6 Offshore Jurisdictions for Companies to Avoid in 2020

Written by Andrew Henderson

Last updated October 2, 2020

Dateline: Kota Kinabalu, Malaysia

Too many folks who are going offshore for the first time make one big mistake that ends up costing them a lot of problems, money, and even legal issues. 

The mistake?

Setting up an offshore company, opening a bank account, and doing business all in the wrong offshore jurisdictions.

This is a problem I see over and over again from folks who followed advice from forums or some shady lawyer trying to sell them on a specific service. So, today, I want to explain which offshore jurisdictions to avoid and why you should be avoiding them in the first place.

I am reporting today from Kota Kanabalu, Malaysia. Many people don’t know it, but Malaysia has one of the world’s most interesting tax havens. In fact, the place doesn’t look like a “tax haven” at all.

Labuan is Malaysia’s ultra-low tax zone. We first discussed it in the beginning years of Nomad Capitalist as the home of companies like AirAsia – one of my least favorite airlines but favorite legal tax avoiders – that avail themselves of taxes as low as 3%… or even a flat 20,000 ringgit (US$4,500) per year.

However, while Labuan may make sense for some businesses, it never really took off in the same way that its counterparts Hong Kong and Singapore did. I suspect that the Malaysian government never wanted Labuan to be a top-tier jurisdiction, but rather a lower key place for serious businesses. They don’t want every guy with a laptop running his Facebook ad consultancy through here.

While Labuan was never that popular in the first place, there are other offshore jurisdictions that have had their heyday and have since fallen out of favor… or simply fallen off the map. As with anything involving politicians, certain offshore company jurisdictions come and go.

There are offshore jurisdictions that simply do not work anymore. 

They may have worked once upon a time, but the most important thing is whether they work now. 

The real meaning of the ‘nomad’ in Nomad Capitalist is accepting that things change. Being a Nomad Capitalist isn’t just about where you personally travel but also about where you take your business and wealth. And the best banks, the best countries to do business… those things are going to change. 

At the time I was born, the United States was the number one country in so many metrics. Now, in many cases, it is far from number one. Things change. You have to be flexible. And when conditions change in these offshore jurisdictions, that may mean moving your business and assets elsewhere.

Now, when I help people set up offshore plans, the goal is always to create the plan that will last the longest, and that means being wary of the traditional offshore jurisdictions that are under fire from the international community. 

Even if they work right now, they aren’t going to last much longer.

The folks who have come to me with frozen bank accounts, or who are having trouble doing business in a country, or who cannot get their money out of a country were all largely relying on information that used to work but doesn’t work anymore.

In an era of the Panama Papers, the OECD, CRS, FATCA, and so many other groups cracking down and trying to make things more difficult, you really have to be careful where you’re going. And that means that a lot of the traditional offshore jurisdictions that used to work have become very problematic.

The best offshore jurisdiction today may not be the best tomorrow. So, first and foremost, learn to be a little nomadic in your thinking and realize that you must constantly adapt if you want to survive and prosper.

With that, let’s address a few things to keep in mind when setting up an offshore company and then take a look at six jurisdictions that have fallen or are falling out of favor and are likely worth avoiding.

Considerations When Forming an Offshore Company

One thing I’m never a fan of is taking a cookie-cutter approach to setting up an offshore company. Anyone who suggests that one country is always the best approach is either misguided or has a dog in the fight.

I have written before about the 10 questions you should ask to find the best offshore jurisdiction for your company, and the truth is that there are more than ten questions you should be asking. The best offshore jurisdiction is going to be different for every individual and business because of their unique characteristics and needs.

For instance, you should consider what services your company will need before choosing a jurisdiction. If you need a high-quality merchant account that easily integrates with a wide array of e-commerce applications, being in the Marshall Islands may put you at a disadvantage as the country is not as advanced in that area.

On the other hand, dealing with the audit requirements and complexities of doing business in Singapore may prove to be too much for a small company with very simple consulting transactions.

Knowing WHY you need an offshore company and what you’ll do with it is important as it helps you decide where to set up shop.

That includes being located in a jurisdiction that is taken seriously by the people you’ll be doing business with. This is especially important when it comes to the operational capacity of your business and its ability to access quality banking.

Some folks make the mistake of only looking at the tax side of things and end up ignoring whether they will be able to operate their business once they set it up offshore.

