This will be a continuation of a previous post, called Offshore Freelancing, and will also explore the topic of running an offshore business in general.

In this post, I will address some points about jurisdictions and banking options for the offshore freelancer, whether it’s as a consultant, IT developer, project manager, marketer, journalist, writer, or what have you.

Incorporation

It might be tempting to go with Seychelles, Belize, Liberia, Vanuatu, et cetera. The problem is the terrible reputation associated with those jurisdictions. The names are synonymous with tax evasion, money laundering, corruption, and – in the case of Liberia – even war crimes. It’s a different debate entirely whether these are deserved reputation and whether other jurisdictions really are much better, but the reality is that they have a poor reputation and are more likely to cause friction with partners and customers than reputable jurisdictions.

As an offshore freelancer, it is important to strike a balance between ease of operation and reputability. (See also Assessing The Reputability of Offshore Jurisdictions. No, really – read it.) If you are going to sell your services to onshore companies but for one reason or another do not want to do so as a local company, it is important that the company type and jurisdiction you choose are not going to cause issues with your business partners.

Popular Jurisdictions

In the last couple of months and years, four offshore jurisdictions have in my experience completely dominated for new incorporations of freelancing and consulting businesses, namely:

• Anguilla
• Gibraltar
• Hong Kong
• Mauritius

These four, which incidentally are in four different corners of the world, are so far ahead of other jurisdictions that it’s hardly worth mentioning the others. However, if we were to include onshore jurisdictions utilized by international freelancers, UK stands as number one. The US is losing ground, with a drastic decrease in international, non-resident incorporations for SMEs.

Due to their special relationship with the highly reputable United Kingdom, most British Overseas Territories can be viable options. However, while British Virgin Islands and Turks and Caicos Islands are quite lean and affordable, many of the other territories (primarily Cayman Islands and Bermuda) can be prohibitively expensive and cumbersome for a freelancer just looking for an offshore invoicing vehicle.

However, make no mistake that while these are reputable jurisdictions, they are still considered tax havens.

Let’s go through the four jurisdiction in more detail.

Anguilla

Anguilla is often regarded as the lesser known cousin of British Virgin Island. While BVI has had to suffer significant international backlash for its secrecy and lack of compliance, Anguilla has ridden on the coattails of BVI by implementing similar laws but picking up the scraps where the current compliance requirements of BVI are seen as too high for some or by removing (or never enacting) the secrecy for which BVI has been criticized.

The OECD’s 2011 peer review of Anguilla is largely favourable. Anguilla has since been quick to make amendments in line with OECD recommendations and the next peer review is likely to be positive.

CFATF-GAFIC (Caribbean Financial Action Task Force) published its fifth follow-up report on Anguilla and concluded that Anguilla is compliant or partially compliant on all recommendations but two, called R. 20 and SR. VIII, which are more about how the compliance is enforced and run on a day-to-day basis than actual compliance itself.

Anguilla still has some gaps to fill before it is fully compliant but as it stands, it offers quite possibly the best balance of cost vs. reputability. The jurisdiction has signed multiple tax treaties and has demonstrated it can live up to them.

Something that sets Anguilla apart from many other offshore jurisdictions is that it offers both typical IBC incorporation as well as LLC.

Anguilla overview

Gibraltar

It’s no surprise that there are two British Overseas Territories on this list. They tend to be well regulated and well respected jurisdictions.

Gibraltar is precisely that. While it did have an exempt-companies regime similar to Cayman Islands and other Caribbean tax havens, this was removed following massive criticism from – among others – the EU, of which it is a member. Today, Gibraltar applies a sort of territorial taxation whereby companies that are managed by non-residents (and a number of other easily fulfilled requirements) are not subject to any taxation.

While an EU member by an extension of the UK membership, Gibraltar lacks a number of taxes, such as VAT (sales tax). This means a Gibraltar company need not register for VAT in Gibraltar since not VAT is owed there.

