The words 'tax haven' are sometimes mistakenly associated with siphoning off funds, hiding money from tax authorities or even stashing away ill-gotten wealth.
However, in reality, offshore tax professionals say that using offshore jurisdictions help to better utilise money, while companies get legal protection.
'Offshore companies are usually easier to administer than Hong Kong companies as filing requirements are minimal and there is often no statutory requirement to hold an annual general meeting or file audited accounts,' says Julia Connolly, a consultant with the Sovereign Group in Hong Kong.
Offshore companies are also usually not subject to profits tax in the country of incorporation and there is no stamp duty on share transfers.
Details of directors and shareholders of offshore companies are usually not publicly available, which affords confidentiality.
In Hong Kong, most companies use tax havens to incorporate their businesses. These include the British Virgin Islands, Jersey, the Bahamas, Austria, the Cayman Islands, Liechtenstein, Panama and Switzerland, and lesser known places such as Bahrain, Nauru, and the Turks and Caicos Islands,
According to tax professionals, there are about 200 jurisdictions offering these and other special incentives to foreign investors across the globe. They vary from sun-drenched Caribbean islands to mountainous, European principalities filled with castles and picturesque villages.
According to Connolly, a company can be incorporated in an offshore jurisdiction in 24 hours, but it will take a week or so for the original corporate documents to reach Hong Kong via courier.
'The process to register an offshore company is fairly straightforward. Most offshore service providers in Hong Kong require a client to provide a certified copy of their passport or Hong Kong identity card and proof of address of each director and shareholder of the company, along with details of the intended business activities and the source of the funds used to capitalise the company,' Connolly says.
Sovereign helps firms to incorporate in offshore jurisdictions and has offices around the globe. Connolly says that the fee to incorporate an offshore company and provide the registered office and company secretary for one year ranges from US$2,000 to US$3,000.
The main reason mainland and Hong Kong firms prefer to register offshore is the relatively easy process of incorporation.