Nick Dow's blog : What is offshore

An offshore zone is a territory where taxes are low, sometimes close to zero. As a rule, such a zone is created in the legal field of small states. This is an unofficial name, it does not appear in any regulatory legal act or agreement.

In an offshore zone, it is not required to disclose information about the owner of the business and confirm his identity, as well as the income received. An entrepreneur who has registered a company offshore is not required to keep strict records, and even more so to provide it to the inspection authorities of his country or clients.

Why offshore companies appeared

Offshore companies like here https://offshorecompanyregister.com/hong-kong-offshore-company-formation/ appeared as a result of changes in the tax system. Since taxes are the main source of the state budget, most countries actively apply the system of taxation at different levels. In developed countries, taxes are quite high, and in some there is a progressive rate: the higher the income, the higher the tax.

Taking advantage of this, some began to introduce minimum taxes in order to attract investors. As a rule, these are small states that have no value other than providing favorable conditions for business.

However, offshore countries are also practiced by developing countries, especially those located near those that have a strong industrial potential. Such countries want to join the economy of developed countries and establish a constant trade turnover with them.

Investors and entrepreneurs at all times wanted to see the income from investments constantly grow. Therefore, they took interest in the emergence of offshore zones, where you can save a significant part of the income.

History of occurrence

In fact, offshore zones appeared in ancient Greece, when taxes were introduced on the export and import of goods, merchants tried not to visit Athens, but used the islands near the coast. There the tax policy was much softer.

The idea quickly spread, and soon such offshore zones turned from spontaneous into organized ones, where trading people from all countries aspired.

Offshore business received a boost in the Middle Ages, when less developed countries were used for trading. Particularly popular were the territories of Latin America, which made it possible to bypass the taxes of Britain.

Switzerland has become the most legitimate offshore zone. It turned to its advantage the newly passed bank secrecy law, providing a guarantee of confidentiality in any bank in its territory. Huge capitals flowed into the country, subsequently it turned into the most stable state not only in Europe, but throughout the world.

Offshore scandals

Anonymity and non-transparent reporting is an excellent bait, from the point of view of scammers. They started moving offshore. Low requirements allowed anyone to register a pseudo-company in one of the offshore zones and actively use it.

Since it was impossible to really check the functioning of such organizations, it was not difficult for their leaders to attract customers and then leave them without money. The first victims appeared, and at the same time it became clear that offshore companies cannot be held accountable in the legal field.

The most high-profile scandal with offshore Panamanian. It erupted in 2016. A Panamanian law firm's database was leaked during a journalistic investigation, exposing dozens of the world's top politicians and financiers to offshore companies.

This scandal clearly showed that the eradication of offshore players, or at least taking them under control, is still very far away. Actors at all levels will continue to resort to registration outside their home countries in order to reduce the tax burden and find more acceptable conditions.

Accordingly, the shadow business will also actively develop, whose representatives feel at ease in the open spaces of offshore.

Offshore regulation

Currently, two types of legislative regulation are applied on the territory of offshore zones:

the Anglo-American model based on the principles of case law;

Romano-Germanic system, working on the principles of legal regulation.

Thus, even the offshore legal framework may not coincide with the Russian system. Separately, it is worth mentioning the difference in legislation, because the regulations of the Russian Federation do not have legal force in offshore states. Simply put, if there is no relevant law in the offshore zone itself, then there is no violation.

How offshore companies appeared in the forex market in Russia
With the collapse of the Soviet Union and the introduction of the capitalist system of the economy, the state practically removed itself from the role of a regulator. Thousands of organizations large and small have taken advantage of this to avoid paying taxes, launder capital, and implement fraudulent schemes to deceive consumers. No wonder this stage is called “wild capitalism”.

In the 90s there was a computer boom, and personal computers began to actively fill the homes of ordinary citizens. Since the main desire of people was to find additional income due to the difficult economic situation, thousands of fraudulent companies were registered under the guise of offshore companies.

Fraudsters calling themselves forex brokers especially prospered. They quickly realized that people would not be able to distinguish a real trading platform from a one made “on the knee”, where quotes charts are plausibly drawn.

Thanks to the endless stream of people who wanted to make quick money, pseudo-brokers easily found new clients. The number of those deceived grew exponentially, and there was no one to call the scammers to account.

That is why the Bank of Russia took on the role of a regulator of the over-the-counter forex currency market and banned the activities of any organizations that did not receive a license on the territory of the country.

The license implies keeping financial records and disclosing information about the work of a forex dealer, as official brokers in Russia are now called. It guarantees traders protection against fraud and theft of funds from their accounts. All activities of a forex dealer are strictly regulated and must comply with legislative acts.

Why offshore brokers are dangerous for forex traders

Not all traders understand the risks of working under the auspices of an offshore forex broker. Some still remember the huge leverage, a large selection of trading instruments and the absence of taxes. In fact, such conditions turn into a complete lack of protection for the average trader.

The legal side of the issue also leaves much to be desired. In case of disagreement, there will be nowhere to turn.

It is unlikely that the nuances of such calls are known to an ordinary trader, not to mention the unpredictability of the result. It is difficult to assume that the court of an offshore country will resolve the issue as quickly and efficiently as possible and force the broker to pay damages.

Evidence will also be a problem. In no offshore forex broker is not required to provide full reporting and keep a history of quotes. Therefore, it is not possible to collect an evidence base, which will entirely fall on the shoulders of the trader.

It is safer and easier to trade on the Forex currency market through a dealer licensed in the Russian Federation, for example, through Alfa-Forex. Such companies report publicly. In addition, customer transaction histories are stored on the server for at least three years.

Clients have the right to sue the company and receive both material and moral compensation. If the dealer ceases to exist, all its customers will be returned the money remaining on their accounts.

Summary

Offshore zones are a popular way to reduce the tax burden and get additional benefits for both investors and businessmen, as well as for participating countries. Therefore, they will develop further, it is very difficult to eradicate them.

Offshores are territories with a loyal attitude towards hiding information and extremely low tax rates. Offshore registration is simple and does not require the preparation of many documents. This has attracted unscrupulous owners of shell companies that launder income, as well as individuals practicing fraudulent schemes.

Such a scheme is especially dangerous for Forex traders, since when concluding an agreement for intermediary services with offshore organizations, they are left without protection and without a guarantee of a refund.

It is safer to work with dealing centers licensed by the Bank of Russia, which regulates relations between the company and its clients and acts in the interests of traders. Of course, no one is immune from market risks, but compliance with the law by the dealer guarantees protection.

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