Saturday, 23 March, 2019
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Criteria for choosing the best jurisdiction

There are certain criteria which should be considered by an entrepreneur when choosing the most suitable jurisdiction for incorporation of his company. There is no standard business situation in the world. In each case one or more factors may play a decisive role. We provide the main criteria for choosing the most appropriate jurisdiction below:

  • Political stability and independence of the country: An important point to consider is that it would make no sense in incorporating a company in a country, for example, where tax exemptions may be cancelled by the next government coming to power, or as a result of political pressure from other countries.
  • Best conditions for the incorporation procedure: In order to define this criterion, consideration should be given to the following questions:
    • Does the jurisdiction require that all or part of the declared share capital should be paid into or frozen in the bank account?
    • Can both natural and legal persons act as directors of the company in that jurisdiction?
    • How fast is the procedure for company incorporation?
    • What is the cost of incorporation and continuing maintenance of the company?
  • Requirements for financial statements: Most offshore jurisdictions do not require filing any financial statements for companies incorporated there. In the event that the entrepreneur chooses a country with mandatory filing of financial statements, I.O.S. will ensure appropriate accounting and audit support.
  • Availability of double tax treaties: It should be noted that between the jurisdiction of incorporation and the country where the company will operate, the availability of a double tax treaty and a tax exemption of a foreign company may be mutually exclusive. Only such companies that are actual taxpayers in the country of their incorporation may be able to enjoy the benefits in the latter country.
  • Tax regime: Most non-resident companies are incorporated with the status of zero taxation, but this does not necessarily mean that tax exemption is the main goal of the entrepreneur. Frequently, companies which pay tax and operate in low-tax regimes are used in business practice.
  • Black lists: Whether the jurisdiction is on or off the “black list” of the country in which the company will operate will need consideration. In the event that the jurisdiction is on the “black list” of the country, this may entail some restrictions on the operations of residents of this country with companies from this jurisdiction.

Let us consider some examples for choosing jurisdictions for certain business situations:

Example 1: The entrepreneur plans to carry out standard foreign trade importing goods from the EU into Russia. In this case, a company from one of the classic tax-free jurisdictions would be less appropriate given the legal restrictions that most CIS countries have with respect to classic tax-free jurisdictions. However, the company should be registered outside of the EU so that the export from the EU should be obvious to the EU resident seller signing a contract for the sale of the goods.

Example 2: The entrepreneur plans to open a bank account in Switzerland or Luxembourg for the accumulation of surplus funds. In this case, the ideal instrument may be a company from one of the classic offshore jurisdictions such as the British Virgin Islands or Panama. Bankers are well aware of the classic tax-free jurisdictions and have a positive perception of the status of these corporate instruments.

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