often means less government regulation, red tape and bureaucracy, especially when we are dealing with an International Offshore Financial Center (“IOFC.”) These characteristics translate to lower costs of doing business, because the legal compliance costs are lower. IOFC governments are also smaller, which means faster decisions.
Offshore economy is often based on foreign businesses and thus offshore governments are generally more cooperative and willing to grant foreign businesses a faster access to top administration.
For the same reason, offshore legislation is much more flexible. It is sometimes designed specifically to facilitate the establishment of foreign businesses. Free zones are an example of this trend. Free zones have been established in the Dominican Republic and Belize with complete telecommunications facilities, investment and tax incentives, in order to attract e-business. Free zones also exist in Panama, Costa Rica, the Bahamas and other offshore jurisdictions.
What about confidentiality?
In some countries, it is fairly easy to obtain data about the financial status of a company or an individual’s credit records, real estate holdings, business interests and investments. Thus, some businesses choose to move offshore because of some offshore jurisdictions’ ability to preserve confidentiality. An e-business might value confidentiality especially as far as the protection of technical and intellectual property is concerned. In certain litigation situations where e-businesses based in a Western jurisdiction would have to disclose trade and intellectual property information, an offshore jurisdiction grants better protection. Financial privacy is also commonly sought after (e.g.: in many IOFC, bank information, shareholders information and tax returns cannot/do not have to be disclosed, even when requested by foreign governments.)
Is it more difficult to sue in an offshore jurisdiction?
Yes it is. Actually, one of the major reasons for the flight of huge amounts of assets to offshore jurisdictions are the huge awards that are being granted in some countries by juries and judges (e.g.: the US, with its system of punitive damage awards.) In the US, courts and juries have become the most generous in the world in awarding damages to plaintiffs who sue for recovery. However, when the defendant’s assets are offshore, the outcome of litigation might be different. Conducting a lawsuit in an offshore jurisdiction can be a costly and lengthy process. The rules of evidence are different, the confidentiality is often higher than in a Western jurisdiction, and business partners, competitors or disgruntled clients often have a hard time getting what they want in an offshore court. By contrast, litigation is a growing threat for e-businesses in the US and in the European Union, including government litigation (e.g.: anti-trust actions against Microsoft in the US and in the EU.)
What about asset protection/liability avoidance?
Asset protection is another common reason why some businesses consider the lure of offshore. Many IOFC offer investors and entrepreneurs the ability to shelter their assets through financial trusts, corporations, banking institutions and government legislation.
What are other benefits of having assets offshore?
Other benefits of going offshore include, both for the company and business owner:
Access to Foreign Investments: there are many investment choices only available offshore, such as mutual funds.
Financial Investment Diversification: an organized system of investment diversification makes it possible to mitigate different kinds of risks. A diversified investment portfolio would include investments in different industries, in different countries and even in different currencies. Having some investments outside a single political jurisdiction would be another form of diversification from a different kind of risk.
Global Trade Opportunities: in order to do business outside of a particular jurisdiction, it might be useful to have some financial assets outside of this particular jurisdiction.
Links: PublicationsCan-Offshore.com, “Why Go Offshore” (in English)
Links: PublicationsThe Asset Protection Law Center, “Advantages of the Offshore Trust” (in English)
Links: OrganizationsEscapeartist.com (in English)
Links: OrganizationsThe Asset Protection Law Center, “Advantages of the Offshore Trust” (in English)
http://www.ibls.com/internet_law_news_portal_view.aspx?s=articles&id=E6E203C6-E9D5-441A-872E-F6F545E9F9ED
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