Massive Changes to Offshore Tax Regimes and Economic Substance Requirements

legislation changes to offshore tax regime and economic substance

Massive legislation changes affecting Offshore Tax Regimes and Economic Substance Requirements

Massive change has swept the offshore industry lately, largely as a result of pressure from the EU and the OECD. As a result of the pressure, many countries have overhauled their tax and company regimes in accordance with perceived EU acceptance.

Why the reason for the Change?

Under the OECD’s Base Erosion and Profit Shifting (BEPS) Inclusive Framework and the European Union Code of Conduct Group (EUCoCG) – the Forum on Harmful Tax Practices (FHTP) reviewed certain preferential tax regimes addressed to foreign investors and classified some of them as ‘harmful’ or ‘potentially harmful’. These targeted preferential tax regimes usually include:

  • Ring-fencing elements, whereby the domestic market doesn’t have access to these preferential tax regimes.
  • Companies that are benefitting from a preferential tax regime have a lack of economic substance in the jurisdiction. That is, income-generating activities are not carried out from within the jurisdiction where the company is incorporated.

Due to its commitment with implementing the BEPS Inclusive Framework standards, jurisdictions that had tax regimes deemed ‘harmful’ or ‘potentially harmful’ are adapting their laws to remove them and introducing several amendments or repealing certain legislation.

For instance, certain tax exemptions and incentives available only to foreign investors and not to residents have been abolished. We are talking about international business company regimes (IBCs), certain free-zones, profit tax concessions for certain foreign investments, etc.

Companies in the business of finance and insurance, group headquarters, shipping businesses, distribution and service centres to foreign affiliates, or holding companies, among others, must now meet certain economic substance tests to benefit from certain tax regimes.

In addition, businesses exploiting IP rights may also be subject to additional economic substance and/or nexus requirements – whereby certain research and development expenditure in connection with the IP might need to be proved.

Dozens of jurisdictions have amended and/or removed specific provisions of their tax legislation deemed ‘harmful’ or ‘potentially harmful’, including traditional offshore jurisdictions. The latter have started to make significant changes in their tax and business laws in order to avoid being blacklisted as a non-cooperative jurisdiction by the EU.

In this article, we have reviewed some of these legislative changes in some of the most popular offshore business centers. The following is not tax or legal advice of any kind.

Belize 

In December 2018, the National Assembly of Belize passed the International Business Companies (Amendment) Act, 2018, the Income and Business Tax (Amendment) Act, 2018, and the Stamp Duties (Amendment) Act, 2018 to address the considered ‘harmful tax regimes’ identified by the FHTP.

IBCs can now be incorporated by both residents and non-residents, can do business locally and with residents, own land in Belize and hold shares in Belize domestic companies. Under the Income and Business Tax (Amendment) Act, 2018, IBCs doing business within Belize are now subject to both Belizean income tax and stamp duty and are required to file an income tax return.

Belize IBCs doing business in Belize will be subject to 1.75% of the chargeable income amounting to a sum greater than BZD 3 million, or 3% of the chargeable income amounting to a sum lesser than BZD 3 million. Taxes will need to be paid in US Dollars. Belize IBCs whose income is derived outside of Belize shall not be liable for payment of income tax in Belize. Capital gains, dividends, and interests received may be exempt from taxation. Payments to non-residents may be exempt from withholding taxes.

To qualify for the IBC regime, certain companies may be subject to physical presence and tax residency status:

  • the activities of a company must take place in Belize (i.e. company meetings);
  • all documents must be kept in Belize.
  • depending on the scope of activity, a company must employ a sufficient number of well-trained and qualified personnel who are physically present in Belize to carry out the company core income-generating activities
  • the expenditures shall take place in Belize (adequate for the scale of a particular business)
  • there is a requirement of a rented office in Belize (according to the scale of a particular business).
  • Conduct their control and management activities from Belize, either directly or through a management agency, including that board meetings are held in Belize and at least two directors are resident in Belize.

