Many well-known companies have been criticised for choosing offshore banking. As the rate of tax which has to be paid in an offshore account might be low or non-existent, a company can avoid having to designate very large percentages of their profits on paying a tax bill. Despite what has been reported in the media, offshore banking is not illegal and there are many reasons to explain why it is legitimate.
Each country sets its own tax rate
There isn’t a standard rate of tax which has to be paid by businesses. Many governments across the world choose to set a very high rate of tax whereas others do the exact opposite. If a country wants to attract outside investment by getting businesses to have their premises there, they will be enticed to a location which charges a much lower rate of tax. Many businesses are expected to employ workers who are native to the country which an offshore account is in. Either way, a company has to meet certain stipulations before an offshore account is formed and the whole process is not necessarily simple.
Tax breaks are similar to offshore banking
There are many tax breaks in the United Kingdom which are akin to offshore banking. When a film which has a total core expenditure of £20 million or less is made in the UK, they are liable for a cash rebate of up to 25%. If a film’s total core expenditure is more than this figure, a 20% rebate can be applied for. As defined by the UK Film Council, expenditure is cash that is spent on actually making a film which can involve relevant businesses that are in the country which a movie is being made in.
Both pre-production and post-production work can be done by British companies and local people will be responsible for working on such films. This is a completely legal option which film production companies can choose. Many countries are preferred by producers or directors for shooting a movie because they receive a cash incentive in order to do so. Offshore banking works in the same way because lower rates of tax apply to corporate businesses. In fact, senior politicians have expressed their enthusiasm for the aforementioned incentives that can be chosen by film production companies.
There are many similar schemes which are completely legal around the world which aim to attract outside investment by offering a lower rate of tax to businesses. Offshore banking is a legitimate option which companies can choose when they want to get more out of their profits. As the money which a company saves by not paying an expensive tax bill could be spent on hiring further employees which are from the local area, it isn’t necessarily given to shareholders. In fact, additional capital can be used to benefit the country which its head office is in.