With several countries in the world offering various benefits to offshore business, it is only logical to ask which offshore country is the best to incorporate in. There can be no standard reply as the answer really depends upon the intended use of the offshore company and upon your own personal or business circumstances.

It is important to select a jurisdiction that is well-suited to specific corporate and personal needs. The following selection criteria have been outlined to guide the selection process:

Cash repatriation

One of the important criteria for selection of an appropriate jurisdiction is the ability to repatriate cash into India in a tax efficient manner. Factors such as withholding tax on dividends levied in foreign jurisdiction, quantum of cash which can be repatriated into India, availability of tax credit in India, etc play an important role while selecting an appropriate jurisdiction.

Capital Gains on exit

Similarly, capital gains tax on exit / sale of shares also plays a pivotal role in selection of a jurisdiction. For example, jurisdictions which levy a significantly higher tax on capital gains vis-a-vis India are generally not preferred as compared to jurisdictions which levy a lower or similar tax rate as applicable to India.

Availability of Human Capital

The importance of human capital for functioning and to accomplish the goal of your business cannot be overemphasized. Thus, availability of skilled work force should be considered at the time of selecting a jurisdiction for your offshore business. Further, it should also be possible for foreigners to work and stay temporarily in the overseas jurisdiction.

Tax incentives

Clients seeking to take advantage of double tax treaty relief need to establish a company situated in a favorable treaty jurisdiction. This is essential for the minimization of withholding taxes on the payment of dividends and royalties from the overseas business.

Intellectual Property Law

Intellectual property ('IP') law affects the overseas business, directly and indirectly. Understanding IP laws can therefore help in the fundamental processes involved in dealing with IP especially for businesses that work in various commercial and industrial settings.

Also, tax planning with respect to domestic and foreign transfers and licensing of IP has been a fruitful area to reduce taxation. However, several governments have aggressively attempted to eliminate or reduce the opportunities for abuse and focus more upon the true substance of these transactions. Thus, the opportunities afforded by careful tax planning have been correspondingly reduced.

However, active tax planning in this arena is still necessary, not only to assess whether there remain areas for tax reduction, but to make sure that planned activities do not inadvertently result in unexpected taxation.

Credibility of Jurisdiction

Offshore investments should be made in credible jurisdictions that have appropriate regulatory and supervisory standards in place for foreign business activities. However, every jurisdiction will describe itself as being in the forefront of those that promote the highest standards and it is sometimes difficult to separate the desirable from the undesirable.

Another important condition for those who want to establish their business or private interests in an offshore financial centre is to select a jurisdiction that provides both political and economic stability, so that business can be conducted with certainty, confidence and corporate security.

Legal system

Another very important factor is to ensure that the legislation is modern, flexible and well proven. Some jurisdictions have introduced new and modern suites of corporate legislation, specifically designed for international business whilst others have amended existing domestic legislation to cater for offshore requirements.

Banking

When investing offshore, your first consideration should be the security of your money. Offshore branches of larger companies are in most cases separately formed companies, with rules and regulations applying to the countries in which they're formed and operate within. In the event of any difficulties, the parent company is likely to bail out its subsidiary, but might not be legally required to do so. Thus active planning is required when it comes to selecting a home for your money; and thus selecting a jurisdiction that has major international banks that you already know might make you feel more comfortable.

For any further Questions that you may have, please feel free to write to us on company@kdpaccountants.com

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