There are fourteen main locations across Europe that can be considered offshore jurisdictions; they range in suitability for various different types of offshore business: from banking to saving, from company formation to investment related business for example.
In this report we’ll detail each of the fourteen locations for you in turn, covering the basic advantages and appeal of each offshore haven. We’ll also outline the nature of offshore business most suited to the particular country or island so that if you’re looking for a place for your assets or your business idea, you may find it below.
The fourteen jurisdictions we’re going to cover are Andorra, Cyprus, Denmark, Germany, Gibraltar, Guernsey, Ireland, Isle of Man, Jersey, Lichtenstein, Luxembourg, The Netherlands, Switzerland and, believe it or not, the good old United Kingdom.
The Fourteen Offshore Jurisdictions in Europe
Andorra is a Principality located in the Pyrenees between France and Spain. Both nation’s governments are responsible for Andorra’s foreign affairs and defence, but Andorra itself is politically neutral.
It is also a no tax jurisdiction! No direct taxation is levied on income, on capital or corporations. What’s more, neither wealth nor inheritance taxes exist in the Principality. Therefore, for those seeking significant confidentiality and security, Andorra may be a suitable offshore jurisdiction in which to set up the management and control of offshore companies.
Banks in Andorra also offer a wide range of professional, discreet and confidential services with banking secrecy being upheld by law. Local Andorran companies can be established for local trade, asset and investment holding as well as cross-border commerce.
A member of the EU, the island of Cyprus is located in the Mediterranean. The island is divided, and this report focuses only on the southern two thirds of the island that are under Greek Cypriot control.
Cyprus benefits from a number of key advantages such as the fact that it levies relatively low rates of taxation on companies and retired expatriate residents, it also has double taxation agreements in place with over 40 nations, making it a key centre for holding and investment companies aimed at emerging markets.
The business and physical infrastructure, transportation links and levels of banking secrecy, confidentiality and privacy balance well with the island’s status as an EU member state. These factors also combine with a legal system based predominantly on English law and make the island a popular offshore jurisdiction for company formation and international banking.
Located north of Germany, Denmark is a member of the EU and an unusual nation to see listed as an offshore jurisdiction! It is not a low tax country if you reside there or operate a business in Denmark, however it has legislation in place that can make it a favourable centre for those with Danish holding companies.
Because of tax rules established in the late 1990s and the Kingdom’s long list of international double taxation treaties, many businesses are now benefitting from the fact that you can escape taxation on dividend income by having a Danish holding company.
Ever since the 1st of January 1999, a Danish holding company can potentially receive dividend payments and capital gains from its foreign subsidiaries without any Danish tax being applied, provided that certain criteria are being met of course. This makes these holding companies important taxation management vehicles for international companies.
An even more unlikely inclusion in this list of offshore jurisdictions in Europe is Germany – as Germany is one of the leading nations within the EU forcing a worldwide crackdown on tax competitiveness!
However, this nation has a relatively new corporation tax system that was brought in to comply with harmonisation requirements of the legal provisions within the EU. So nowadays the income of a corporation is taxed at a lower rate and the dividends received by the shareholder are also taxed at a lower rate without any tax credits.
The legislation leaves dividend income within a holding structure tax-free. Only the revenues and earnings of the basic company will be taxed as usual, while all dividends paid to the shareholding companies are thankfully no longer taxed! The use of, or necessity for a German company and the way in which one can be used to offset or reduce or negate taxation will depend on many factors such as where the holding company or individual are based though.
Gibraltar, a self-governing British overseas territory located on the southern end of the Iberian Peninsula and Europe at the entrance of the Mediterranean overlooking the Strait of Gibraltar, is quite famous as an offshore jurisdiction in Europe – although its tax efficient offerings have been sadly seriously eroded in recent years due to pressure from the EU on all offshore centres.
Nevertheless Gib, as it is affectionately known, is still a very important offshore haven particularly for company operations. A company incorporated and owned by non-residents of Gibraltar that’s managed and controlled by directors who reside and hold their board meetings outside of Gibraltar will be considered as non-resident and therefore not subject to corporation tax, except on that part of the profit which is remitted to Gibraltar.
This can mean that a non-resident company may be totally exempt from corporate taxation, and this type of company can be quite cost effective. However, care does need to be taken when considering such a structure as there can be tax implications in the home country of the directors.
Guernsey is one of the UK’s Channel Islands. It is an associate member of the European community and has an exchange of information agreement in place with the UK so it has become less effective for residents of Great Britain, and even those located in Europe need careful assessment of whether Guernsey as an offshore haven is suitable for their needs.
