Speech delivered by Andreas Neocleous Managing Partner of Andreas Neocleous & Co at the Economist Conference on 27 January 2000 in Nicosia

When we refer to "offshore companies" we mean the various legal entities that can be registered and can operate in the various "offshore centres" of the world. These legal entities which have different categories and may have different names depending on the country e.g. offshore companies, International Companies, Companies of International Operations etc, are today facing serious problems with regard to their future and existence.

It is widely known that two major and powerful organizations, the European Union and the Organization for Economic Cooperation and Development, supported by Group 7 and the United Nations, have made some decisions and have set up guidelines that aim to neutralize harmful tax competition between various countries.

The EU has committed all its existing members to the Ethics Code and it will definitely commit all new members on accession to abolish all preferential or special tax regimes that aim to attract or steal financial activities or funds from other member states.

The OECD with its notorious report "Harmful Tax Competition: an Emerging Global Issue" not only addressed its 29 member states which are also the most economically developed countries in the world. It addressed all countries in the world and mainly the offshore centres and, commencing with a series of recommendations followed by a series of measures, it is attempting and will attempt to neutralize all the tax practices of tax havens or other preferential tax regimes around the world which it considers to be harmful.

There are many who are claiming that the real purpose of this orchestrated lobbying is not simply the neutralization of the various preferential tax regimes or harmful tax competition in general. The real purpose is the attempt to destroy or reduce the increasing economic power and influence that offshore centres have on today’s internationalization of the economy at the expense of the great economic powers.

Others are claiming that behind this lobbying is the USA which owing to its tax regime which imposes tax on the worldwide income of the American citizen, is trying to impose those methods that will enable it to locate and control these incomes. Second, Germany which is afflicted by the huge problem of bank deposits of German citizens in foreign countries, mainly in Luxembourg and Jersey, resulting in a major loss of taxes which would have been imposed on the interest. England’s position among the pioneers of this lobbying needs no explanation: it is widely known that England always follows the U.S.A. faithfully.

There are also some who support the notion that this lobbying against offshore centres finds undisclosed or obvious supporters even among the offshore centres themselves. The Netherlands, Ireland and Luxembourg which are already EU members and have no reason to worry, definitely welcome any effort that minimizes their competitors’ working cycle. Other offshore centres, members of OECD like Switzerland, feel the same assurance because they know that they are in no danger of seeing their name on a "tax havens" list, temporary or permanent.

In today’s world economy, the services that relate to international activities, international investments, international trade and international financial and business activities in general, such as international banking services, international insurance services, international financial services and generally all other specialized services, legal, accounting etc, constitute a very important matter - a matter worth many trillions of dollars and not only that. They constitute a very lucrative, if not the most lucrative sector of the world economy. The so-called offshore centres greatly enjoy the benefits of this international business and as we shall be seeing further on, this success is due neither to the possibly favorable tax measures that they employ, nor to some confidentiality procedures that they might have.

Despite this fact, the great economic powers are making a strenuous effort, and not always in good faith, to stigmatize and neutralize these offshore centres in order to force this international business and activity to turn towards their own service centres in New York, London, Frankfurt and elsewhere. Let us all recall the great fuss that was created about the Russian money and the various accusations and exorcisms that the USA fired against Cyprus and others on this matter. And let us all recall which country and which bank we saw and recognized sitting at the Cash Registry of the Russian deposits after all the noise and dust had settled.

As mentioned earlier, the international business community is using offshore companies and consequently offshore centres to carry out its international activities, for many reasons and far more important than taxation. In consequence, the effort and the campaign of the different international organizations to neutralize the offshore centres or to reduce their activity and their influence on the world economy, is doomed to fail.

