In connection with banking, the meaning of the word "offshore" is obvious. According to Wikipedia, "An offshore bank is a bank located outside the country of residence of the depositor, typically in a low tax jurisdiction (or tax haven) that provides financial and legal advantages". The term 'haven', meaning a harbour, has been mistranslated in French to produce the expression paradis fiscal, that is to say a heaven and not haven.
At its roots, the term offshore refers to a place that is located away from the mainland, an island for instance, or an oil platform. Used as an adverb, it can also describe a movement, e.g. the wind blowing or a boat moving away from the shore, or off the shore.
The term offshore bank has its origins in banks that were established on the British Channel Islands. However, many so called offshore banks are located onshore. The origin of low taxed financial jurisdictions can be traced back to the Middle Ages when trade wars arose between different countries and regions competing for economic dominance.
Reasons to locate banking centres on islands were quite simple: direct central control remained loose and weaker in terms of geography, law and historic allegiance than on the mainland. The offer of an offshore remedy of lower taxation and promises of anonymity and confidentiality as well as political stability were attractive to wealthier clients.
In the modern period, it is commonly accepted that the definition of offshore jurisdictions as tax havens was first formed after World War I. However, in the post-war years, companies became over-burdened by taxation. This is when corporate tax havens and the offshore tax industry were born. Companies were able to take advantage of tax treaties between their country and the offshore tax jurisdiction to reduce liabilities.
During the recent financial crisis, the word was used as a synonym for tax haven or tax shelter. Avoiding any logical reflection the term is used to describe foreign banks, corporations, investments, and deposits. Companies are moving offshore for reasons of tax avoidance or relaxed regulations. Banking transactions with non-residents are called offshore.
In recent years, a growing demand for regulated products and trends in tax harmonisation have further muddied the picture. The OECD has defined a set of terms that differentiate an International financial centre from a tax haven, and these terms are pretty clear. However, the definition of a tax haven often lies in the eye of the beholder.
At its roots, the term offshore refers to a place that is located away from the mainland, an island for instance, or an oil platform. Used as an adverb, it can also describe a movement, e.g. the wind blowing or a boat moving away from the shore, or off the shore.
The term offshore bank has its origins in banks that were established on the British Channel Islands. However, many so called offshore banks are located onshore. The origin of low taxed financial jurisdictions can be traced back to the Middle Ages when trade wars arose between different countries and regions competing for economic dominance.
Reasons to locate banking centres on islands were quite simple: direct central control remained loose and weaker in terms of geography, law and historic allegiance than on the mainland. The offer of an offshore remedy of lower taxation and promises of anonymity and confidentiality as well as political stability were attractive to wealthier clients.
In the modern period, it is commonly accepted that the definition of offshore jurisdictions as tax havens was first formed after World War I. However, in the post-war years, companies became over-burdened by taxation. This is when corporate tax havens and the offshore tax industry were born. Companies were able to take advantage of tax treaties between their country and the offshore tax jurisdiction to reduce liabilities.
During the recent financial crisis, the word was used as a synonym for tax haven or tax shelter. Avoiding any logical reflection the term is used to describe foreign banks, corporations, investments, and deposits. Companies are moving offshore for reasons of tax avoidance or relaxed regulations. Banking transactions with non-residents are called offshore.
In recent years, a growing demand for regulated products and trends in tax harmonisation have further muddied the picture. The OECD has defined a set of terms that differentiate an International financial centre from a tax haven, and these terms are pretty clear. However, the definition of a tax haven often lies in the eye of the beholder.
Comment on: About the meanings of "offshore"
By E Kugel on October 8, 2010 2:30 PM
To understand the definition we should first understand what a 'company' is and what is meant by 'offshore'. Then we can easily focus on understanding an offshore company in detail.
We can define a company as any entity engaging in business, such as a proprietorship, partnership, or corporation.
Offshore is a term that means outside of your own jurisdiction - water is not a necessary part of 'shore'.
Here in Lebanon a company that has offshore jurisdiction form is a representative to the main company or head quarter located in another country or location where a specific taxation law is applied for that jurisdiction type.
Ensuing is a taxation overview on offshore companies:
TAXES ON OFFSHORE COMPANIES
(By professionals tax laws in Lebanon WWW.PROFESSIONALSAA.COM).
DL 46, which authorizes the establishment and operation of offshore companies, describes the corporate form available for offshore companies and the activities in which they can engage. DL 46 also exempts offshore companies from the income tax on their actual profits and levies a flat annual tax on such companies.
Offshore companies can be incorporated only in the form of Lebanese joint stock companies and can engage only in the following activities:
• negotiation of and entry into contracts regarding operations or deals to be executed outside Lebanon or regarding merchandise or products located outside of Lebanon or in the Lebanese free zone
• banking, financial and agency activities outside of Lebanon
• preparation of studies and provision of advice for use outside Lebanon
• use of the facilities of the Lebanese free zone to store and reexport products.
• Offshore companies can lease or purchase offices in Lebanon for the purpose of conducting their own business.
They are prohibited from engaging in manufacturing, banking, insurance, holding, industrial or any commercial activity within Lebanese territory.
Offshore companies are exempt from the income tax on their profits and are instead assessed a flat annual tax that amounts to LP 1,000,000 ($600) regardless of the amount of their profit. This tax is levied in full from the first year of the company's operation regardless of the month in which the company starts to operate.
Offshore companies are also exempt from the 0.3% stamp duty and the 5% tax on distributed dividends.
Capital gains derived from the sale or transfer of offshore companies' fixed assets in Lebanon are subject to the regular tax of 6% provided in Article 45 of DL 144.
As for foreign executives employed by offshore companies, 30% of their salary is considered as "representation allowance" and is thus exempt from the income tax provisions. The rest of their salary is taxed at the regular payroll tax rate, which ranges from 2% to 10%.