Updated
GL-O-04
Glossary · Taxes and residency
Offshore, onshore, midshore - how jurisdictions are classed and what matters today
01 / In 30 seconds
The short answer
- 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
02 / In plain words
What Offshore / Onshore / Midshore means
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.
A case from practice
A client was considering a classic offshore jurisdiction for its zero rate. It turned out that opening an account for such a company at the right bank was practically impossible. The choice shifted towards a jurisdiction with moderate taxes but working banking.
When this choice arises
- Registering a company for business
- A holding structure
- Choosing a country for holding assets
- Reviewing an old structure
- Planning relocation
- Assessing reputational risks
03 / What it covers
How the categories differ
Offshore
- Zero or low tax
- Simple registration
- Difficulties with banks
Onshore
- Full taxation
- Developed regulation
- Good reputation
Midshore
- Moderate burden
- Decent reputation
- Working banking
What decides it
- Access to an account
- Counterparties’ attitude
- Presence requirements
04 / How it works
How to choose a jurisdiction
Define the business task
What the company is for: trading, holding, assets.
Check access to banking
Which banks work with companies from that country.
Assess the substance requirements
Office, director, staff - what the law requires.
Calculate the effective burden
Company tax plus CFC and dividends at the owner's level.
Make a decision
A jurisdiction that will satisfy the bank and checks.
05 / Key facts
What you need to know
01Offshore
Low tax, little reporting
Easy registration but a weak reputation. Many banks do not work with such companies.
02Onshore
A full tax system
Developed regulation and a good reputation, higher tax. Some countries offer special regimes.
03Midshore
The middle ground
Moderate tax with a decent reputation and working banking.
04What decides now
Bank and substance
Substance rules, beneficial owner registers and automatic data exchange removed the old benefits. The main question is whether an account will be opened.
Common mistakes
Choosing a jurisdiction by tax rate
Start with bank access and reputation, then calculate taxes.
Treating an offshore as a way to hide ownership
Assume transparency: beneficial owners are disclosed to registers and banks.
Following decade-old advice
Check the current substance, CFC and information-exchange rules.
06 / Expert advice
How to prepare in advance
Start with the business task: where the clients are, where an account is needed, what activity is carried on. Then check the banking reality of the chosen jurisdiction — this is the toughest filter. Only after that are taxes calculated, and the effective burden at that, taking into account substance and the rules of your country of residence.
What we do for you. 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.
Dmitry NagyTax consultant, international taxation and compliance (ex-Big4)
07 / Questions
Frequently asked questions
A loose term for a jurisdiction with zero or very low taxation, simple registration and minimal reporting.
It is an intermediate option: a moderate tax burden with a decent reputation and accessible banking services.
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.
Because of economic substance requirements, registers of beneficial owners, automatic exchange of information, CFC rules and refusals by banks.
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.
No. Registers of beneficial owners and automatic exchange of information make ownership visible to regulators and banks.
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