  • The international entrepreneurs use offshore companies and offshore centres to avoid the bureaucratic procedures in their countries that are usually time-consuming and costly. We all know that international activities require speed, agility and flexibility that only the offshore centres can offer.
  • In some cases the international entrepreneur is forced to resort to the offshore centres to register a Captive Insurance Company, an institution that the legal regime of his country probably does not even recognize.
  • Offshore companies are established in offshore centres in order to achieve faster and cheaper registration in various stock exchanges. NASDAQ is an example, which has more relaxed regulations for offshore companies which have been established in offshore centres.
  • People who are engaged in international activities often resort to offshore centres in order to avoid or reduce political risks. A German company may feel more secure if it invests in Iran for example via a small neutral country rather than directly, due to the fact that the risks of nationalization or of future hostile confrontation are minimized.
  • One of the most characteristic features of international monetary or business transactions is the precision of the time for payment. How can a country that has strict currency exchange restrictions which delay the approval procedure for payment guarantee precision in the time for payment? Consequently, the businessman of this country, in order to be fully assured that he will fulfill his obligations and will not stain his reputation and lose his business, must take refuge in the offshore centres and the offshore company so as to be able to respond to his obligations in due time.
  • Generally in trade, including international trade, secrecy is a sine qua non. This secrecy can only be assured in certain offshore centres. Take, for example, the Arab businessman from Egypt or Syria who wishes to promote some of his products in the Israeli market; he will be forced to use Cyprus and the Cypriot International Business Company having even nominee shareholders and directors, because this way he will avoid the danger of being stigmatized in his country or be banned from the market of Israel.
  • It is widely known that large family fortunes have been protected, preserved and multiplied through many generations with the use of suitable trust funds in offshore centres.

I could present many more reasons why offshore centres are necessary and offshore companies are absolutely essential tools for the service of international economic, business and trading activities, such as:

  • The free trade zones that we come across in several offshore centres
  • the pension plans of senior staff of multinational companies
  • the registration of ships or aircraft
  • the registration of mutual funds, or even
  • the issue of eurobonds.

But I will confine myself to stressing those reasons that I consider to be the most important for the currently successful course of the offshore centres. Appendix A contains a list of all those offshore centres or international business centres that besides the fact that they may accumulate 90% of the good international work, constitute according to objective criteria distinguished and controlled business centres. These reasons are bound up with the organization and structure of these centres. In some of these centres, such as Luxembourg, Jersey, Guernsey, Isle of Man, Cyprus, Ireland, Bermudas and Hong Kong, there is a great deal of strength not only in human resources but also in know-how and specialization. In some of these countries, there are perfectly developed legal systems, extremely capable and specialized professionals - lawyers, accountants, bankers, stock-brokers, insurers and others. There are sophisticated and complex banking, insurance and other financial institutions that can negotiate any banking, insurance or financial products and by-products, as well as many other specialized services that exist only in the major international business centres of the very economically developed countries. Other than that, some of these centres have a perfect infrastructure, such as the telecommunication services, and they provide safe living conditions, as well as very developed educational and hygiene services.

It is suggested by those who have undertaken the campaign against harmful tax competition, that the users of offshore centres and offshore companies are various tax evaders and business people of doubtful morals and legality who wish to hide their assets and wealth and keep them away from the hands of the Law. But is it so? As Appendix B shows, the greater use of offshore centres is made respectively by the Fortune 500 companies, major United States and United Kingdom public companies (GE, GM, Ford, ITT, British Airways), Fortune 1000 companies, oil & gas companies, insurance companies, shippers, airlines, hotel owners, banks, Hollywood studios, publishing houses, newspapers and others.

From my own experience, I know that Lawyers or Accountants have formed International Business Companies in Cyprus for various European public companies, for major banks from Europe, U.S.A. and Canada, for large hotel organizations and others.

As far as the nationality of those who use offshore centres is concerned, the Americans are in the lead, followed by the English, the Canadians, the Japanese, the Germans, the French, the Norwegians, the Swiss, the Australians, the Saudi Arab, the Swedish, the Irish, the Dutch, the Bulgarians, the Russians and others.

The different structural types or forms that the offshore companies take are the asset holding company, the investment company, the operating company, the insurance company, the trust company, the captive insurance company, etc, as shown in Appendix C.

I have tried in these few words to provide a short description of the climatic scene and environment within which the offshore company is found today. In the following paragraphs I will dare to express some predictions about its development in the next decade and also about the future of the offshore centres during this period.

