What are offshore zones?

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2016-06-12 00:00:00:


What are offshore zones?

Offshores are territories or entire countries with a special "economic climate", created on the basis of special economic zones in order to attract foreign investment. For this reason, investors are offered a wide range of opportunities with minimal conditions. This general concept provides a simple answer to the question: what are offshore zones? But how do they function?

Lets consider this on the example of one "harbor". A small country with limited human, natural or intellectual resources, looking for ways to attract external investors, declares itself a special economic zone (SEZ) and maximally simplifies the process of registering a new enterprise, obtaining a license, guarantees freedom from taxes and minimizes state control. At the same time, it prohibits such companies from engaging in production on the territory of their country, annually charges a standard amount for re-registration and sets a number of other minor conditions. This is how an offshore zone appears, where any foreigner can register his company and conduct his business in the legal field of this small state.

What does an entrepreneur get when he transfers capital to an offshore zone?

    Freedom from taxes, as, for example, in Ireland or Liberia, or significantly reduced fees - as in Switzerland, “flat fee” - a one-time registration fee - is practiced in Panama. Consequently, there are no tax declarations and reporting control, that is, in fact, the confidentiality of processes within the enterprise is preserved. In case of formal need, an annual report is required. Also, a foreign investor gets freedom from restrictions on the export of currency, which allows him to withdraw officially declared profit without any costs.
    The ability to conduct export-import business in many countries of the world, carrying goods through an offshore. Using an agreement "on the avoidance of double tax", you can minimize the declared profit and significantly reduce the customs duty, and after the sale of goods at market prices, withdraw the profit to an offshore account. Thus, it becomes possible to obtain shadow profits that are virtually impossible to track.
    Stability. It is guaranteed by two factors, the first is confidentiality, which was already mentioned above, and the second is the offshore zone itself, which ensures the stability of its policy towards investors for at least 20 years.

What does the "harbor" itself get?


So, what are offshore zones and how much profit can they bring? Steadily increasing inflow of foreign exchange investments. The practice of Panama shows that one tax-free zone can register more than 100 thousand companies and profit from this.

This is followed by the rapid development of the countrys infrastructure, improving the material well-being of its citizens, who are often given jobs by the offshore. In addition, the minimization of financial risks, if the countrys budget is not directly related to offshore, which is an economic concept that implies loyalty to investors.
 

The legality of the existence of offshore zones

In legal terms, the existence of enterprises registered in tax-free territories is completely legal. Russian legislation does not prohibit its citizens from setting up companies abroad and becoming a shareholder in foreign enterprises. Foreign legal entities are also not prohibited from doing business with Russian enterprises, provided that each party observes the laws of the Russian Federation. But most of the worlds leading states declare that such a phenomenon as offshore zones is dangerous for the world economy. In this regard, a number of laws were adopted to tighten control over the legalization of profits and, in particular, in order to suppress the sponsorship of terrorists (Federal Law No. 115 of 07.08.01).

The increased attention of the regulatory authorities of the EU and the United States is another factor that creates pressure on a company registered in a free zone. This translates into difficulties in obtaining loans and finding partners if your offshore company has a bad image in the world market. The main problem of the image is that it is formed depending on how the government cooperates with international organizations and the governments of individual countries. That is, the better an offshore company stores information about its clients, the lower its rating will be.

The emergence of zones conducive to free trade is one of the signs of globalization and the following social changes, strengthening economic relations between countries. This allows private entrepreneurs to conduct their business without fear of economic changes associated with the political situation in their country, and not give away a significant part of their profits in the form of taxes and customs duties.

But the leading countries of the world oppose offshore zones, arguing that through shadow enterprises there is a significant outflow of capital from the budget. According to approximate data, in 2014 almost two trillion US dollars were withdrawn from Russia.