Financial Centers

In the 1980s, the IMF introduced the term “Offshore Financial Center”. The term is not clear clear and rather vague. However, it is clear without further definition, that countries or separate territories thereof are are called that, where the amount of money and other assets is large relative to the residing population. Moreover, this category does not cover the most developed countries, their parts (for example, the United States, London), since the related population has traditionally disposed of large reserves of funds.

Offshore Financial Center: the core

The ordinary financial centers serve as plaes to focus the greater banks, financial institutions of other types, that contributes to promotion of all kinds of currency, credit and any other operations with money, assets, while any significant benefits are missing.

At the same time, offshore financial centers arise when the legal framework of a country grants material benefits to non-residents as low tax rates, and in some cases – they are absent at all. Other preferences are often grabted; for example, there is no need to report, deposit assets upon the operations beyond the jurisdiction are completed which favors business doing.

The oncerned countries provide benefits to non-residents with the purpose to:

• attract numerous investors that stimulates the growth of economics;
• get a regular and stable source of the state budget replenishment presented by various payments, fees for numerous registrations, re-registration, and other similar actions;
• reduce the unemployment rate; this is achieved through requirements to hire only the local content. In addition, the company founders need to address to notaries, relevant authorities for registration, re-registration that adds more benefits

In addition, tax and other benefits are relevant only for organizations engaged in any operations outside the jurisdiction of the host-country. If the investor decides to operate on the offshore territory, he will have to do business, pay taxes, report based on regulations applicable to residents. That is, there will be no benefits and other preferences.

Advantages of offshore financial centers

Material assets that ensure lack of taxes when they increase or a small rate considered to be the most important, but not the only advantage. So, the advantages of offshore financial centers traditionally include:

• no regulation of capital flows. They exist in some cases, but they are superficial;
• social and political stability;
• well-established relations with the important countries;
• developed financial sector and related infrastructure;
• availability of qualified financiers, lawyers, auditors and other specialists;
• full or partial confidentiality of deposits, agreements;
• acknowledgment of English as the primary language

The important advantage of similar financial centers is the location in beneficial time zones to operate at the variety of key financial and all other markets.

Additional advantages of all offshore financial centers are:

• high deposit rates. Thus, countries and regulators promote the desire to save money within their jurisdiction. At that, any serious requirements for account balances, bank reserves are extremely rare;
• almost all offshore territories and countries allow foreign banks to operate within their territory. It is also important that restrictions are rare, which allows any operations to perform, more favorable loans to get, to issue;
• there is no control over the investment portfolio.

It is interesting that in many cases the representatives of financial centers can act as negotiators, intermediaries between investors, depositors, borrowers with international and local banks, and lenders.

 Transparency of the current offshore center

It is also worth focusing on the sufficient transparency of the current offshore center performance. The reason is that the most part of countries, all the developed ones, intensely counteract the money laundering. In the course of such a campaign, the governments of most leading world countries drew attention to offshore financial centers to which requirements were set in 2009 at the meeting of the G20 leaders.

They totaled 49 provisions and each of them stiffened working conditions of investors within the offshore countries. In turn, it allowed financial centers to further cooperate with other countries, their regulators, international banks and other market players.

Yet, all offshore companies took measures. However, the requirements of the G20 were not met in full by either country providing preferential operating conditions for non-residents. This results in the need to focus on the extent of relationships between centers and the rest of the world.

So, the island of Jersey, complying with 44 of 49 provisions, brought its legislation in the utmost compliance with the G20 requirements. Significant changes were made by Singapore and a range of countries and territories, including several Islands, as well as Jersey, located in the English channel (for example, the Isle of Man and others).

There is a number of offshore countries that satisified to a lesser recommendations of the G20 leaders. Among them are the Virgin Islands, Belize and others.

Types of financial centers

There are about fifty offshore countries and territories, but all of them are classified into three types:

• classic – all non-residents are completely exempt from any taxation, reporting, audit and even from participation in the anti-money laundering. All centers of this type are stable in both political and social sphere. Panama and Belize are the well-known representatives of this category;
• with low taxation – they are more reliable and transparent, but a non-resident will have to pay a tax at the rate of 10% of the profits, from time to time. The reporting should be made from time to time (normally, semi-annual and annual) and sometimes the audit. This type has the important advantage as its location, since most of them are located in Europe (Ireland, Liechtenstein, Gibraltar);
• providing tax benefits – this means that a non-resident will have to pay, but to a lesser amount; there are benefits as discounts, deferrals. These centers are the most famous, reliable and respectable. These include Cyprus, Singapore, Luxembourg