We have seen that the lobbying against offshore companies and offshore centres, under the banner of harmful tax competition, is not going to have any harmful consequences for the offshore centres or at least for the most serious ones.

Offshore centres, due to their flexibility, their different political structure and economic development as well as their conflicting interests, will not in any case be able to cooperate or fight together to confront the lobbying against them. This fact, that at first sight seems to be a sad disadvantage, can prove in reality to be a serious advantage and the reason is simple.

Each offshore center will be forced to study carefully the criticism raised against it and will respond positively, in a spirit of constructive dialogue and responsibility, following the suggestions of the great powers on condition that they will not suffocate it economically. This is exactly the expected approach of every offshore center individually which has already to a great extend been disclosed; it assigns to all offshore centres and each one separately gravity and moderation and enforces their dignity and power.

Offshore centres were not created by themselves. There were the pre-existing needs of international entrepreneurs, international investments, international business activities. Offshore centres were created to fulfill these needs. And since these needs will always exist and indeed with the globalization of the economy will increase and multiply, the centres will continue to exist and continue to grow in order to serve and to satisfy these needs.

Surely no one expects the great economic powers to halt their efforts easily without achieving some results first, or without harvesting any fruit. Many of the small offshore centres that exist today which are of doubtful use and value and which probably do not conform fully with the international Conventions and the International Laws that concern money laundering etc, will be deleted from the list of offshore centres.

Moreover, it is highly probable that many other offshore centres will be forced to amend their regime in such a way and in such a degree that it follows the guidelines set by the EU and OECD with regard to the battle against harmful tax competition and transparency.

Already some of these centres are heading in this direction. Ireland, for example, has abolished the non-resident Irish company and has set 12.5% as a unified company tax factor.

Cyprus as I understand it, has begun to study the possibility of abolishing the International Business Company whose shareholders must be only aliens or non-residents of Cyprus and whose activities must be carried on outside Cyprus and establishing a company whose shareholders can be Cypriots or aliens, residents or not and which could conduct business in Cyprus or abroad. Furthermore, it is my understanding that Cyprus is studying the possibility of establishing a single unified tax factor for corporate earnings.

Things are more difficult as far as transparency is concerned. The issue of transparency is closely associated with fundamental human rights which the human race has shed rivers of blood to safeguard, and I am referring particularly to the French and American Revolutions.

Every person has the fundamental right to preserve his private life. No one, for example, in most countries of the world , can ask a bank to disclose how many accounts or how much money person "A" has. No one can find out, unless there are specific reasons, what property person "B" has in his/her name and certainly no one is entitled to ask for and receive information regarding different transactions, commercial, financial or otherwise, unless those transactions constitute criminal offences.

It is widely known that information concerning the private life, the private activity or the private property of every citizen can only be obtained if there are serious and sufficient reasons and only after a justified decision or order of the appropriate court.

Therefore, the demand of the great powers for complete transparency, apart from the fact that it is a very extreme position, clashes into the human rights and perhaps the Constitution of each country separately. At the same time, however, it is also an arbitrary demand of the powerful which can literally be equivalent to placing a video camera in the bedroom of every citizen in the world.

While on this subject, I would like to mention something that few may know. Based on an old Law passed in 1908 in Cyprus but which is still in force, the Cyprus Courts can force any person, including a bank employee, to appear before them and to give evidence on oath of everything that he/she knows about a civil, commercial or criminal case that is pending before the Courts of another country, provided that these Courts of the other country request it. In this case it is obvious that the banking confidentiality does not apply.

There are many who assert that the lobbying which began 1-2 years ago is just a passing storm. First of all, many of the governments of the member countries of both the EU and the OECD have serious disagreements among themselves about the basic issues of tax harmonization. Recently, a fundamental change has been noted in the attitude of England in the matters both of tax harmonization and transparency.

Furthermore, every lobbying is supposed to have a certain duration. The lobbying against harmful tax competition has been a melodious slogan, a timely and acceptable target for many politicians in Europe and elsewhere. Soon, however, this slogan will die down and other more timely subjects will appear which will distract the politicians’ attention.