The jurisdiction is largely used by those who want to establish an exempt company, and they can do so if they are non-resident on the island and conduct no business with Guernsey residents or companies either. They will then benefit from paying no taxes in Guernsey – although they will be subject to a small flat rate of corporate duty per annum, irrespective of profit.
Guernsey has Europe’s largest captive insurance sector, it has strong banking, investment fund and trust sectors, and it has excellent advisory and financial infrastructure. What’s more, the Channel Islands’ Stock Exchange is based in Guernsey, proving that it is a well-respected financial centre.
Few people outside the financial services sector are aware of how significant an offshore jurisdiction Ireland has become. Yet this EU member state manages to successfully combine low corporation tax rates and tax efficiency with full member status!
The use of the International Financial Services Centre and Shannon Free Zone allow for taxation reduction for companies located in or operating through these zones for example, and as a result Ireland has managed to attract massive international business commitment. It can be of interest even for expatriates resident in another EU member state – speak to your financial adviser or tax consultant to learn more before committing to any offshore centre.
Isle of Man
Much maligned in recent months because of the collapse of Kaupthing, Singer & Friedlander last year, and the subsequent alleged mishandling of claimants, the Isle of Man still maintains its status as one of the most important and well respected offshore jurisdictions – not just in Europe, but the world.
The island has a low rate of taxation for individuals and corporations, with certain exempt corporations being able to operate tax free through the jurisdiction. It is an important centre for banking and investment, and it has an investor protection scheme in place for the protection of up to the first GBP 48,000 of an investor’s assets on deposit with a single institution.
The second of the Channel Islands to operate as an offshore tax haven is Jersey, it has particularly strong banking, investment fund and trust sectors and benefits from a highly developed advisory and financial infrastructure. There are a number of low-tax business formats available in Jersey, and the net asset value of funds under administration had reached record levels of GBP 241.2 billion recently, so that it has finally overtaken the level of bank deposits held on the island.
It is not usually considered an ideal location for onshore Britons because of its double taxation agreement with the UK though…
Located between Switzerland and Austria, Lichtenstein is politically neutral and its banking and financial service sectors are two of its main industries. The Principality has excellent and tightly guarded controls on secrecy and confidentiality which has led to high levels of banking activity. However, pressure is on Lichtenstein from the likes of the EU and the OECD to sign up to the exchange of information requirements, or be sanctioned against. This has put pressure on the Principality’s position, but at the present time it is still considered a secure, private and tax efficient offshore haven.
Luxembourg is actually a very high tax nation, and one of the wealthiest in the world based on GNP figures, however, certain types of Luxembourg based companies can be suitable for international tax planning as long as certain criteria are met. For example, to benefit from lowered taxation there are restrictions on activities that a company can undertake. The private banking industry is one of the largest in Europe, with the Stock Exchange specialising in collective investment funds.
The Grand Duchy has seen its competitiveness and advantages eroded in recent years because of its membership to the EU.
The Netherlands is not an offshore finance centre, however its legislation allows for outstanding opportunities to exist when it comes to international tax planning using Dutch corporations in structuring international financial transactions.
The nation has over 78 double taxation agreements in place, it has 0% withholding tax on interest and royalty distributions, what’s more, its tax ruling system is fully compliant with OECD standards.
The corporate tax rate has been reduced and the likes of holding companies, finance and licensing companies can all potentially benefit from tax structuring using Netherland based companies.
Because Switzerland is not a member of the EU and because it has a world-famous and fiercely defended and maintained reputation as one of the most secure and secret banking nations in the world, it is continuing to thrive even though the EU and OECD put pressure on Switzerland to comply with their directives on the exchange of client information.
The confederation is considered to have the finest and most efficient banking system in the world – therefore if you’re looking for somewhere to bank offshore, or private bank, perhaps consider Switzerland. It does comply with the EU and the OECD as far as required, but because it is not an EU member state, and because its offshore business is so critical for the health of the nation’s economy, international intrusiveness is restricted!
Low or even no-tax company entities can be created within the UK and utilised by international firms – however the UK has lost the vast majority of its attraction and appeal as an offshore centre for non-domiciled Britons now that the government in charge has levied a fee against such individuals who want to reside in Britain. What’s more, as tax has increased in the UK in recent years and legislation has been tightened against companies and international businesses, it is with absolute care and carefully considered caution that anyone should consider using the UK as an offshore or tax effective country.
This guide to the main offshore centres in Europe is meant as a basic outline and introduction to which nations, Principalities and islands exist for the facilitation of offshore activities: from saving and investing to banking and company formation. If you require any specific or personalised advice or assistance when it comes to selecting the right offshore location for your personal requirements, feel free to get in touch. If we have the relevant information for you, we will most certainly pass it on.
Remember to take advice before taking any action when it comes to all things offshore.