A company incorporated in Gibraltar is required to file an annual return with the government. However, for a smaller company, an abbreviated financial statement is considered sufficient. Most trustees (registered agents) can help out with this or refer you to someone who can. The backoffice and websites of the Gibraltarian governments don’t necessarily look or feel modern, but they are on nearly on par with UK in terms of ease of use. It is very easy to run a fully compliant Gibraltar company.

The OECD’s 2011 peer review of Gibraltar is generally favourable. There are some gaps before Gibraltar reaches full compliance but it will get there.

All in all, a Gibraltar company is an EU company that enjoys 0% taxation, 0% sales tax, fair and reasonable compliance, and a stellar reputation.

Gibraltar overview

Hong Kong

At a first glance, Hong Kong might seem like a lot of work with the requirement to have an audit. Audits are expensive and take a lot of time, right?

Wrong.

Because audits are required for all companies in Hong Kong and Hong Kong being the business-friendly jurisdiction that it is, there are hundreds of audit firms and costs are pushed down very far, without losing quality.

The fact that audits are required is also a huge boost to Hong Kong’s reputability. When you deal with a Hong Kong company, you are dealing with a company that needs to have its finances in check and whose records are verified by a third party.

Hong Kong has a well-deserved, excellent reputation. Everything goes on public records and as of 2014, all companies must have at least one natural person acting as director. Nominees are virtually unheard of.

The corporate tax rate in Hong Kong stands at 16.5% but since Hong Kong applies what’s called territorial taxation, only income derived from business activities within Hong Kong is taxable. This means that for a non-resident freelance consultant or marketer, you can render your services to clients world-wide but only pay tax on income earned from clients based in Hong Kong.

OECD considers Hong Kong to be Largely Compliant. There are a few gaps there but none that are likely to cause friction as an offshore freelancer. The Hong Kong authorities prefer to sign DTAs over TIEAs since DTAs add a business incentive. Hong Kong is likely to adapt to TIEAs very shortly but will continue pushing for DTAs.

See also: Jurisdiction Spotlight: Hong Kong and Macau.

Hong Kong overview

Mauritius

As mentioned before, Mauritius has two types of offshore companies: GBC (Global Business Company) class I and class II.

Class I GBCs are resident companies and very likely falls out of scope for freelancing as there are requirements on resident directors and taxation. GBC class II is largely a carbon-copy of IBC.

What sets Mauritius apart from for example its neighbour to the north, the Seychelles, is the jurisdiction’s strong and tangible commitment to fighting financial crime, tax evasion, and money laundering. At nearly every major conference relating to international finance, the Mauritius FSC and/or central bank is present.

OECD rates Mauritius as Largely Compliant. The only areas where Mauritius is not compliant is relating to identification of ultimate beneficial owner (UBO) in structures involving foundations or nominees. Mauritius has enacted legislation addressing these two issues but OECD were unable to assess them before the peer review was completed.

The ESAAMLG (East and Southern Africa Anti Money Laundering Group) has issued reports on Mauritius, both overall positive. The reports old by now but can be found on http://www.esaamlg.org/.

Mauritius has signed several tax treaties and is known to be able to fulfill requests for exchange of information (EOI) in a timely manner. Its regulatory bodies are responsive and helpful.

Mauritius GBC Class II overview

Accounting

Stop complaining.

I often hear would-be entrepreneurs complaining about bookkeeping and thinking that they don’t need to do accounting for their IBCs. There are a couple of jurisdictions left that do not require accounting but in the end, they all will. Before you ask which ones don’t, they are the kind of jurisdictions you wouldn’t want your name associated with and will not be named.

What sets your average offshore jurisdictions apart from many onshore jurisdictions is that there is no need to file the books with or prepare statements for the government. Audits tend to be optional (and almost never used), save for Hong Kong. The bookkeeping itself also tends to be simplified in offshore jurisdictions.

