Cyprus, British Virgin Islands, Switzerland and Other Jurisdictions with Low Tax Rates
More and more often the countries of the EU take preventive measures and intensify the resistance to the international offshore jurisdictions. In particular, the fiscal authorities of the Eurozone have required the participating countries not to accept financial assets which come from the jurisdiction of Cyprus. Those, who do not support such requirements, are threatened with the variety of financial and economic sanctions from the European Central Bank. Let’s try to clear up, what jurisdictions remain open for the withdrawal of the financial assets from Cyprus.
Define jurisdiction and its features
First, let's make it clear what a jurisdiction is. Jurisdiction is the territory that sets the limits of the competence of a public authority. In the case of a unitary country without special regions with a special status, its entire territory can be considered a single jurisdiction, but there are many examples of countries several or even several dozens of different jurisdictions. The so-called free zones became widespread.
Special Economic Zone or Free Zone is a limited territory with special legal status about the rest of the country. Often, special status is expressed in preferential tax or customs conditions for national or foreign entrepreneurs. The main goal of creating such zones is solving the tasks of the social and economic development of a country, individual regions or industries.
From the point of view of a country, a free zone:
- Attracts foreign capital, advanced technologies for the production of goods and services.
- Attracts qualified professionals
- Creates new jobs for highly qualified staff.
- Develops an export base.
From the point of view of investors, a free zone:
- minimizes costs associated with the lack of export and import customs duties
- Gives access to infrastructure.
- Removes administrative barriers.
- Provides the ability to easily develop technology and try innovative methods and ways of doing business.
Cyprus jurisdiction: what are the benefits for private business
Before starting to search for the alternative jurisdiction, we should understand what are the main advantages of Cyprus as an offshore jurisdiction. So, the following factors can be singled out among the main attractive investment opportunities of Cyprus:
- preferential tax treatment of the international companies: corporate tax rate for foreign legal entities is 10%;
- modern banking sector: this economic sector, by the amount of turnover, is several times higher than the country's Gross Domestic Product;
- availability of the bilateral international agreements which allow optimizing the taxable base at the international level;
- flexible legal system: the principles of English law constitute the country legal system, what is very convenient and practical for foreign investors.
Cyprus has been traditionally used to create various offshore schemes, which allow to optimize tax payments, and thereafter to extract more profit. In addition, such schemes allowed to maintain the anonymity of the business owners and the ultimate beneficiaries.
But the recent events in this jurisdiction have undermined all the traditional offshore schemes, and entrepreneurs and investors have to seek for the alternative tax-free havens. When searching for the alternative for Cyprus, first of all, one should pay attention to one factor: it is important that the relevant jurisdiction have agreements aimed at avoiding double taxation.
The crisis in the banking sector of Cyprus was the main reason for the outflow of the financial assets and has finally undermined the confidence of the private business in this jurisdiction. Moreover, the difficulties and problems have affected all those who were involved in illegal money-laundering with the help of offshore schemes, and those who carried on quite legitimate business.
The main problem is not that after the withdrawal of some part of funds from the accounts, the business will incur significant financial losses. After closing almost all the island's banking institutions, the situation in the country has become completely unpredictable, and the official authorities, try to find the best way out to cope with the situation. The situation continues to be uncertain, and the amount of write-offs has already reached an 80% mark of all the deposited funds.
Cyprus was once a popular offshore jurisdiction for the international entrepreneurs, but it is quite difficult to define how many investors keep money in Cyprus banks. Different figures were given at different times.
A brief overview of the most popular offshore jurisdictions, which can be considered an alternative for withdrawing of the financial assets from Cyprus, is given below.
International tax-free jurisdictions
The current practice shows that some offshores are replaced by others, which are already use-proven, and which were used by entrepreneurs. The list of the leading offshore jurisdictions regarding investment attraction include Switzerland, the Netherlands, the USA, the UAE, the British Virgin Islands, Austria, etc. Some of these jurisdictions are used only for tax optimization, the others provide a real investment activity and acquire various assets.
The UK: the jurisdiction of the island of Jersey
As for the Foggy Albion, the situation is somewhat different there. Of course, some entrepreneurs carry on a real business there, but most of these assets are located in the offshore jurisdiction, namely on the island of Jersey.
Jersey remains the ideal platform for companies and enterprises which plan to distribute their securities on the London stock exchange. It is worth noting that for this reason a lot of the international industrial giants are registered in Jersey. The other side of the attractiveness of the jurisdiction is that the income, which is received by the residents outside the jurisdiction, is not taxed.
Although the territory of this jurisdiction is not large (116 sq. km), there is everything to create a business here. First of all, it is modern banking, social and production infrastructure. There are more than 50 banking institutions and credit organizations on the island. More than 10 thousand employees are engaged in the island banking sector.
The Netherlands jurisdiction
The Netherlands is a notable competitor of Cyprus regarding direct investments. The main attraction of the jurisdiction is the minimum rate of taxation.
Switzerland is a bit behind the Netherlands and Cyprus on the volume of the accumulated funds. Relatively high Swiss tax rates remain the main obstacle for private business in this jurisdiction. But the government of the state attracts potential investors and wealthy businessmen by offering to pay a fixed tax, which is independent of the amount of profit.
The main advantage of this jurisdiction for private business is the fact that Switzerland implements its own monetary policy and is not dependent on the crises occurring in the EU. Unfortunately, since 2010, the authorities may provide, by the official request, information about the account holders, and that can become a solid reason of the outflow of the investment assets. It is worth to note the attitude of Swiss banks towards their clients separately. A much more responsible and reasonable approach is used here.
The British Virgin Islands (BVI) jurisdiction
The British Virgin Islands (BVI) are very popular among the offshore companies located outside of Europe. These islands are an offshore jurisdiction in the classic sense of the term. The following types of taxes are absent here:
- taxes on corporate profits and incomes of physical persons;
- taxes on value-added and sales.
Payment of the fixed country fee is obligatory for the companies, which are registered in the British Virgin Islands. Today the number of international companies, which are registered in this jurisdiction, is more than 600 thousand.
The United Arab Emirates jurisdiction
Speaking about this jurisdiction, it is worth to note its special status – it is not offshore, but there are no taxes in the country. After registering a company in the Emirates one can carry on both an international business and business in the country. Tens of thousands of companies are already registered in the country.
Other alternative jurisdictions with low tax rates
Other offshores can be used for tax optimization and withdrawal of the investment assets. In particular, for this purpose, one can use a lot of island jurisdictions and offshores, including:
- the Marshall Islands;
- the Bahamas;
- the Cayman Islands;
- Belize, etc.
Do not forget that your commercial and economic activity on the territory of these jurisdictions will remain inaccessible for the fiscal and regulatory bodies.
Anyway, the banking crisis in the Cyprus island state will not end without the consequences both for local government and business representatives. The entrepreneurs and businessmen have to approach the choice of the jurisdiction for tax optimization with full responsibility and to take into account all the possible consequences. However, an offshore jurisdiction remains one of the most popular tools for international business. Therefore, it is unlikely that an international business, after the crisis in Cyprus, will change its attitude towards the offshore jurisdictions, but will rather continue their usage in practice.