To begin with, let’s clarify what an offshore jurisdiction means in simple terms. In classic terms, offshore jurisdictions are countries with no taxes, a high level of corporate and financial confidentiality, and minimal reporting requirements. All other countries that differ from offshore jurisdictions in terms of taxation, transparency, and reporting are considered onshore jurisdictions.
However, since the 2010s, the defining features of offshores have gradually begun losing their relevance. Jurisdiction after jurisdiction started implementing large-scale reforms that cover taxation, legal status of entities, anti-money laundering, and international cooperation. This wasn’t initiated only by the countries themselves but also occurred under pressure from various international organizations and groups such as G20, OECD, the EU, and FATF. As a result, within just a few years, many jurisdictions have significantly amended their legislations to align with international standards. Some of them ceased to be offshore jurisdictions altogether.
Let’s take a look at what recent reforms have led to in terms of the fiscal and legal conditions that used to serve as unique advantages of offshore jurisdictions.
Tax exemptions
The first and perhaps best-known feature of an offshore jurisdiction is tax exemption. Many businesses are eager to register companies that enjoy genuine tax exemption.
Indeed, in several jurisdictions, tax exemption is still possible. However, there are now some important nuances.
Taxation of offshore companies in Seychelles
In Seychelles, an Indian Ocean nation, the income of International Business Companies (IBCs)—companies specifically established to conduct international business outside the islands—was exempted from taxation for a long time.
However, following the 2019 tax reform, Seychelles authorities attempted to shift from the classic offshore model to a ‘territorial’ tax system. Under this system, only income earned from sources within Seychelles is taxed while income earned outside of Seychelles remains untaxed. The standard tax rate for income from sources in Seychelles is 15% (for the first SCR 1,000,000, equivalent to about USD 75,000) and 25% on amounts exceeding that threshold (these rates have been in effect since January 1, 2022, whereas earlier the rates were 25% and 30%, respectively).
This means that for Seychelles-based companies with no local income, the tax exemption remains in place. However, there’s one more thing to consider. Under the 2021 amendments to the Business Tax Act, Seychelles companies that are part of an ‘international group’ and that lack ‘adequate economic substance’ in Seychelles during the financial year will have their foreign (!) income taxed—this includes passive income (e.g., dividends or interest) from sources outside Seychelles. This is essentially a move away from ‘territorial’ taxation to something closer to ‘worldwide’ taxation.
Tax system in the Comoros
The Comoros are also an offshore jurisdiction with a territorial tax system. There, corporate tax is levied only on profits generated within the country. Companies operating outside the Comoros are exempted from corporate tax. That’s why international business companies (IBCs) are frequently registered there by non-residents.
Moreover, the government provides various tax incentives for foreign investors, such as:
- New companies may be exempted from corporate tax for a certain period (depending on the industry).
- Accelerated depreciation applies to certain assets.
- Companies carrying out investment projects are exempted from import duties on equipment and materials.
These favorable tax conditions and other benefits make the Comoros attractive to entrepreneurs looking for business opportunities in the region.
Main taxes in the Comoros
Let’s look at the main taxes in the Comoros.
Personal income tax
Residents of the Comoros have to pay taxes on any type of income, including income earned abroad. For individuals, there is no fixed tax rate—a progressive scale ranging from 0% to 30% applies, depending on income levels. Non-residents only pay tax on income earned in the Comoros, also on a progressive scale.
Corporate tax
The standard corporate tax rate is 35%. The minimum corporate tax is 3% of the annual turnover. Companies in the Comoros are exempted from taxes on dividends and capital gains, which further attracts foreign investors. IBCs are not required to undergo audits or submit financial reports and they are exempted from tax on income earned outside the country.
Value-added tax (VAT)
All goods and services in the Comoros are subject to VAT at 20%. Lower or zero rates apply to essential goods, which creates favorable conditions for international business.
Customs duties
Imported and exported goods in the Comoros are subject to customs duties that are set according to international agreements, as the country is a WTO member.
Tax holidays and other incentives
To attract investors and stimulate economic growth, the government offers tax holidays and other incentives. These include reduced income tax rates and exemptions for certain types of income. Companies operating in particular regions or industries may qualify for these incentives. As priorities change, business owners should keep track of the latest updates.
Taxation for companies in Belize
Belize, a Central American country, has gone even further and eliminated corporate tax exemptions that were applied to IBCs for a long time. The Belizean tax system has become less favorable.
All companies in Belize, including former IBCs, are now subject to a business tax on income. The tax base includes worldwide income—income from both Belizean and foreign sources. Expense deductions are not allowed.
The standard tax rate for companies in Belize is 1.75%. The income threshold below which no tax is payable is USD 37,500 per year. Different rates apply to certain industries and types of income (finance, telecommunications, tourism, gambling, rental income, and others).
Furthermore, all companies in Belize now have to obtain a Tax Identification Number (TIN) and file an annual tax return.
Taxation for offshore companies in Saint Vincent and the Grenadines
Among other former offshore jurisdictions, Saint Vincent and the Grenadines (in the Caribbean) should be mentioned. Companies registered in this jurisdiction used to enjoy long-term (though time-limited) tax exemptions. Nowadays, a territorial taxation principle applies in Saint Vincent. The tax rate is 30% (after deducting allowable expenses). Resident companies are taxed on their worldwide income while non-residents pay taxes only on income from sources within Saint Vincent.
Taxation for companies in BVI and Cayman Islands
Companies in the British Virgin Islands (BVI) and Cayman Islands (both in the Caribbean) still enjoy complete tax exemption on profits.
As we can see, offshore tax reforms have taken different forms across jurisdictions. In Belize’s case, the country abandoned zero taxation (as well as its status as an international company jurisdiction) and effectively ceased being an offshore jurisdiction, while still imposing relatively low taxes. Other countries, such as Seychelles, the Comoros, and Saint Vincent and the Grenadines, have shifted towards various territorial taxation models, where the tax base is limited to income earned within the country. Finally, from a tax perspective, the BVI and Cayman Islands remain offshore jurisdictions in the full sense of the word: they are zero-tax jurisdictions.