The Panama Paper leak have turned the offshore world upside down, revealing a glimpse of what offshore banking and company formation is all about.
The leak revealed some of the world's most influential leaders, public figures and business people's involvement in offshore structures – for legal or illegal purposes. The Government of countries which citizens are engaging in activities in offshore jurisdictions scrambled and took action – some quite significantly.
Take Indonesia, for example. Indonesian Government led by President Joko Widodo is investigating those who are listed in the leak, while riding the wave created by the leak to put the planned Tax Amnesty policy into action, aiming for the citizens' assets stashed offshore – particularly in Singapore – to be repatriated. The impact to the local (and Singapore's) economy is yet to be seen, but it's an example of how important Panama Paper leak is as a tipping point in global political and economic changes.
But asset owners are not the only ones who feel the heat; Offshore “tax havens” also feel it, seeing a dip in company registrations. International business incorporation service providers like us are taking careful steps in advising our clients, given the disruption in the whole offshore company formation and banking industry.
We, for example, recommends clients to consider Cyprus if they are targeting the EU market; one of the reasons is that it's not generally known as the so-called “tax haven,” yet offers similar benefits to clients, such as low tax rate (12.5 percent corporate tax,) a Government that pushes economic growth and a politically-stable jurisdiction.
But perhaps the hardest hit of all that's caused by the leak is asset owners who want to protect what's rightfully theirs legally. Their wiggle room is becoming more and more limited, giving them not so many options.
What options do we have for asset protection?
So, if you're reading this and aware that this is exactly your position, read on, as we're going to outline briefly the options that you can take.
1. Renunciation of citizenship
Perhaps this is the “easiest” option that's often coming from someone's mind: Instead of complying with the strangling local laws (including the unfairly high tax rates,) some just choose to renounce their citizenship and migrate to a jurisdiction that's more friendly toward their asset protection plans (i.e. Secrecy and minimal taxes.)
2. Apply for double citizenship
Some take the middle ground, applying for a dual citizenship program. Some jurisdictions allow this, such as the Cayman Islands and Dominica. The benefits offered to asset owners is the ability to travel hassle-free between countries, as well as accessing entrepreneurial and investing opportunities that are not available when you're not a citizen in that particular country.
While this could work to some asset owners, the costs related to it and the potential issues (e.g. Double taxation and conflicting laws) may make dual citizenship a less-desired option.
3. Go all the way
If you're a risky type of asset owners, you may want to go all the way – meaning, you deliberately evading taxes by not reporting all of your acquired assets (including hiding them in offshore jurisdictions,) with a hope that you pay lower taxes, and not get caught in the process.
4. Give in and trust everything in your Government
This may not be ideal to some, but the peace of mind offered by knowing that you're doing whatever you can to comply with the local laws is good enough to some others. Let's just hope that the local government is doing a great job in encouraging economic growth while keeping political climate conducive for doing business and making investments.
5. Set up an offshore presence properly and conservatively
Perhaps the safest, arguably more sensible option is by setting up a proper offshore presence for your assets while complying with the legal requirements in the process. This option involves the creation of a shell company, as well as the necessary bank accounts in a different offshore jurisdiction.
The bottom line
While there are pros and cons that are attached to each option, you somehow need to pick one or mix between two options and take action. Doors are gradually closing, giving you less and less options as you delay: Renunciation of citizenship will become more expensive, and offshore bank accounts are becoming more difficult to setup.
As always, we'd recommend you to consult with your trusted lawyer and tax consultant for professional advice. If you are particularly interested in International business incorporation, we can help you in considering your options.