Most businesses may fulfill the physical presence requirement via hiring a management agency.

International Financial Services licensed companies and certain other businesses such as companies providing services to or trading goods with affiliates, holding companies and companies deriving income from intellectual property – must be physically present and tax resident in Belize.

Companies that wish to obtain a tax exemption certificate and non-resident status may need to prove economic substance and tax residency in another jurisdiction. 

Note that companies physically present in Belize may be subject to capital controls under the Exchange Control Regulations Act.

IBCs will be able to obtain Tax Identification Number (TIN) and may be required to file annual tax returns and financial statements. IBCs with receipts of at least USD 6,000,000 may be required to file audited financial statements.

IBCs registered before October 16, 2017, are allowed to grandfather their existing tax exemption benefits up to June 30, 2021 – at that time they will need to comply with all the above requirements.

For IBCs registered from October 17, 2017, to December 31, 2018, the above requirements are immediately applicable to them. A transition period of 1 year has been granted – whereby IBCs must take the appropriate steps to ensure they are compliant.

Note that the Belize International LLC Act, International Private Foundation Act, and the International Trust Act have not been affected by the recent legislative amendment and remain the same.

Nevis

Nevis is also updating its legislative and regulatory framework commitments to the EU COCG under its Tax Governance Initiative and at the same time to the OECD BEPS Inclusive Framework.

The parliament recently passed the Nevis Business Corporation (Amendment) Ordinance, 2018, and the Nevis Limited Liability Company (Amendment) Ordinance, 2018.

Under these amendments, LLCs and corporations incorporated on or before December 31, 2018, will still enjoy full tax exemptions until June 30, 2021, provided that they do not carry out business in Saint Kitts & Nevis.

LLCs and companies incorporated after December 31, 2018, will be subject to the local tax regime (currently, 33% tax on worldwide income). The amendments have also abolished the preferential tax regime for companies incorporated by non-residents that obtained a tax resident status.

However, the Nevis Island Administration is expected to shortly introduce additional legislation to implement a local territorial tax system for corporations and LLCs established from 1 January 2019, similar to the introduced in the above-mentioned amendments for companies incorporated on or before December 31, 2018. Therefore, income derived from foreign-sources would not be subject to taxation.

We will inform you as soon as there are further developments on that matter.

Saint Vincent & The Grenadines

Saint Vincent and The Grenadines has also amended its International Business Company Act and the International Trust Act to comply with the requests of the EU and the OECD.

International Business Companies have changed their name to Business Companies (BCs)  – and are no longer ring-fenced, meaning both residents and non-residents will be able to operate with BCs. These BCs will be able to do business within Saint Vincent or with Saint Vincent residents too.

BCs are now obliged to file Directors and Shareholders details to the Companies Registry, and companies with over USD 4 Million revenue or USD 2 million of assets will be required to file an annual return.

Corporations set up in Saint Vincent will no longer be able to issue bearer shares.

The full tax exemption has been removed and companies are now also subject to customs duties.

Existing companies incorporated before December 31, 2018, are grandfathered and will keep enjoying corporate tax exemptions until June 2021. Note that the grandfathering provision does not apply for income derived from intellectual property assets acquired on or after 1 January 2019.

Companies incorporated in 2019 are currently subject to the local tax regime (30% tax on worldwide income) and will require to file tax returns.

However, the Financial Services Authority (FSA) has already announced plans to amend the Income Tax Act to implement a territorial tax regime, during this quarter (Q1 2019), where only local-sourced income will be subject to taxation. This territorial tax regime would be applied retrospectively for all companies incorporated in 2019.

Once the territorial tax regime is in place, even if a given Saint Vincent company doing business abroad does not owe taxes – it might need to file tax returns.

Together with the territorial tax regime, Saint Vincent is also planning to enact legislation to enforce economic substance requirements for certain businesses, such as regulated companies, pure equity holdings or companies providing services to or purchasing goods from other affiliated companies. We will update you once the new legislation is passed.

