An offshore company is a company in a jurisdiction with no tax on profits, or with tax only on local income, that does business outside its country of registration: the BVI, the Cayman Islands, Nevis, Panama. An onshore company pays tax on profits where it is registered and files full accounts: this is how companies in the UK, Singapore and Cyprus work. The benefit is determined by the result across the whole chain: the structure itself, the clients’ country and the owner’s country of residence.
Corporate rates: a few benchmarks
| Jurisdiction | Tax on profits | Type |
|---|---|---|
| BVI | no corporate income tax or capital gains tax | offshore |
| Cayman Islands | no income tax, corporate profits tax or capital gains tax | offshore |
| Panama | tax only on income from Panamanian sources | territorial |
| Hong Kong | Profits Tax only on Hong Kong-sourced profits: 8.25% on the first HK$2 million, 16.5% above that | territorial |
| Singapore | 17% on chargeable income | onshore |
| United Kingdom (UK Ltd) | Corporation Tax 25%, 19% for profits up to £50,000, marginal relief up to £250,000 | onshore |
These figures apply at the level of the legal entity. The owner’s obligations, dividends and CFC rules are calculated separately.
The strength of an offshore company
An offshore company is convenient when it has few transactions and a clear purpose: holding stakes in different countries, a joint venture of partners, a separate structure for a deal (SPV), holding an investment portfolio. There is no local taxation at the company level, the corporate law is familiar to investors and lawyers, and reporting is simpler than for an operating business.
The limitations are clear too. Banks, payment service providers and marketplaces ask offshore companies more questions, and for active trading and card payments such a structure is often inconvenient. Details on the most popular jurisdiction are on the BVI offshore company page.
The strength of an onshore company
A company in the UK, Singapore or Hong Kong pays tax, and in return it passes checks by counterparties, banks and PSPs more easily. It is simpler to sign contracts with corporate clients, hire employees, set up card acquiring and raise financing with such a company. Tax residency in the country of registration is usually easier to confirm, which makes it easier to apply double tax treaties.
For a service business with clients in Europe, a UK company is a common choice; for trade with Asia, a company in Hong Kong.
What changes the benefit: four rules
1. CFC rules. Many countries tax the undistributed profits of a controlled foreign company at the owner’s level. The OECD described general approaches to such rules in its BEPS Action 3 report. If the owner lives in a country with CFC rules, the offshore company’s zero rate may be replaced by the rate of the owner’s country. The analysis is in the article on CFC rules.
2. Place of management. A company that is actually managed from another country may be treated by that country as its tax resident. Singapore, for example, treats a company as resident when the control and management of its business are exercised in Singapore.
3. Economic substance. The Cayman Islands have had the Economic Substance Act in force since January 1, 2019, and the BVI has the Economic Substance (Companies and Limited Partnerships) Act. Legal entities with income from certain categories need people, expenditure and management on the islands.
4. Global minimum tax. The GloBE rules (Pillar Two) introduce a top-up to 15% where a group’s effective rate is lower. In the EU, they were enshrined in Directive 2022/2523 for groups with annual consolidated revenue of 750 million euros or more. Groups with lower revenue fall outside the Directive. For a large group, a low rate in an offshore jurisdiction is topped up to 15%.
The EU list
The EU list of non-cooperative jurisdictions of October 9, 2026 includes American Samoa, Anguilla, Guam, Palau, Russia, the Turks and Caicos Islands, the US Virgin Islands and Vanuatu. The BVI, the Cayman Islands, Panama, Nevis, Hong Kong and Singapore are absent from this list.
How to choose by business model
- A freelancer or agency with clients in the EU and the US: more often onshore, a UK Ltd or a US LLC. The comparison is in the article UK Ltd vs US LLC.
- Holding stakes in several countries: an offshore company in the BVI or the Cayman Islands, provided the owner’s CFC rules and withholding tax on dividends are taken into account.
- Online sales with card payments: more often onshore, since PSPs and marketplaces work with a limited list of countries.
- Trade with Asia: Hong Kong or Singapore, provided the source of profits and the management are supported by documents.
Pairs of jurisdictions with different tax models are covered separately: Hong Kong or Singapore and Estonia or Cyprus. For a holding company or for owning property, see the guide to offshore asset protection; the tasks a foreign company is set up for are reviewed in why a business needs a foreign company.
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