Transferring business offshore: Is it worth to relocate your operations?

As the recession hits the global economy, many businesses may struggle to keep the same level of growth. The Global pandemic, Brexit and war in Ukraine are factors that affected many markets in an extremely negative way. While some of the businesses have already started adaptation programs to the new reality, there are always additional factors in place to consider.

One of the possible options for businesses is to go offshore, or move some part of its operations into a more favorable environment. The formation of the company offshore is not an invention itself, but with the modern economic substance requirements may open new horizons for the business. Although, the offshore operation would work the best for the international companies, the companies operating within one country may also benefit from the relocation, according to the consultants from Astra Trust.

Below we give some of the examples of using offshore strategies to advantage of the business.

Online businesses functioning

The offshore structure can benefit the most those businesses that operate fully online. This can be online stores, consulting agencies, IT companies and online services, etc. In such cases, the company may be incorporated offshore in such countries as Cyprus, Malta, BVI, Cayman, etc. The exact jurisdiction to go depends on many factors that need to be discussed separately. With certain requirements followed, companies incorporated in such jurisdictions may significantly decrease taxation and administrative expenses. Incorporation in the financial centres also opens access to the world class banking institutions with a high level of service.

It is important to bear in mind the taxation that is applicable on several levels, namely on the level of the company, holding company, and the Ultimate Beneficial Owner. It is always advisable for the business owners to take tax advice regarding tax implications in their own jurisdictions before the company set up.

Alternatively, the business owner may consider his own relocation together with the company. This can significantly decrease his personal tax liabilities and would help to satisfy the economic substance requirements offshore, where the business owner would be on the board of directors of the company.

Onshore businesses in the UK

For businesses operating onshore there are also possibilities to benefit from the overseas structures. Although, in this case the business owner should consider transferring of part of business operations to the offshore company. This can be done in the form of transfer of some of the business processes overseas. For instance, a marketing department of a business to be transferred overseas to reduce the taxation. Alternatively, the business owner can create Special Vehicle Companies (SPVs) for some separate projects.

One of the ways to reduce tax burden on the UK limited company is to relocate its principal management overseas. The double taxation agreement with Cyprus, for example defines that the company shall be a tax resident in the place of management of the company. Therefore, by transferring the management of a UK company to Cyprus and registering with the tax authorities of such changes, the UK limited company may benefit from the corporate tax rate applicable to Cypriot companies.

From 1 April 2023 the corporate profit tax rate in the UK will be increased from 19% to 25%. Meanwhile, in Cyprus the tax rate remains at the level of 12.5%. By changing its tax residency the UK incorporated limited company can effectively reduce its tax burden by half in 2023.

The high-risk business activities

Traditionally, the high-risk activities deemed to be businesses like gambling, gaming, anything related to Forex and Crypto markets, casinos, etc. Such businesses require special arrangements as there are many factors involved, such as licensing, payment solutions etc. Nowadays, many of such businesses are operating online.

The offshore financial centers always have had more released legal regimes for such businesses. Some jurisdictions, such as the Isle of Man or Malta has license regimes for gambling or gaming companies that allows operate freely within the European market. Other offshore centres, such as Saint Vincent and the Grenadines has special treatment of Forex and Crypto activities, simply not regulating the mentioned industries. For example, the company established in St. Vincent and the Grenadines that is conducting Forex would not require application to the financial license on the islands, but formally would need to apply for the license in the jurisdiction where it would operate. Such approach may significantly reduce the administrative fees for incorporation and maintenance of the company.

Among other popular jurisdictions for high-risk businesses, there are Curacao, Seychelles, Gibraltar and Antigua & Barbuda. Those jurisdictions offer options for licensing and friendly environment for high-risk business activities.

In a nutshell, there are many possibilities to reduce taxation and administrative costs by applying offshore business strategies, completely or partially relocating your business and using different jurisdictions to benefit from the best suitable legislation.

Interesting Related Article: “Why You Stand to Benefit from Forming an Offshore Company