Seychelles

In a similar fashion of other offshore jurisdictions, Seychelles has also amended certain legislation to comply with BEPS Inclusive Framework requirements.

The International Business Companies (Amendment) Act, 2018 allows IBCs to conduct business activities within Seychelles and can be owned by both residents and non-residents. Seychelles IBCs are now subject to the local tax regime.

The Business Tax (Amendment) Act, 2018, implements a territorial tax regime in Seychelles as of January 1, 2019. Income derived from a local source is subject to tax, whereas foreign-sourced income is exempt from taxation. If an IBC does business with Seychelles residents, it must notify the Registry, file annual audited accounts and tax returns and pay local taxes.

Dividends, interest, royalties or other payments made by Seychelles IBCs would be exempt from taxation as long as are derived from income that is not sourced in Seychelles. There are no capital gains taxes in Seychelles.

IBCs will still be exempt from stamp duty on the formation of a company, transfers of property to or by a company, transactions in respect of the shares, debt obligations or other securities of a company; the creation, variation or discharge of a charge or other security interests over any property of a company; and other transactions relating to the business or assets of a company. However, transactions with instruments related directly or indirectly to Seychelles real estate will be subject to stamp duty.

The Companies (Special Licences) (Amendment) Act, 2018 has removed the 1.5% business tax rate and withholding tax exemptions for CSL companies. Grandfathering provisions apply until June 30, 2021, to companies incorporated on or before October 16, 2017.

Non-domestic insurers’ tax exemptions are abolished under the Insurance (Amendment) Act, 2018. Same as with CSL companies, grandfathering provisions until June 30, 2021 are available for non-domestic insurers licensed on or before October 16, 2017.

Under The Mutual Fund and Hedge Fund (Amendment) Act, 2018 and The Mutual Fund and Hedge Fund (Substantial Activity Requirements) Regulations, 2018 – Fund Administrators are required to meet the minimum substance – with a reasonably adequate number of suitably qualified persons and incurring an adequate amount of operating expenditures accordingly.

Securities Exchanges, clearing agencies, securities facilities, securities dealers and investment advisors would be required to meet minimum substance requirements as well, under The Securities (Amendment) Act, 2018 and The Securities (Substantial Activity Requirements) Regulations, 2018.

Other legislation such as The International Trade Zone (Amendment) Act, 2018, and The International Trade Zone (Amendment) Regulations, 2018 provide new requirements and conditions for Export Services License companies.

Labuan

Labuan has also gone through several legislative changes to address its ‘potential tax harmful practices’ and satisfy its commitment to implement BEPS Inclusive Framework standards.

Labuan Business Activity Tax Act has been revised, Labuan companies can no longer elect to pay the RM 20,000 flat tax rate – instead, they will be subject to 3% tax on net audited profits from any Labuan trading activity. Non-trading activities won’t be subject to tax.

Labuan companies no longer require an authorization from the Ministry to conduct Labuan business activities with Malaysian currency or with Malaysian residents.

Certain royalties or income derived from the exploitation of an intellectual property right will be subject to tax under the Malaysian Income Tax Act, rather than under the Labuan tax.

Labuan holdings and companies conducting certain activities will be required to meet certain substance requirements – they will need to have an adequate number of full-time employees and an adequate amount of annual operating expenditure in Malaysia according to their business. For instance, Labuan holdings would be required to have a minimum of 2 full-time employees in Labuan and a minimum annual expenditure in Labuan of RM 50,000.

Other activities subject to substance requirements include: Insurance, Underwriting Manager, Trust Services, Licensed Commodity Trading Company, Banking, Credit Token Company, Finance, Leasing, Factoring, Fund Management, Securities Dealer, International Financial Exchange, Self-Regulatory Organizations, Company Management, Holding Companies, Fund Administrator.

Mauritius

Mauritius has also undertaken significant changes to its offshore business regime – with the entry into force of the Finance (Miscellaneous Provisions) Act 2018, which has also, in turn, introduced several amendments to the Income Tax Act.

