Offshore companies – why they are a popular business choice

Offshore companies and providers of consulting services in this business area are becoming more popular. The fact that financial advisors are growing in number means that competition among them is increasing. Political and economic factors have positively affected the growth in number of offshore companies and the industry in general in the 1980s and 1990s – and will also positively affect further offshore industry development in the years to come. These positive factors for the development of offshore industry are:

  • political and economic instability
  • globalization and deregulation of the global market
  • internationalization of business
  • decreasing market limitations
  • tendency toward global economic development

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Besides the mentioned political and economic factors, there are also tax related factors that have an effect on the growth of offshore industry, and these are:

  • possibility for tax return
  • high tax rates
  • existence of multilateral agreements

Offshore statistics

Approximately 60,000 offshore companies were established in 1997 in various Carribean offshore centers. The most popular center was BVI that has registered over 200,000 offshore companies to date – there were over 35,000 offshore companies registered in just one year.

It is estimated that approximately 15,000 offshore companies are registered annualy in Hong Kong and approximately 50,000 in other offshore jurisdictions. This means that over 130,000 offshore companies are being established every year, all over the world.

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Different profiles of offshore users

  1. A) Individual users

Individual users with high income but alsoimmigrants and refugees use offshore companies.

Individual users with high incomes are usually from Europe and North America, but these days there are users that originate from Asia or South America as well. This trend will continue in the future years. Today’s individual users are more demanding than in the previous decade.

Immigrants and refugees are also an important group of individual offshore users. Immigrants are individuals who have dislocated from one country to another and refugees are individuals who currently stay in one country but plan to return to their country of origin sometime in the future. They have left their country of origin due to political, social or other type of instability, in search for better living conditions.  They are looking to find financial security abroad as well as better economic opportunities.

  1. B) Businesses as users

Financial institutions

Large companies

Companies with special demands

Private equities
Financial institutions use offshore services more often these days. An important change in this trend happened with the establishment of the global European insurance market. With the new European legislation, insurance houses from EU countries can offer insurance to people from other EU countries.•

The diversity of global investments has also positively affected the growth in number of equities. Due to the EU monetary union, this growth will continue because it enables investing outside of the country of origin. Funds in offshore companies grow at double speed than in domestic companies. This draws in investors and promotes investments on new markets.

Every major world bank has recognized the potential of private banking in offshore jurisdictions.

When it comes to multinational companies, they are also fond of offshore centers for their international activities.

They use it for:

  • registering holding companies
  • direct foreign investments
  • establishing new company headquarters
  • increasing funds
  • new stock market players