Offshore companies are companies that do not operate within their country of incorporation, but rather operate in international or offshore markets. Such business activities serve as their main source of income, allowing them to qualify themselves for attractive tax subsidies and exemptions. This is one of the main benefits of offshore companies – tax efficiency. However, offshore companies have gradually evolved beyond a mere tax planning tool and are also able to offer many other benefits to their parent companies, which include asset privacy and protection, access to international trade opportunities, and access to offshore banking. These additional benefits form part of the considerations in our ranking of the top 5 countries to setup offshore company.
Our top five list is as follows.
- Singapore
- Hong Kong
- United Arab Emirates
- Estonia
- The Bahamas
1st: Singapore
In our opinion, the top country where you should setup your offshore company is Singapore.
Ease of doing business
Doing business in Singapore is easy, as reflected in its World Bank Ease of Doing Business 2020 ranking of 2nd place. This represents the ease of doing business in the jurisdiction based on a variety of factors, including how easy it is to start a business, how easy it is to enforce contracts and the country’s taxation policy. Singapore has scored well not only due to its short and efficient company incorporation process, but also due to its taxation policy which makes it simple and easy to file tax returns.
Incorporation process
Singapore’s company incorporation process is one of the shortest in the world, taking only 1 business day to complete, and has minimal requirements. Company incorporation only has two steps, company name reservation and filing for registration. Filing for company registration only requires basic documents such as personal identification documents and the articles of association are needed. In addition, there is no minimum capital needed to start a company.
Territorial taxation policy
Singapore follows a territorial taxation policy, which allows non-resident companies to enjoy attractive tax subsidies and exemptions if income is not generated domestically. Your offshore company could also qualify for additional subsidies if you are classified as a small or medium enterprise, and when newly incorporated. You will also not need to pay capital gains tax, or withholding tax.
Summary
Alongside these two benefits, one of the most crucial benefits that allows Singapore to rank as the best country to incorporate your offshore company is its openness to foreign trade and investment. This allows the country to enjoy a good reputation and a high level of credibility that lends itself well to a multitude of offshore businesses, especially businesses which require credibility due to dealings with customers and suppliers. Foreigners can also expect equal treatment of their investments when compared to domestic investments and can fully own their own company.
2nd: Hong Kong
Hong Kong only falls marginally behind Singapore in our rankings of the top country for your offshore business. Having interchanged positions with Singapore on the World Bank Ease of Doing Business Index, you can expect it to be equally easy for you to do business in Hong Kong. The Inland Revenue Department of Hong Kong also has a similar taxation policy to Singapore, with offshore companies being able to tap on the Offshore Profits Tax Exemption scheme.
Loss of socio-political stability
Therefore, the biggest differentiator between the two countries and the reason why Hong Kong is ranked lower is the loss of socio-political stability arising from the recent riots. Hitting their peak in 2019-2020, the riots over anti-extradition, democracy and police brutality led to the shutdown of crucial infrastructure within the country. This included major disruptions to roads, trains and even the closure of the Hong Kong International Airport. This caused the Hong Kong economy to lapse into recession, with the Hang Seng Index falling by 4.8%. Fitch Ratings also revised their outlook on the country from “stable” to “negative”, reflecting the negative investor sentiments which plagued the country.
Summary
While one would expect Hong Kong to rank lower on the list given the effects of the riots, it is redeemed by the fact that it offers easy access to the mainland Chinese market for investors that are confident of managing the negative effects arising from the loss of socio-political stability.
3rd: United Arab Emirates
The United Arab Emirates (UAE) is third on our list but has the potential to score much higher in the future.
Growth potential of the region
With the grand aim of topping the 2021 World Bank Ease of Doing Business rankings, the UAE has shown their willingness to continually update and reform their policies to make it a better place to do business. Given that 100% foreign ownership was only allowed from 1st December 2020 onwards, the UAE definitely has a lot to catch up on in terms of policies and regulatory framework as seen from the fact that it is currently ranked 16th on the 2020 World Bank’s Ease of Doing Business Index.
Strategic location
Additionally, being located in the Middle East, it holds a strategic location between Asia, Europe and Africa. Thus, it would be very beneficial for a company looking to do trading activities or related operations within these regions.
Summary
Given its potential and strategic location, the UAE is definitely a jurisdiction to watch, especially for investors with interests in the region.
4th: Estonia
Ranking fourth in our list, Estonia is most famous for their e-Estonia initiative and their embracement of blockchain technology. This makes it easy for companies to register and manage their companies online, serving owners of offshore businesses extremely well.
Cryptocurrency hub
In particular, the country is one of the major cryptocurrency hubs of the world, being one of the first to regulate and legalize cryptocurrency. It is also home to one of the most responsive and comprehensive cryptocurrency regulatory frameworks that instils trust within suppliers and customers, making them more comfortable and accepting of this new method of payment.
Summary
Estonia is a good option for tech-savvy businesses and those who are looking to delve into the cryptocurrency market. Apart from that, it does not offer the same versatility to investors as Singapore and Hong Kong would, which is why it is only fourth place on our list.
5th: The Bahamas
Much like our fourth-placed candidate, The Bahamas lends itself well to investors keen to delve into the cryptocurrency market, with The Bahamas even having their own Central Bank Digital Currency, the Sand Dollar.
Summary
However, it does not outrank Estonia since it is often perceived to be a tax haven. The resultant lack of credibility might thus lead to additional scrutiny from banking authorities or your clients.