Since January 1, 2018, the Global Business License Category 1 (GBC1) has been modified and renamed as Global Business License (GBL), and the Global Business License Category 2 (GBL2) has been abolished and replaced by the ‘Authorized Company’ (AC) license.

The Authorized Company is a new license issued by the Mauritius Financial Services Commission (FSC) and shares common features with the abolished GBC2 company, and will be able to carry out the same type of activities.

A Mauritius company incorporated by non-Mauritius residents where its place of effective management is outside of Mauritius will be required to seek an Authorized Company status.

To determine the place of effective management all the relevant facts and circumstances that relate to the business activities of the company must be examined. Generally, a company shall be deemed to have its place of effective management in Mauritius if:

  • the strategic decisions relating to the company’s core income generating activities are taken in, or from, Mauritius;
  • and the majority of the Board of directors’ meetings are held in Mauritius, or the executive management of the company is regularly exercised in Mauritius;

Companies with their place of effective management outside Mauritius and granted an Authorized companies status will be deemed non-resident for tax purposes (and thus be exempted from income tax) in Mauritius.

However, an Authorized Company will be required to submit a return of income to the Mauritius Revenue Authority (MRA) within six (6) months of its accounting year-end period.

The Finance (Miscellaneous Provisions) Act 2018 has also brought new enhanced substance requirements for Global Business Corporations (previously GBC1 companies).

Licensing conditions require GBC companies to employ directly or indirectly, a reasonable number of suitably qualified persons to carry out the core income-generating activities, and have a minimum level of expenditures in Mauritius proportional to the level of its activities.

For example, investment holdings will be required to have annual expenditures in Mauritius of at least USD 12,000, whereas non-investment holdings will require USD 15,000 of expenditures and 1 employee if annual turnover is less than USD 100 million or 2 employees if annual turnover is more than USD 100 million.

Other activities such as fund management will require annual expenditures of USD 30,000 and from 1 to 3 employees in Mauritius depending on the amount of assets under management. Financial Institutions such as Insurance, Leasing or Credit finance, intermediaries such as investment advisors, insurance brokers and agents, and other financial services will also be required to spend a certain amount per year in Mauritius and have from 1 to 3 employees depending on their level of activities.

Global Business Companies holding and exploiting IP rights will be required to prove that they have incurred the appropriate research and development expenditure to meet the substance requirements.

With respect to the taxation of GBL companies – the previous Deemed Foreign Tax Credit (DFTC) regime has been abolished. Previously, GBC1 companies were eligible for a unilateral foreign 80% tax credit on all types of income, reducing the effective income tax rate to 3%. Now, GBL companies are subject to local taxes at a rate of 15%.

However, an 80% Partial Exemption Regime on certain income streams will still be available – as long as the above-mentioned substance requirements are met.

Income streams available for an 80% partial exemption (3% effective tax rate) include foreign dividends (subject to such an amount not being treated as an allowable deduction in source country), interest income and income derived by companies engaged in ship and aircraft leasing.

Existing GBC1 and GBC2 companies with licenses issued on or before 16 October 2017 will be grandfathered until June 30, 2021. GBC1 and GBC2 companies with licenses issued after October 16, 2017, are required to meet requirements of the new GBL regime or seek an Authorized Company status, respectively.

Barbados

Barbados has been a popular jurisdiction for incorporating international businesses – especially for Canadians, who enjoyed certain benefits under DTAs. However, the jurisdiction has also gone through several legislative amendments to avoid being classified as having a ‘harmful preferential tax regime’ by the OECD / EU.

Under these amendments, the International Business Companies (IBC) Act has been abolished, and the Societies with Restricted Liabilities Act has removed preferences to International Societies with Restricted Liability (ISRL).

IBCs and ISRLs licensed after October 17, 2017, have been converted to regular Barbados companies and societies, and are subject to local corporate taxation. Those incorporated and licensed before October 17, 2017, will be grandfathered until June 30, 2021 – at that point, they will need to be converted to regular Barbados companies.