Accounting is easy. You either do it yourself or you hire someone to do it for you. There are thousands of accounting firms out there. To outsource accounting, you submit all invoices, receipts, bank statements, and other financial information of the company and they prepare the books for you. Costs are rarely more than a few hundred USD/EUR per year for a small company. Check with your registered agent if your jurisdiction abides by a specific accounting standard and make sure that your outsourcing partner follows this standard.

Banking

This is a problem many B2B-service providing freelancers face: banks not accepting them.

Some place a lot of importance on bank account and require sophisticated services, while others are happy to just have an account, internet bank, and maybe a debit card. This is entirely up to you.

I’m not going to list banks here. Instead, I’m going to tell you what you can reasonably expect and how you can optimize your chances.

Expectations

If you operate as an Anguilla IBC or LLC, your banking options will be narrow. It is the least reputable of the four jurisdictions here and some banks do not see past it being a Caribbean tax haven, equaling it to the likes of Grenada and Belize. This is unfortunate but it is how it is.

Caribbean and Pacific banks as well as offshore-friendly banks in Europe (Cyprus, Latvia) will probably be your best bet. That’s not to say you can’t find banking elsewhere. It’ll just take a bit more convincing (more on that later).

A Mauritian company is in a position very similar to Anguilla but may find banking options in the Middle East and Africa more available than an Anguillian company. It’s not uncommon for Mauritius companies to bank in anywhere from South Africa to Dubai. Local Mauritian banks are also available and of generally high quality.

Hong Kong companies are accepted almost universally, except for some of the more narrow banks in Europe and South America (Panama, Uruguay). The strength here is that Hong Kong companies are readily welcome at banks in Hong Kong and Singapore, as well as Labuan, Taiwan, and other financial centers in Asia.

Gibraltar companies, being EU entities, usually have a pretty easy time finding banks across Europe, except for in especially tax haven-hostile jurisdictions or banks. Asian banks tend to accommodate Gibraltarian companies as well.

Increase Your Chances

I’d suggest reading Why Banks Say No to You But Yes to Me as well to understand more about how banks assess applications.

In addition to what is mentioned in that post, make sure you introduce yourself in a presentable manner to the bank. If you are going for a non-resident bank account, you need to prove that you are a legitimate business and why you are interested in banking with that specific bank.

There is no excuse for not having a proper business plan. If you just spend a few hours reading about how to form and how to run a company, you can find tonnes of guides out there. If you can’t write a business plan, chances are you have no business starting a business.

Now, because your start-up business will be small, a lot of banks will turn you away not because you are an offshore company or non-resident person, but because you’re not bringing them millions upon millions. That is the reality behind most refused applications.

Fees

This is given entirely too much focus. If you can’t afford banking fees, are you really earning enough money with your company to justify starting a business?

Fees are a particularly big concern for people who have previously only held personal bank accounts in their onshore jurisdictions.

If you place too much emphasis on fees, you are going to find yourself with a couple of monkeys because, as they say: if you pay peanuts, you get monkeys. Quality banking comes at a price.

Conclusion

Hopefully you now have a good basis to stand on for doing your own research into the matter.

A feedback I anticipate from this post is questions regarding other jurisdictions. While yes, other jurisdictions certainly are used for offshore freelancing and consulting, the four mentioned here hold tremendously dominant positions. Other popular jurisdictions include British Virgin Islands (BVI), Cyprus, Ras al-Khaimah (RAK), Malta, and The Bahamas – more or less in that order.

BVI has a rather poor reputation and is seen as non-compliant, which can be problematic. Cyprus is a good second to Gibraltar when it comes to ease of operation. The island is an EU member, which helps for intra-European trade. RAK is a part of the problematic but increasingly accepted UAE. Malta is much like Cyprus (without the banking crisis and deposit hair cut of 2013), but tends to be more complicated to set up and manage. Bahamas is starting to seriously recover from the drama of the 80s and 90s, now being classified as Largely Compliant by OECD.

There has been a boost in interest for Turks and Caicos recently. It’s still a fairly small tax haven for these types of endeavours, but worth keeping an eye on.