I’ve lost track of the number of people who have hired me only after paying some consultant in Dubai or Switzerland $40,000 for a single shelf company that they claimed would allow them to get a bank account. 

One guy couldn’t get a dollar bank account, only Euros. Another guy never got anything. The consultant he paid $40,000 to said, “We’ll try our best.” All that means is that it’s not going to happen and it’s not his fault. The jurisdiction was the issue. The consultant got him a shelf company but no way to operate it.

Do you want to work with someone whose focus is why it’s not their fault that your offshore company is inoperable or do you want to get the job done?

If you prefer the latter, then look at things holistically and choose quality jurisdictions that will give you exactly what you need over the easy, cheap options.

Is it easy to set up a company in Belize? Yes! And it may even be a good option from a tax perspective. But will you be able to get a working bank account, move money, maintain your accounts, get merchant accounts, and have free flows of money? Not likely. 

Are you going to be bothered every five minutes to fill out more forms and get questioned for every single thing you do? Yes.

There are a lot of things to consider here. 

Now, I am not an attorney or CPA. I’m someone who, as a business owner, has had to go through this and deal with the ups and the downs of being offshore and living a global citizen lifestyle for years. I am commenting on what I’ve seen by being in your shoes.

It’s easy to be the lawyer, the tax dude, or the incorporator and say how easy it is to have an offshore company in country XYZ merely by looking at what should happen on paper. But I’m giving you a perspective based on experience and what I see as trends in my time operating overseas.

Tax is one thing, simplicity is another, and privacy is another, but operations is key. There is no use setting up an offshore structure if you cannot figure out how to use it and end up paying more in taxes because you cannot use what you bought. 

If you’re wealthy and have a clean, active business that banks understand and you want to consolidate to have a solid entity that has inflows from all your companies all over the world, you need to set up your company in a quality offshore jurisdiction.

Banks are de-risking and that means that they don’t want to deal with anything that appears even slightly risky. For example, OSBC Bank in Singapore recently kicked out all its BVI companies. And the BVI isn’t even on this list! It’s still relatively respected. 

But the trend in the world is toward much more scrutiny. The offshore jurisdictions that cannot hold up under this new transparent world are the ones you want to avoid.

Many offshore jurisdictions allow you to “re-domicile” your company once it is established, so it’s possible that if you currently have an IBC or offshore corporation in a jurisdiction that isn’t serving your needs, you can move it.

But it’s always best to get things done right the first time. 

With that in mind, let’s review a few offshore jurisdictions that have fallen out of favor – or that never were in favor – for most entrepreneur’s purposes.

1. The Gambia

The Gambia Offshore Jurisdictions to Avoid

Just a few short years ago, this African nation was all the hype, now its offshore jurisdiction is barely on the map.

I’m all for the creation of new tax havens. It’s refreshing to see governments coming to the realization that their bread is best buttered by business being conducted in their country. (If only politicians in the United States could realize that.)

The Gambia is a tiny West African country carved out of Senegal. Like its neighbor, it is relatively politically stable but somewhat corrupt. While hardly a panacea, it ranks right next to the offshore haven of Seychelles in terms of economic freedom. All of those factors led the Gambia to decide to become the low-cost offshore services jurisdiction a few years back.

The fact that requirements are practically zero does look attractive, but I’d like to see the look on your bankers’ and customers’ faces when you tell them you’re based in a tiny African country. 

There may be some basic applications for a Gambian company, but even if one would work for you, it is worth spending an extra $200 to get something better.

Update 2020: No one talks about this jurisdiction anymore. When I originally wrote this article, I included the Gambia to help people steer clear of the hype over a new exotic offshore jurisdiction. The fact that this country has mostly died out so quickly as a place for company formation is just more evidence for why you should aim for high-quality jurisdictions that will last.

2. Liberia 

“Oh, your company is located next to the war zone on the Ivory Coast? Excellent…”, said no one ever.

Liberian companies were widely promoted decades ago, but not to digital nomads or online business owners, they were promoted as a way to register ships and conduct financial services in a loosely regulated jurisdiction. In fact, you can still register a yacht in Liberia.

In those applications, it works; plenty of cruise ships are registered to Liberia in order to fly its “flag of convenience”.

While registering your yacht (or your 2,500-passenger cruise vessel) does qualify as planting a flag under flag theory, if you do not have a yacht, you may want to look to other offshore jurisdictions.

