Offshore Financial Centres (“OFCs”) are countries or jurisdictions that provide financial services beyond their borders on a scale that outpaces their domestic economies. Typical examples of OFCs are Bermuda, BVI and the Cayman Islands. Because of the unique advantages they offer, OFCs have established a central place in the global economy and are consistently sought out by sophisticated investors, established financial institutions and innovative entrepreneurs.
Indeed, global capital markets are underpinned by OFCs and offshore companies. As of June 2022, more than half of the companies listed on the Main Board of the Stock Exchange of Hong Kong were registered in the Cayman Islands, one of the leading offshore jurisdictions alongside Bermuda and the British Virgin Islands (BVI). Such companies benefit from unique features both in terms of capital and daily operations, some of which are outlined below.
Transparent Tax-Free Environment
OFCs are characterised by low tax rates and straightforward tax management institutions. The Cayman Islands, for example, does not impose any direct tax on Exempted Companies incorporated within the jurisdiction (with the exception of stamp duty applicable in limited occasions). The Cayman Islands Tax Concessions Act (most recently revised in 2018) also guarantees that even if legislation is enacted in the jurisdiction imposing tax in the future, Exempted Companies and their operations will not be subject to such tax. This creates a consistent, predictable and business friendly taxation environment for investors and entrepreneurs worldwide.
Tax transparency is also a key feature of reputable OFCs. Bermuda, BVI and the Cayman Islands are recognised by the Organisation for Economic Co-operation and Development (OECD) as being “committed to improving transparency and establishing effective exchange of information in tax matters,” having made commitments towards transparency and implemented measures to comply with global standards in sharing of tax information. Regulatory frameworks in the three jurisdictions are also robust and well established for many centuries.
Mature Commercial Law Institutions and Common Law Practices
Among OFCs, Bermuda, BVI and the Cayman Islands stand out for their sophisticated commercial and funds laws. For example, in Cayman Islands, the Companies Act (formerly the Companies Law) was first introduced in 1964. It has since been amended more than 60 times, with approximately two thirds of the amendments made after the year 1990. Such rigorous attention to legislative provisions demonstrates the jurisdiction’s commitment to the critical institution of commercial law.
While each of Bermuda, BVI and the Cayman Islands have their own constitutional laws and legal institutions, they are formally Overseas Territories of the United Kingdom. This means that although the multi-lateral conventions and treaties ratified by the United Kingdom do not automatically apply in these Overseas Territories, a substantial part of the legislations have been extended there to ensure the common law and equity law will be applicable in these jurisdictions. This contributes to create and provide a predictable, neuturalneutral and consistent political and economic environment to demonstrate the benefits of freedom of contract and autonomy of business in for parties with different commercial interests.
What’s more, as British Overseas Territories, the Judicial Committee of the Privy Council (the “JCPC”), located in the Great Britain, is the highest court of appeal in these jurisdictions. Given that an overlap exists between the membership of the JCPC and the Supreme Court of the United Kingdom, which is the current court of final appeal of cases in England, Wales and Northern Ireland, it is fair to say that cases originating in these OFCs are on an equal legal footing to those judged throughout the United Kingdom. The internationally respected jurisprudence of the English legal system and the independent and impartial judiciary are a key advantages for doing business offshore.
Strong Enforcement of Judgments and Awards
Since most corporations in OFCs conduct their operations in other jurisdictions, the recognition and enforcement of judgments of foreign courts or awards of foreign arbitral tribunals are a critical business issue. In general, the Bermuda, BVI and Cayman Islands courts tend to enforce most foreign judgments and awards unless there is cogent evidence that such judgment or award contains fatal error. These enforcement practices offer confidence in the knowledge that proper pleadings, even made abroad, will be supported by the relevant court.
Conyers is a leading offshore law firm advising clients around the world on the laws of Bermuda, BVI and the Cayman Islands in the areas of corporate finance, funds, dispute resolution, insolvency and restructuring, corporate secretarial and regulatory compliance. With offices in these three jurisdictions as well as in Hong Kong, London and Singapore, we provide responsive, sophisticated and strategic advice alongside comprehensive fiduciary services.
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