Chances are that you have heard a lot about offshore locations in the movies, in popular media, or in casual conversation. However, while these sources might provide some information about what offshore is all about, they do not examine every aspect in detail, from the proper definition of the term to the advantages and benefits, as well as the legal situation guiding these offshore jurisdictions.
In order to offer the best introduction to the topic, we first must properly examine the most commonly used definition of the term "offshore" as it relates to offshore banking, offshore financial centers, and offshore legal jurisdictions. The following is one of the most comprehensive definitions available, proposed by a former employee of the International Monetary Fund:
"… a country or jurisdiction that provides financial services to nonresidents on a scale that is incommensurate with the size and the financing of its domestic economy.."
Simplified, this definition, which relates to the financial aspect of offshore jurisdictions, refers to a circumstance in which a country has a greater number of foreigners banking with it than the number of its own citizens or when it provides such services on a level in which foreigners have invested more in financial services in this country than can be compared to the actual size or budget of the country itself.
Many offshore jurisdictions are islands—thus, the common misconception that keeping money offshore means that the money is on some foreign island somewhere. According to the true definition of the term, however, a country does not have to be an island or even close to the ocean to be defined as an offshore jurisdiction.
Nevertheless, offshore jurisdictions as we know them today largely evolved and became what they are due to island countries with small populations, which, while looking for ways to attract investments into their respective countries and communities, came up with laws and incentives designed to attract investments from foreigners and thus gain some revenue to sustain their economies.
Why would someone who ordinarily lives far away in the United Kingdom choose to invest money or register an offshore company in an offshore financial center, such as Belize? If such benefits as zero tax, non-disclosure, and confidentiality, particularly in light of ever-intrusive governments in European countries, are taken into consideration, it is not difficult to understand how such legislation and incentives would attract foreign investments to an offshore jurisdiction.