Offshore business review - financial holding companies

OFFSHORE BUSINESS REVIEW - FINANCIAL HOLDING COMPANIES

Broadly speaking, it is larger companies, especially multinationals, that use IOFCs for holding and investment. At one time, the tax advantages that could be got from routing investment or ownership through an IOFC had got to be balanced against the extra cost, difficulty and risk of using a possibly somewhat backward offshore island without sophisticated business infrastructure or switched-on professionals.

No longer. Some of the International Offshore Financial Centres are difficult to distinguish from centres in high-tax countries in Europe or North America in terms of financial infrastructure, while the spread of modern telecommunications, computer technology and now the Internet has pretty well done away with the difficulties of working with offshore.

Still, it is the tax advantages that drive offshore, as always, and the 500 banks in the Cayman Islands are there to reduce their own tax bills and to service the needs of corporations that want to lower their tax burdens, not because of the climate. There is a very wide variety of corporate financing and investment purposes offshore, some of which are indicated in the following list:

to hold foreign subsidiaries and receive dividends or interest on loans from them in a tax-efficient manner; either because there is a good tax treaty between the IOFC and the foreign country concerned; or because the IOFC itself has low taxes; or a combination of the two.
to concentrate the profits and losses from subsidiaries in one low-tax area, which may be more tax-efficient than remitting them to the high-tax base country separately.
to obtain financing from institutions that are themselves free of high taxation (especially withholding tax) and can therefore provide it more cheaply than they can from high-tax centres. Especially project finance is often assembled offshore, where the burden of regulation is lighter, alongside the tax advantages.
to base in-house treasury and finance departments in a flexible, low-tax environment from which they can provide the best and cheapest service to group companies wherever they may be.

In choosing an IOFC for financial purposes, it is the finance sector infrastructure that is most important, and here is a list of IOFCs that qualify in a general way – underlined jurisdictions are already covered in our Jurisdictions section; others will be shortly:

(NB: it may often be the case that a corporation resident in a particular high-tax country will choose a specific IOFC because of the tax situation between them.)

British Virgin Islands

Cayman Islands

Cyprus

Hong Kong

Isle of Man

Jersey

Luxembourg

Malta

Panama

In the Lowtax.net jurisdictions section, information is given about the financial sector for each of the following completed jurisdictions:

Andorra, Anguilla, Aruba, Bahamas, Barbados, Belize, Bermuda, British Virgin Islands, Cayman Islands, Cook Islands, Costa Rica, Cyprus, Dubai, Gibraltar, Grenada, Guernsey, Hong Kong, Ireland, Isle of Man, Jersey, Labuan, Liechtenstein, Luxembourg, Madeira, Malta, Mauritius, Monaco, The Netherlands Antilles, Panama, Seychelles, Switzerland, Turks & Caicos Islands and Vanuatu.

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