O ffshore Areas as a Means of Saving and Augmenting Capital

In international practice, the definition "offshore" is used to characterize financial centers which carry out financial and credit operations jointly with foreign entrepreneurs on terms that are preferential for the entrepreneurs. In a broader sense, "offshore areas" means countries or their territories where the government grants considerable taxation privileges to certain companies owned by foreigners. In such areas, which are called offshore, accounting and audit requirements are decreased or absent and trade and customs limits are entirely or partially removed.

What are the advantages of offshore areas? For countries where offshore areas are located, they are an excellent means of attracting foreign capital and developing their own industrial and social infrastructure.

For foreign entrepreneurs using offshore areas it is a method:

1/ to save capital since funds are on account at reliable banks where payment for banking services is not high;

2/ to effectively accrue capital. This is facilitated by the alleviation of taxes, as well as by the extent of a free capital flow. For example, in many offshore areas, currency restrictions or currency controls are practically absent. Also, an additional advantage (in the entrepreneurs' opinion) is the presence of anonymity for businesses using offshore areas and confidentiality of information about those businesses (hereafter – offshore companies). In other words, the real owners of an offshore company may remain unknown by registering the company through trust companies using documents where they indicate the last names of nominal shareholders and people responsible for performing corporate duties and instructions. At the same time, the real owners, through power of attorney, transfer shares into the nominal shareholders' control. The real owners also limit the scope of the security-related financial operations which may be carried out by the people mentioned above. We have already mentioned that offshore areas are only an advantage for certain kinds of companies. That is why, in off-shore areas it is expedient to register:

- insurance companies engaged in risk insurance or reinsurance;

- shipping (ship owning) companies using their own, as well as charted vessels during transportation;

- news agencies and companies rendering services in marketing, advertising, management, etc.;

- holding companies.

We would like to pay your attention that the Ukrainian legislation provides for protection against the influence on the national economy by off-shore areas. For instance, the Law of Ukraine "On the State Privatization Program" dated May 18, 2000 No. 1723-III forbids companies registered in off-shore areas from taking the role of an industrial investor while privatizing state property.

Ukrainian entrepreneurs have a real opportunity to become owners of offshore companies overseas. Especially because at present there exists a rather developed market of services in registering companies in offshore areas (having a low taxation level or complete tax exemption).

We should note that the list of offshore areas promulgated in accordance with the resolution of the Cabinet of Ministers of Ukraine of March 14, 2001 No. 79-p is not complete. Actually, the number of offshore areas is much greater but domestic entrepreneurs pay attention to such areas as Cyprus, the Bahamas Islands, the Isle of Man, etc.