The fact that Liberia outsourced maintenance of its corporate registry to a US company on US soil doesn’t help promoters’ claims of privacy benefits. And the fact that it still boasts a tax treaty with West Germany should show you why only the shadiest of promoters are offering Liberian companies to those who would be poorly suited to have one.

3. Niue

Update 2020: Since this article was first written, Niue’s offshore company formation service has been shut down.

Niue was the tropical paradise that served as the wallpaper of your old computer back in the day. Many traditional offshore jurisdictions offer beautiful beaches and rely on tourism as their main source of revenue; nothing wrong with that.

Niue, however, never got beyond “desktop wallpaper” status. A tiny rock – a coral island chain, to be specific – in the South Pacific, Niue is a beautiful place to visit and the influence of Oceanic countries has led to relative political stability.

In addition to utilizing British Common Law, Niue IBCs had few requirements outside of maintaining a registered agent there. The $150 annual return fee was relatively low in the grand scheme of things.

The problem is that no one credible is using Niue companies. You’ll have a hard time doing much with one in the rest of the world. The fact that the country is heavily reliant on aid from New Zealand could be cause for concern, as well. The extremely narrow adoption of Niue companies is reason enough to avoid setting up shop there.

Niue choral reef

Forget not being able to get a bank account with your business, you can’t even get an offshore company in Niue anymore.

4. The Marshall Islands

Up until May 2019, the Marshall Islands was the last remaining country in the world where you could enjoy total anonymity via bearer shares in an IBC located in a zero-tax jurisdiction with minimal administrative requirements.

In 2015, the OECD stepped in and persuaded the Marshall Islands to end the use of mobile bearer shares to increase transparency. An amendment was passed requiring holders and beneficial owners of bearer shares to disclose their name and other important information by November 9, 2018.

Anyone who had not disclosed their information by May 8, 2019 had their certificates canceled, essentially killing the practice of anonymous bearer shares throughout the world.

That said, the Marshall Islands still offers IBCs and other offshore company structures. But the fact that the OECD could come in and force their agenda on this tiny island country is reason enough to stay away. 

Forget the fact that no one is going to want to set up a bank account for a Marshallese company.

5. Seychelles

Unlike the first three companies, I’ve seen a number of small business owners set up shop in Seychelles, often with disastrous results. Just recently, I advised an internet marketer to get almost $100,000 from a frozen merchant account because the bank refused to pay offshore companies in shady places like Seychelles.

While Seychelles is a beautiful place, it has jumped the shark in terms of a corporate jurisdiction for most people. While there are hybrid approaches that could work for larger businesses, the cheap down-and-dirty Seychelles IBCs I’ve seen are getting shut out by banks and other service providers all over the place.

Any jurisdiction that doesn’t require you to keep books, maintain records, undergo any type of audit, pay any type of tax, or report your activities in any way is either on everyone’s blacklist or about to be on it. Seychelles falls into that category, which is why I get quite a few emails each year from people who have a mess to clean up there.

6. Belize

Now, I have to say that Belize and Seychelles are the best of the worst. They may work in some hybrid cases for very specific purposes in which you would not need an offshore bank account. For instance, you could move your IRA offshore to a Belize holding company.

But if you’re running an active business, it’s best to stay away from Belize. 

I once did an experiment setting up a cheap offshore company. I tried to be as blind as possible going into the process and simply found a company through a Google search and chose from one of the 18 different offshore jurisdictions where they offered incorporation services. 

It was kind of like going to the dermatologist and having him tell you, “You have a cancerous mole. Here are 18 different ways to remove it. How about you choose the method?” So, I used a bit of my knowledge of the industry and chose the offshore company that would give me the best deal on everything that I needed, not just company formation. 

I ended up with a Belize company.

Again, this was an experiment. I also know how to get a couple of bank accounts with Belize. And if I were to ever really use this company, it would be a very special purpose company with limited funds and assets.

If you’re setting up your main business in Belize and that’s your strategy for offshoring your entire business from the US or somewhere else, then I would encourage you to look at a different jurisdiction. 

Here’s why: Belize has always been viewed as a rung below even some of the other offshore jurisdictions. We live in a world where all the offshore jurisdictions – BVI, Bermuda, the Cayman Islands, the Isle of Man, etc. – have a little bit of a taint on their image due to public perception. 

That’s not entirely fair and it shouldn’t stop you from going offshore, but it does mean that banks have become more scrutinous of any offshore jurisdiction. People have even had trouble getting accounts for companies set up in some reputable hybrid jurisdictions like Hong Kong. 

