In fact, an offshore financial centre (OFC) is

In
fact, an offshore financial centre (OFC) is a jurisdiction with low taxation
that specialise in providing trade services and company formation to
non-resident offshore companies, and investing chances for offshore capital. The
exploitation of OFC should not for illegal purposes, however, cover-up the
legitimates roles of such centres in the global financial system. A number of
jurisdiction develop into genuine financial centres providing huge benefit by
allowing legitimate financial planning and risk management. Before loaning to
countries with underdeveloped corporate law, the significant of OFCs can be
seen from the condition of the Overseas Private Investment Corporation (OPIC),
a U.S. government agency. The OPIC need a borrower to form an
“offshore” intermedium to facilities loan financing. Example of genuine
financial centres are Singapore and Hong Kong. This section claims that despite
the presence of bank opacity business structure and secrecy, these two
jurisdiction can be distinguished from classic tax haven and their examples
represent that the bottom tax competition is not compulsory “harmful”.

Tax
haven and OFCs are strongly related, tax haven is a country that provides
foreign individual and business a minimal tax liability in an economically and
politically stable environment. Most generally through transfer pricing, tax
haven allows multinational enterprise (MNE) to transferal profits out of high
tax jurisdiction into low tax jurisdiction. It is being argued that
most of industrialized countries have an affinity tax haven, such as Guernsey to UK, Gibraltar to Spain and
Monaco to France. While, in the limited resources these island is quite small
to expansion into industrialized countries. To be a tax haven is a method of
survival. So, in the Hong Kong and Singapore are chosen to expand their
“offshore” sector. Their jurisdictions are follow resemble historical path of
development and they are changed from entrepot to financial centres, but
different of the reason. Hong Kong is the gateway to China while the Singapore
is strategically located in nearness to South East Asia.

The offshore financial centre has the offshore banking
licenses. A multinational corporate establishment an offshore bank to carry its
foreign exchange operation or to facilitate financing joint venture with an
international. Besides that, an onshore bank set up a wholly owned
subsidiary in an OFC to offer offshore fund administration services such as
transfer agent services, fund administration, fund accounting, and fully
integrated global custody. The owner of a regulated onshore bank set up a
sister “parallel” bank in an offshore financial centre. The attraction of the
offshore financial centre may contain less stringent trading restriction and
reporting requirement, light supervision and regulation, no exchange control,
no capital and capital gain tax, no corporation tax, no tax on transfer, and no
withholding tax on dividends or interest. For example, under The Labuan
Financial Services and Securities Act 2010 (“LFSS”), offshore banking business
in Labuan can be implementation by offshore companies, Malaysian bank and
branches of foreign offshore company.

Offshore financial centre can help to keep privacy for
personal, family, business or political reasons. In the poor economic and
breakable banking system, wealthy individual and enterprise expect want to keep
assets overseas to protect them against the failure of their domestic bank and
domestic currencies, and out of the potential exchange control. If the people
are seeking confidentiality, then an account in an offshore financial centre is
generally the vehicle choice. In some condition, motive for going offshore is
fear of wholesale seizures of legitimately acquired asset. In this condition,
confidentiality is very significant. Besides that, majority of individuals are
facing unlimited liability in their home jurisdiction through offshore
trusts to restructure ownership of their assets to protect those
assets from onshore lawsuit. From forced provision in the homeland, some of
OFCs jurisdiction has legislation are protecting the person who transfer
property to personal trust.

Next, International Business corporation (IBC) or
Offshore corporation are limited liability vehicles registered in an OFCs. They
could use to own and operate business, issue bond and share or promotion
capital in other way. IBC can be usage to generate complex financial structure
and they can be establishment with one director only. In some situation,
resident of the OFCs home countries may act as nominee directors to hide the
identity of the real company director.  A
several OFCs may be used bearer share certificates while in some OFCs use
registered share but no maintain the public registry of shareholder. Majority
of the OFCs the cost of establishment IBCs are minimal and they are commonly
discharged from all taxes. IBC are popular vehicle for supervise investment
funds.

            In addition, the most
important promptly growing uses of OFCs is the use of special purpose vehicle
(SPV) to operate in financial activities in more favourable tax environment. An
onshore corporation set up an international business corporation (IBC) in an
offshore centre to operate in a specific activity. The most frequently cited of
SPV is issuance of asset-backed securities. The onshore corporation could
assign a set of assets to the offshore SPV such as loans credit card receivable
and a portfolio of mortgages. Based on the underlying asset, the SPV provides a
variety of securities to investor. Besides that, financial
institution also uses of SPVs to take benefit by less restrictive regulation on
their activities. Particular in bank use OFCs to raise tier one capital in the
lower tax environment. SPVs are also establishment by non-bank
financial institution to take benefit of more generous netting rules than faced
in homeland and for reducing their capital requirement.

            In the offshore financial centre can help the people tax
planning. Wealth individuals are use of favourable tax environment and tax
treaties with OFC commonly are including offshore trust, companies and
foundation. There is a range of structures that legally invulnerable, but rely
on ambiguity and complexity, generally including types of trust not available
in the client’s country of resistance. So, multinational companies through
transfer pricing are route activities through low tax OFCs to minimize their
total tax bill such as good may be made onshore but by the multinational uses
IBC issues invoice in offshore will be moving onshore profits to low tax
regimes.

            A commercial corporation set up a captive insurance
company in OFCs to minimize tax and manage risk. An onshore insurance company
set up a subsidiary in an OFC to reinsure some risks underwritten by the parent
and decrease overall capital requirement and reserve. To reinsure catastrophic
risk, an onshore reinsurance company incorporates a subsidiary in an OFCs. The
attractions of an OFCs in these conditions involving favourable income, capital
tax regime, withholding and weakly or low enforced actuarial capital standard
and reserve requirement.