Note that Barbados companies earning 100% of their income in foreign currency would be able to apply for a Foreign Currency Permit under the Foreign Currency Permits Act, 2018, to avoid capital controls under the Exchange Controls Act.

The Income Tax Act has been also amended. Since January 1, 2019, all Barbados entities, except those that are grandfathered are taxed on a sliding scale from 5.50% (for taxable income below BBD 1 million) to 1% (for taxable income over BBD 30 million). Previously, IBCs and ISRLs were subject to tax on a sliding scale between 2.5% and 0.25% and local companies were subject to tax at a 25% rate.

The insurance sector legislation has suffered notable changes as well. The Exempt Insurance Act has been repealed and the Insurance Act has removed provisions for Qualified Insurance Companies. Now, all companies providing insurance services will fall under the same legislation – which will provide three classes of licenses:

  • Class 1 for insurance companies insuring related party risks – which are taxed at 0% on taxable income
  • Class 2 for insurance companies insuring third-party risks  – which are taxed at 2% on taxable income.
  • Class 3 for brokers and managers – which are taxed at 2% on taxable income.

The International Financial Services Act has been also repealed and all financial institutions, whether dealing with local or foreign currency, will be regulated under the Financial Institutions Act. There are now four classes of licenses:

  • Class 1 for local commercial banks.
  • Class 2 for trust companies, finance companies, merchant banks, and money transfer services.
  • Class 3 for financial holding companies.
  • Class 4 for foreign currency earnings banks, which will be granted an exemption from capital controls.

The International Trust Act has been replaced by the Trust (Miscellaneous Provisions) Act, removing restrictions for residents to take part. The Shipping Act has also been amended to remove ring-fencing elements. The Foundation Act is currently undergoing several amendments as well.

Like other jurisdictions, Barbados has implemented economic substance requirements via the Business Companies (Economic Substance) Act, 2018. Companies conducting relevant activities such as financial services, insurance, fund management, headquarters, shipping, intellectual property holdings and equity holding companies, among others – will need to meet economic substance test requirements such as conducting its core-income generating activities within Barbados, having its control and management from Barbados, and having an adequate number of employees, expenditure and assets in Barbados according to their business activities.

Curaçao

In order to meet requirements under the BEPS Inclusive Framework – Curacao has also adjusted its tax regime to abolish deemed ‘harmful’ features.

To begin with, E-Zone companies will be limited to goods and repair and maintenance services, and the distinction between local or foreign supply of goods and services has been abolished. Now, all supplies of goods will be taxed at 2%, regardless of the client locations, and will no longer be exempted from sales taxes. E-Zone companies are also required to fulfill certain conditions related to economic substance in order to qualify for the regime.

Previously, export facility companies which had 90% or more of their income derived from foreign clients were subject to a reduced rate of 3.2%. Under new amendments, the export facility regime has been replaced by a new tax regime applying territorial taxation – income from foreign sources is not subject to either turnover tax and profit tax, whereas local-source income is subject to standard corporate tax rates.

Under a tax-exempt status, companies which activities were limited to investments in debt instruments, securities, and deposits, licensing of intellectual and industrial properties and similar assets qualified for a full tax exemption. With recent amendments, tax-exempt companies are now considered investment institutions and subject to 0% profit tax, however, companies licensing intellectual property do not qualify for an investment institution status.

In certain cases, income derived from IP rights in Curaçao may be exempt from taxation if there has been appropriate research and development work and expenditures in Curaçao, or the IP has been developed by a foreign company not belonging to the same group structure of the Curaçao company.

Companies that were considered non-resident for tax purposes and had an offshore status may opt for a tax-transparent status whereby income would be taxed at the personal level rather than the corporate level.

Cayman Islands

The Cayman Islands passed the International Tax Co-operation (Economic Substance) Law, 2018 – requiring companies (e.g. Exempted companies, LLCs and LLPs) conducting relevant activities to satisfy substance requirements.