I mentioned earlier that first there were the needs which were followed by the creation of the offshore centres. Offshore centres were created by the powerful countries and some of them serve the economies of these countries to a very great extend. I could mention many examples, but I shall restrict them to the great service that Bermuda and the Netherlands Antilles provide to the U.S.A. Jersey, Guernsey and the Isle of Man to the U.K. Hong Kong, Singapore and Labuan to all Far East countries. Mauritius to India, Madeira to Brazil and other Latin American countries.

Cyprus and Malta to many European countries in the development of their activities in the Middle East and to some of the Eastern European countries, etc.

It is for all these reasons that I believe the International Business Company and the offshore centres, will not only survive the difficulties that they now face, but will develop and grow even stronger. Today’s hardships will provide them with the opportunity to correct their mistakes and defects, to modernize and improve their legislation, to upgrade the quality of their services and to reflect on their course of action based on the new facts of the 21st century.

One of the leaders of this campaign is considered to be Andrew Edwards whose report on the tax regimes of Jersey, Guernsey and the Isle of Man has become the subject of many criticisms and has stirred many and various reactions. Mr Andrew Edwards, talking at a seminar in London recently, mentioned that he sees a bright future for those offshore centres that will mark on the right course. The opportunities for these centres, he said, may change, but they will always be enormous.

I end with this very optimistic message.






Netherlands (Antilles)






Hong Kong






United Kingdom


Isle of Man













  • Fortune 500- Major United States and United Kingdom public companies (GE, GM, Ford, ITT, British Airways)
  • Fortune 1000 companies
  • Oil & Gas companies
  • Insurance
  • Shippers
  • Airlines
  • Manufacturers
  • Food Packages
  • Farmers
  • Brokers of Products, Commodities and Services
  • Explorers for Minerals
  • Brewers
  • Financiers/Lenders
  • Retailers
  • Land owners
  • Distributors of building materials
  • Music distributors
  • Hollywood studios
  • Fund managers
  • Oil consultants
  • Computer software owners
  • Hotel owners
  • Property developers
  • Movie/TV producers/cable TV suppliers and owners of stations
  • Civil Engineers
  • Newspapers
  • Associations of lawyers/doctors/train operators/car salesmen/airline pilots
  • Equipment lessors
  • Leisure center owner/operators
  • Lloyds brokers
  • Power generators
  • Major banks-both retail and merchant banks
  • Aircraft manufacturers
  • Cigarette manufacturers
  • Electronics manufacturers
  • Paper products/cartons
  • Haulers/road transport
  • Ship container owners
  • Publishers
  • Chemical giants
  • Express courier companies
  • Titled gentry
  • Distilleries
  • Telephones and mobile communications
  • State-owned companies, e.g. Mexico, France, Nigeria
  • Photographic equipment
  • Chinese bicycle manufacturers
  • Wealthy individuals


    • Private investment/asset holding companies
    • Corporate asset and holding companies
    • Operating companies
    • Service-providing companies
    • Insurance and reinsurance companies: captives, rent-a-captives and third party
    • Mutual funds
    • Limited Partnerships and General Partnerships
    • Family trusts
    • Shipping companies, big and small, e.g. owners of oil tankers or private yachts
    • Aircraft owner/operator companies;
    • Listed companies
    • Guarantee companies
    • Limited duration companies
    • Unlimited liability companies
    • Branch operations of major industrial companies
    • Cash in bank accounts/offshore banking/letters of credit
    • Life insurance policies
    • Personal expatriation
    • Special Purpose Vehicles in corporate finance
  • Purpose trusts
  • "Assett Protection" trusts - asset securitization transactions
  • Exploration companies
  • Finance and debt structuring companies
  • Pension trusts
  • Employee bonus schemes/directors’schemes
  • Equipment leasing companies
  • Corporate takeover vehicles
  • Group finance companies;
  • Trading companies
  • Commercial agencies
  • Joint venturers – cross-border finance structures
  • Ship cargo contracting companies
  • Fund managers
  • Acquisition vehicles
  • Consultancies
  • Insurance brokerages, underwriters, managers and agents
  • Trust companies
  • Oil trading/commodities trading
  • Foreign sales corporations
  • The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.