Offshore Companies – What are they?
An offshore company is a firm registered or incorporated outside the country where it is officially based for the purpose of low taxation in the country of registration. The following map shows the countries that allow offshore companies to operate.
The laws of these countries enable corporate founders to keep their identities private, allow for public meetings to be held by phone, and do not oblige the company to disclose financial statements.
Many tax evaders are attracted to these countries to ease tax burdens, even though they conduct business and invest in their own country.
The company can be registered online without any specific capital. This can be done through a specialized intermediary but requires the applicant to prove that the company doesn’t operate in certain industries, such as banking, insurance, and financial services.
The Revelation of Offshore Companies
The term “offshore” had entered the news once more due to the announcement that 11.5 million confidential documents and files from the Mossack Fonseca Corporation had been leaked. Mossack Fonseca is based in Panama, and these documents were stored in 2.62 terabytes of data. This major leak became known as the Panama Papers.
This company was providing services to 140 individuals including politicians and their family members, and government officials, ultimately aiming to cover their money from taxes and regulations and keep the source of these funds hidden.
The leak was made to a German newspaper by an anonymous source, which in turn circulated the documents among more than 400 investigative journalists from 78 countries around the world in order to collectively analyze the huge amount of data.
What is Mossack Fonseca
Mossack Fonseca is a Panamanian law firm and corporate service provider founded by the German national Jürgen Mossack and Ramon Fonseca from Panama.
Mossack Fonseca manages billions of dollars for international figures, businessmen, and politicians by using aliases when transferring money to various companies in different countries in order to disguise the real owner.
Mossack Fonseca is based in Panama because it considers the country as a tax haven in the sense that money laundering and wealth concealment are easy to carry out. It is easy to establish fake companies and bank accounts. There are many countries similar to Panama in their lax laws, such as Cyprus, Switzerland, and some island nations in the Caribbean and others.
Offshore Areas Around the World
Offshore areas are divided into 4 groups (European, British, American, and sporadic marginal regions) with more than 80 different regions around the world, such as Switzerland, Luxemburg, Austria, Belgium, Dubai, Uruguay, Somalia, Gabon, and some islands such as the Bahamas and Marshall Islands.
Tax Evasion Losses
Due to tax evasion and illegal operations the tax revenue losses for governments are estimated between $66 billion to $84 billion annually, according to the Trade & Development Report 2017.
The budgets of some small islands in the Pacific, Indian Ocean and the Caribbean that act as tax havens are estimated at $18 trillion - one-third of the world’s gross domestic product (GDP).
Some of the most famous companies and public figures are using offshore companies to evade tax obligations
Starbucks, one of the world’s most famous coffee shop chains, was found to have transferred part of its £400 million sales in Britain to a subsidiary in the Netherlands, from where it then borrowed the same money for the mother company at a high rate in order to avoid tax obligations.
Qalaa Holdings, owned by Egyptian businessman Ahmad Haikal - the son of journalist Mohamad Hasanen Haikal, has a turnover of $9.5 billion. It is a large African investment fund that has engaged in illegal financing to pay reduced taxes since its establishment 10 years ago.
Among the people named in the Panama documents was also the North Korean president, who has hidden $4 billion in Luxembourg - money that’s stemming from illegal activities such as the sale of drugs and nuclear technology and insurance fraud.
These documents also show the names of some Arab leaders and their family members, and major politicians, among whom are current and former presidents.