Relevant activities include fund management, banking, insurance, finance and leasing, distribution and service center business, headquarters business, intellectual property business, shipping, and holding company business.

This specifically affects companies carrying out financial, insurance services and investment business; corporate management services to affiliates; operating, renting or chartering ships transporting passengers, goods and mail by sea, or using, maintaining or renting containers; companies trading goods with and/or providing services to affiliated companies; companies deriving income from the exploitation of IP rights; and pure equity holding companies.

Note that investment fund vehicles are explicitly excluded from this legislation.

Companies that carry out relevant activities must satisfy the economic substance test – they must:

  • conduct its core income-generating activities in Cayman (which are defined in the law).
  • be directed and managed from within Cayman.
  • have an adequate amount of operating expenditures incurred in or from within the Islands.
  • have an adequate physical presence (including maintaining a place of business or plant, property, and equipment) in the Islands.
  • have an adequate number of full-time employees or other personnel with appropriate qualifications in the Islands.

Holding companies which only hold equity participations in other entities and only earn dividends and capital gains will be subject to a reduced economic substance test – it must have complied with all applicable filing requirements and must have adequate human resources and adequate premises in the Islands for holding and managing equity participations.

With respect to IP holding companies – companies that are exploiting IP rights and:

  • have not created such IP
  • have acquired the IP from a company of the same group structure or from a third-party that has conducted research and development out of Cayman Islands
  • and licenses the IP to a company(s) of the same group

or does not carry out research and development, branding or distribution as part of its Cayman Islands core income generating activities – are considered high-risk intellectual property businesses and may be subject to an enhanced substance requirements test.

All Cayman companies are required to notify annually the Authority – stating whether or not they are carrying out relevant activities.

Companies carrying out relevant activities are required to file a basic return related to the amount and type of income with respect to the relevant activity, expenses, assets, management, employees, and physical presence, among other requirements. Existing companies incorporated on or before December 31, 2018 will need to comply with substance requirements by June 30, 2019.

Substance requirements filings will be reviewed by the designated authority to ensure that such entities have adequate economic substance in the Islands. Companies failing the substance test will be given direction on how to meet the test and may face a fine of up to KYD 10,000.

Continued failure to meet the test in the following year may result in higher fines of up to KYD 100,000.

Bermuda

The Bermuda Government also passed legislation related to Economic Substance – the Economic Substance Act 2018 and the Economic Substance Regulations 2018 – in order to avoid being blacklisted by the EU.

Exempted and local companies, permit companies, exempted and local LLCs and partnerships that carry out ‘relevant activities’ as defined by the Economic Substance Act, 2018, will be required to meet certain substance tests – such as control and management from within Bermuda, adequate physical presence, employees and operating expenditures, among others.

Same as in Cayman, relevant business activities include banking, insurance, fund management, finance and leasing, headquarters, intellectual property, distribution and service centers, and holding companies. High-risk IP businesses will be subject to enhanced substance tests, whereas pure equity holdings will be subject to minimum substance requirements.

Companies conducting relevant activities will need to file an Annual Economic Substance Declaration. Existing companies will have until June 30, 2019, to meet substance requirements, whereas newly incorporated entities in 2019 will be required to comply with substance legislation immediately.

Companies that are not compliant with substance requirements may face civil penalties up to BMD 250,000. Making false economic substance declarations may carry out penalties up to BMD10,000 or imprisonment for two years, or both.

Bermudian companies that do not carry out relevant activities are not required to meet economic substance requirements.

British Virgin Islands

Adequate substance is also required for BVI Business Companies conducting relevant activities pursuant to the recently enacted Economic Substance (Companies and Limited Partnerships) Act, 2018.

