Offshores are usually associated with attempts to hide illegally acquired wealth abroad. However, there is nothing illegal in offshore companies; they can also be used by law-abiding entrepreneurs. I asked the lawyer whether it is difficult to register a company in offshore zones, for what purpose Russians register their business there, and whether our practice is somehow different from the global one. The word “offshore” is widely heard thanks to the “Panama Dossier” of 2016 and the “Pandora Archive” of 2021: in both cases, documents with information about offshore companies were leaked, which featured heads of state and high-ranking officials. Despite the negative connotation that this word has acquired, offshore companies themselves are a completely legal phenomenon. asked Dmitry Konstantinov, adviser, head of the bankruptcy and financial restructuring practice at the Ilyashev & Partners law firm, to tell how difficult it is to formalize an offshore and for what purposes the Russians do it.

What are offshores

From a legal point of view, an offshore is a state or territory that provides a preferential tax regime and does not transfer financial information to Russian authorities. Among the most famous offshore countries are Bermuda, British Virgin Islands, Liechtenstein, Seychelles, Maldives, Panama, San Marino.

In the economic sense, an offshore is any jurisdiction that has a simplified tax or corporate regime. They attract business due to the facilitated conditions, the entrepreneurial activity itself can be carried out somewhere else. There are many more jurisdictions that have some kind of a simplified tax regime, Dmitry Konstantinov noted.

In everyday life, offshores can generally be understood as different things: someone can even consider a business in Switzerland to be an offshore, the expert added. The example of Cyprus is also indicative: it can still be perceived as a classic offshore, although it is no longer one. The country has been a member of the EU for a long time, there is a profit tax. And legally registering a company in this country is much more difficult than, for example, in Estonia.

Is it difficult to register a company offshore

If a person decides to register a company offshore, then he will have to incur quite significant expenses. Therefore, it makes sense for entrepreneurs of at least an average hand, for example, with a turnover of 100 million rubles. It is simply unprofitable for small businesses, says Dmitry Konstantinov.

“It costs money at all stages. All these jurisdictions by and large operate on the same principle. In fact, they do not take taxes or take very small ones, but they earn on support: on the creation, provision of corporate services, liquidation, and so on, ”the lawyer explained.

According to him, for a person who does not have an urgent need to register a company in an offshore, these are simply unreasonable expenses. For example, in Estonia, you will have to pay about €1,000 just to open a company, and then there may be other expenses.

How difficult it will be to register a company in another country already depends on the specific jurisdiction. In the same Estonia, this can be done online, with only a passport and money. Here you may only need the help of a person who knows the Estonian language. But in some countries the situation is more complicated. For example, in the case of the same Cyprus, it is necessary to subscribe to a corporate service, that is, contact a local registrar who will accompany. Most likely, you will have to turn to someone for professional help.

But in the long run, starting the firm itself isn't that hard, says Konstantinov. Problems may arise with a bank account. “It is easy to open a company, but a bank account is not. And it is almost impossible to open it in Europe without being a resident of the European Union, without having a residence permit, ”the lawyer explained.

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Why Russians register companies offshore and how profitable it is

The most obvious reason why people register companies offshore is taxes, noted Dmitry Konstantinov. But the nuance is that they are all well known to the tax authorities. If business is conducted in Russia, entrepreneurs will not be able to save money on this.

“If a company does business in Russia, it will still be charged (taxes. -), as a local one. And she won’t really win anything,” he said.

In general, in general, if any foreign company begins to receive direct income in Russia (for example, it buys real estate), then it becomes registered with the tax authorities, the lawyer specified.

Tax benefits can be obtained if the business is conducted not only at the level of Russia - that is, if it is international, Konstantinov said. And this hardly applies to medium-sized businesses with a turnover of 100 million rubles.

The most common reason for using offshore companies is the need to close a corporate structure, or, more simply, when you need to hide the real owner of the business, the lawyer believes.“To be frank, some officials who cannot manage some kind of business conditionally go to Cyprus,” Konstantinov explained.

The second popular reason is security issues. In business, for example, there are cases of corporate raids. Another option concerns various international holdings: when companies are registered offshore for some purpose related to international turnover. For example, this category may include the cryptocurrency market - this area, in principle, is international.

In general, the Russian practice of using offshore companies does not differ from the global one, Konstantinov added. “There are rather our national characteristics associated with the opacity of the initial capital, or some kind of corrupt things. It is everywhere, we just probably have more,” said the lawyer.

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