Cyprus and other jurisdictions.
The countries of the EU more and more often 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 the flows of the financial assets which come from Cyprus. Those, who do not support such requirements, are threatened by the variety of financial and economic sanctions from the European Central Bank. Let’s try to clear up, what the jurisdictions remain open for the withdrawal of the financial assets from Cyprus.
The crisis in the banking sector of the Cyprus island state was the main reason of 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 via the 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 rectify the situation. The situation continues to be uncertain, and the amount of write-offs has already reached an 80% record mark of all the deposited funds.
The Cyprus island state was a popular offshore jurisdiction for the international entrepreneurs, but it is quite difficult to state accurately how many investors keep money in Cyprus banks. Different figures were given at different times.
Cyprus: what are the benefits for private business
Before to start searching for the alternative jurisdiction, we should understand what are the main advantages of Cyprus as 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 to optimize the taxable base at the international level;
- flexible legal system: the principles of English law constitute the state 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 anonymity of the business owners and the ultimate beneficiaries.
But the recent events in Cyprus 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.
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 offshores in terms of investment attraction include: Switzerland, the Netherlands, the USA, the UAE, the British Virgin Islands, Austria and etc. And when some jurisdictions are used only for tax optimization, the others provide a real investment activity and acquire various assets.
The UK: 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 area, namely on the island of Jersey.
Jersey remains the ideal platform for companies and enterprises which plan distribution of 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 island is not large (116 sq. km), there is everything to create a business. 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 is a notable competitor of Cyprus in terms of the 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. A relatively high tax burden remains 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 crisis situations occurring in the EU. Unfortunately, since 2010, the authorities may provide, by the official request, information about the account holders, what can become a solid reason of the outflow of the investment assets. It is worth to note separately the attitude of Swiss banks towards their clients. Much more responsible and reasonable approach is used here.
The British Virgin Islands
The British Virgin Islands is very popular Among the offshore companies located outside of Europe. This island is 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 state fee is obligatory for the companies, which are registered in the British Virgin Islands. Today the number of the international companies, which are registered in this jurisdiction, is more than 600 thousand.
The United Arab Emirates
Speaking about this jurisdiction, it is worth to note its special status – it is not an offshore, but there are no taxes. 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 jurisdiction.
Other offshore areas 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 offshore areas, including:
- the Marshall Islands;
- the Bahamas;
- the Cayman Islands;
- Belize and etc.
Do not forget that your commercial and economic activity on the territory of these states will remain inaccessible for the fiscal and regulatory bodies.
Anyway, the banking crisis in the Cyprus island state will not pass 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.