Traditionally, offshore financial centres are associated with Caribbean islands and exotic locations such as the Seychelles, Bahamas, Belize etc, although there are a couple of exceptions which are neither islands nor exotic but are known offshore jurisdictions, Delaware being a prime example. On the other hand onshore financial centres are often associated with established cities, such as London, New York, Paris and Frankfurt, where the most important Exchanges are found.
The layman would only stop there, and expressions such as a “sunny place for shady people” have entered into common language expressing in a nutshell what most people conclude are tax havens: balmy tropical islands where all sorts of ‘naughty’ individuals avoid tax or engage in criminal activities, such as money laundering.
However an in-depth look into the industry will reveal that although a lot of countries, such as the US, criticize and attack the offshore industry, the same offshore "results" – i.e. low tax and secrecy – can be obtained via onshore means.
Not many know that the New York Department of State, Division of Companies – essentially the New York registry of companies – does not keep any record of the shareholders of the companies incorporated. This shocking revelation shows how one of the most ‘onshore’ and squeaky-clean jurisdictions fails in one of the most basic principles of anti-money laundering legislation – that of knowing who is the ultimate beneficial owner. Moreover, since New York adopts a system of taxation wherein the concept of residence features prominently, foreign non-residents go tax-free.
Germany is another country offering advantageous tax and corporate structures, even having the possibility of bearer shares, the latter being one of the key characteristics of the sun-kissed tax havens of the Caribbean.
There are other onshore jurisidictions, such as the UK, Ireland, Portugal (Madeira), the Netherlands, Luxembourg, Switzerland, Austria (total secrecy of bank accounts) … the list of jurisdictions which are considered to be onshore but which do similar work is long and for the layman (often) surprising.
It is clear that for the vast majority of countries, onshore and offshore, the taxable base of other countries is as interesting as their own … and although onshore states enforce all sorts of tax legislation on their own citizens, they gladly take a slice out of the taxes of other states …
… and it's against this background that the onshore versus offshore debate must be discussed.