I’ve had people who do this stuff for a living coming and asking me for advice on how to deal with the changing offshore world. And if getting an account for an offshore company is becoming more difficult in general, getting one for Belize has become even more difficult. 

The reason?

The lack of due diligence. 

Some people go offshore to have more simplicity in their life and the decreased demand for due diligence in a place like Belize seems like a plus in that regard. But the reality is that it will be incredibly complicated to get money out of Belize

You will also have to deal with more questions, a lot more documentation, and ongoing compliance. The lack of due diligence on Belize’s part is a negative thing in a world that is focused on transparency and will demand it from you one way or another.

In fact, some countries list Belize as a tax haven, which means that anyone with a Belize corporation will be subject to special filings, reporting, or even tax-paying requirements thanks to the country’s reputation.

That doesn’t mean I dislike Belize. I happen to like it, actually. But I’m a pragmatist and the reality is that there are fewer banks and people who are willing to work with Belize companies and the individuals who own them.

If Belize is part of your structure, you’re going to have more and more scrutiny going forward from people in the banking world who just don’t want to touch the jurisdiction. That isn’t the case for everyone right now, but it is a trend that I am seeing.

Belize is going to be more and more difficult going forward.

Except for these rare circumstances for holding assets or limited asset protection purposes where you won’t need access to good banking, steer clear of Belize.

Conclusion

There are many different puzzle pieces you need to put together when taking your business offshore. But when you’re running an active business, the machinations of international finance really aren’t your concern, you just want to get a company that works.

And in that regard, the traditional offshore jurisdictions are entirely overprescribed.

These tiny little islands with no tax reporting, no accounting, no audits, and no other requirements are a kind of a Wild Wild West. Some may still be useful for select situations or hybrid structures, but for the most part, they are no longer the best option. 

The days of hiding money overseas are over. Transparency is the new norm. Any jurisdiction that is even minimally opaque or has few to no requirements will give you problems if not get shut out completely.

So, if you can do a little more work up front – even if it costs a bit more to set up in a more transparent jurisdiction – it will be worthwhile because the high-tax countries where you want to bank and live are increasingly putting the screws to anyone who can’t give them the information that they want.

The benefits of setting up in the traditional offshore jurisdictions will never outweigh the inability to get a bank account or effectively operate your business.

And sure, there is always a case for every country to work, but I’m speaking in generalities here. The overall point that I want you to remember is that onshore is the new offshore.

The future of international business is in low-tax onshore jurisdictions that have a good reputation and have rules but make it easy for you to do business. 

The offshore world – in the sense of these tiny islands – is really going the way of the dodo bird. If you’re still looking to open up a bank account or set up your company in one of these jurisdictions, consider looking elsewhere.

With the right help, you can get the same solution, freedom, and low taxes without all the potential headaches. Because there are even more headaches to come for the traditional offshore jurisdictions.

The trend is clear: more scrutiny and more transparency.

This is not a commentary on whether this is right or wrong. I’m pragmatic when it comes to business. While these crackdowns may be a bit aggressive, they are happening. So, when it comes to company formation and bank account opening, going to tiny islands with no regulation where people were just flying in with planes full of cash 20 years ago is no longer going to work for you.

The future of offshore is onshore.

Using companies that are already tainted (whether fairly or unfairly) is not a feasible solution and you should strongly consider whether you really want to put a fly-speck, laissez-faire corporate structure into your offshore strategy.

It’s not going to work. And even if it works for you right now, it certainly won’t in the future.

We offer plenty of free advice here on the site if you’d like to learn more about the right way to set up your offshore company. We also work with seven- and eight-figure entrepreneurs and investors to plan and execute holistic offshore plans on their behalf. When done the right way and with a full assessment of your needs, the process should be affordable and painless.

Andrew Henderson
Last updated: Oct 3, 2020 at 3:48AM

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1 Comment

  1. Tony

    Hi

    Re Seychelles i heard they have now a new information compliance law ..is that right ?.

    As currently looking to open a couple of offshore companies .. on the cheapest budget .

    Me based in uk , my mom is going to india to sort out my dads affairs as he passed away recently ..so looking to set up two offshore comp,s

    1 … for a holding company/ trust for my family property..
    2 another for trading in arts and crafts / commodities …

    Can you recommend anywhere on the cheapest budget .

    Thanks and regards

    Tony

    Ps nice videos

    Reply

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