Relevant activities include:

  • Banking Business
  • Insurance Business
  • Fund Management Business (any activity that requires an investment business license under the Securities and Investment Business Act, 2010)
  • Finance and Leasing Business
  • Shipping Business
  • Pure equity holding business – which will be subject to reduced substance requirements
  • Intellectual property Business – those carrying out High-risk intellectual property business will be subject to enhanced substance requirements
  • Distribution and service center business – trading goods with or providing services to foreign affiliates

Economic substance will be mainly assessed according to the following criteria:

  • the relevant activity is directed and managed in the BVI;
  • adequate numbers of suitably qualified employees who are physically present in the BVI (whether or not employed by the relevant legal entity or by another entity and whether on temporary or long-term contracts);
  • adequate expenditures incurred in the BVI;
  • appropriate physical offices or premises in the BVI; and
  • where the relevant activity is intellectual property business and requires the use of specific equipment, the equipment is located in the BVI.

All BVI Business Companies must provide information on an annual basis to enable the International Tax Authority in the BVI to assess whether a business is carrying out relevant activities and, if so, whether it is meeting the economic substance requirements.

Relevant BVI business companies incorporated on or before December 31, 2018, will have until June 30, 2019, to meet substance requirements.

Automatic exchange of information will be made to relevant foreign competent authorities if it is found that an entity is not complying with the economic substance requirements or conducts certain IP business or claims to be tax resident in a jurisdiction outside the BVI.

Failure to comply with substance requirements may lead to a minimum penalty of USD 5,000 and to a maximum penalty of USD 50,000 (High-risk IP) or USD 20,000 (other businesses).

Additional penalties may be applied if a company continues to fail substance requirements from a minimum amount of USD 10,000 to a maximum amount of USD 400,000 (High-risk IP business) or USD 200,000 (other businesses)

The Bottom Line

The offshore business landscape is quickly changing. International Business Companies regimes have removed their ring-fencing features – these vehicles are also available for residents, can do business within their jurisdiction and are subject to their local tax regime.

Although we can expect that most offshore jurisdictions will switch their local tax regime to a territorial-based taxation system in order to maintain their attractiveness as business centers – we can also expect increasing filing requirements and further measures to increase transparency and reduce privacy.

Economic substance and tax residency are more important than ever – certain businesses need to conduct their core income-generating activities within the jurisdiction where they are domiciled to be considered tax resident and benefit from advantageous tax regimes.

International insurance, banking, and other regulated sectors are also seeing their offshore regimes phased out and merged with local regimes.

Automatic exchanges of financial information for tax purposes between jurisdictions are already happening and becoming a global standard practice.

Today we have reviewed some of the offshore jurisdictions affected – but other jurisdictions such as Andorra, Macau, Aruba, Saint Lucia or Antigua and Barbuda, among others, are also phasing out their offshore tax regimes – and Bahamas, Anguilla, Guernsey, Jersey, Cyprus, Vanuatu, UAE, among many others, have introduced/will have to introduce economic substance requirements.

Certain tax incentives regimes for specific industries or activities from jurisdictions such as Hong Kong, Singapore, Luxembourg, Switzerland, Thailand, Canada, Costa Rica, Spain, Turkey, among many others, have also been abolished or amended.

What does it mean for you?

Multinational groups and international businesses have to quickly adapt.

All offshore jurisdictions need to comply with BEPS standards, otherwise, they will be blacklisted as non-cooperative jurisdictions by the EU – with all the downsides that this entails – and certain tax benefits in ‘onshore jurisdictions’ may only be available for companies that have real presence in the jurisdiction and fulfill a series of requirements.

That being said, international structuring is and will remain a powerful tool to enhance and optimize your business.

However, if you plan to use any international structures, you must make sure that everything is watertight and it is fully compliant.  If you are already using offshore and other international vehicles you should review your current structure to make sure that legislative changes don’t affect you or, if they do, take measures to fulfill them.

At Flag Theory, we can help you evaluate your situation and navigate through a variety of suitable structuring options, considering absolutely all elements and variables that you and your business have, and consider restructuring options if necessary. Contact us today, it will be a pleasure to assist you.