Offshore / Onshore/ Midshore
Types of jurisdictions
- Offshore
- A jurisdiction with zero or very low tax and minimal requirements
- Onshore
- An ordinary country with full taxation and a good reputation
- Midshore
- An intermediate option: moderate taxes with a good reputation
- What has changed
- Substance requirements and exchange of information have eroded the former advantages of offshore jurisdictions
- How to choose today
- By access to banking and reputation, not by the rate alone
In plain words
The division into offshore, onshore and midshore is a loose classification of jurisdictions. An offshore jurisdiction is a country with zero or very low taxation, simple registration and minimal reporting requirements. An onshore jurisdiction is an ordinary country with a full tax system, developed regulation and a good reputation. A midshore jurisdiction is an intermediate option: a moderate tax burden with a decent reputation and working banking.
In recent years the boundary between the categories has blurred noticeably. Economic substance requirements, registers of beneficial owners, automatic exchange of tax information and CFC rules have removed most of the former advantages of classic offshore jurisdictions. At the same time, many reputable countries have introduced special regimes that make them competitive.
The practical criterion today has shifted. The main question is no longer “what is the rate there” but “will the company be able to open an account, and how will counterparties and reviewers view the jurisdiction”. A company in a country with a poor reputation may go for years without finding a bank — and no tax saving can make up for that. That is why the choice is made on the basis of access to banking and the business task.
When this choice arises
How the categories differ
- Zero or low tax
- Simple registration
- Difficulties with banks
- Full taxation
- Developed regulation
- Good reputation
- Moderate burden
- Decent reputation
- Working banking
- Access to an account
- Counterparties’ attitude
- Presence requirements
How to choose a jurisdiction
- 01Define the business task
- 02Check access to banking
- 03Assess the substance requirements
- 04Calculate the effective burden
- 05Make a decision
What you need to know
- The division is loose; there is no single list
- Substance requirements apply in offshore jurisdictions too
- Automatic exchange of information operates almost everywhere
- Access to banking has become the main filter
- A jurisdiction’s reputation affects your whole structure
Common mistakes
- Choosing a jurisdiction solely on the tax rate
- Not checking whether the company will be able to open an account
- Ignoring the reputational consequences
- Treating an offshore company as a way of hiding ownership
- Following advice that is ten years old
What this means for a BRIDGES client
We select a jurisdiction based on practice: where an account will actually be opened, how counterparties will view it, what will be required in terms of substance. The tax rate is the last criterion on this list, not the first.
Frequently asked questions
01 /What is an offshore jurisdiction?
A loose term for a jurisdiction with zero or very low taxation, simple registration and minimal reporting.
02 /How does a midshore jurisdiction differ?
It is an intermediate option: a moderate tax burden with a decent reputation and accessible banking services.
03 /Is it lawful to use offshore companies?
Registering a company as such is lawful. The question is whether it has a business purpose, whether substance requirements are met and whether the income is declared.
04 /Why have offshore jurisdictions lost their appeal?
Because of economic substance requirements, registers of beneficial owners, automatic exchange of information, CFC rules and refusals by banks.
05 /How should a jurisdiction be chosen today?
On the basis of the business task and access to banking. The rate matters, but it is useless if the company cannot open an account.
06 /Does an offshore company hide ownership?
No. Registers of beneficial owners and automatic exchange of information make ownership visible to regulators and banks.
See also
Read next
This material has undergone editorial review by BRIDGES.
Choosing a jurisdiction for a company?
We will select the country based on banking reality and your task, not an attractive rate.