Migration of Companies
The adage “grass is greener on the other side” is often used in comparing available options vis-à-vis the chosen option. While it may normally signify nothing more than a case of sour grapes, the phrase can also be interchangeably used by corporate investors / business groups who choose a particular location for their holding / operational entities to utilize the relative advantage that a certain jurisdiction may offer, only to realize soon that a much better jurisdiction offering better features has sprung up just around the corner – figuratively speaking.
There is however a way to remedy this and enjoy the relatively ‘greener grass’ by a simple process called migration or re-domiciliation from one jurisdiction to the other. Thankfully, most offshore jurisdictions have regulations in place for accommodating such migrating companies. From the Caribbean island of Antigua to the beautiful nation of Seychelles, most if not all low-tax / zero-tax locations allow migration of companies.
Comprehensive regulations providing guidelines for the re-domiciliation process are in place in most of these jurisdictions. Closer to home, even the most recent ‘offshore location’ – the Ras Al Khaimah Free Trade Zone has recently introduced its Migration and Re-domiciliation regulations. The presence of such legislation invites the natural question i.e. why do companies migrate in the first place? Here is a look at some of the possible reasons why a company may indulge in a jurisdiction hopping exercise:
More flexible regulatory regime
With the development of an offshore location as a reputed jurisdiction, with a few exceptions it can normally be expected that their laws and regulations, in terms of annual filings and compliances would become more and more stringent as time progresses. The Isle of Man, Jersey and Guernsey are some examples to point the transition from a flexible jurisdiction to a regulated jurisdiction.
Many corporate players who settle into such transformed jurisdictions for their original flexibility find themselves tied down by the increased compliances and regulations. As a result, they seek a change to try and enjoy the same if not better privileges in ‘greener pastures’. It is, principally, for this reason that most jurisdictions have comprehensive laws governing Migration and Re-domiciliation in place.
Lower maintenance costs
The simplest reason for a change in jurisdiction could be the annual maintenance cost / running of the company. In the highly competitive offshore world, jurisdictions offer generous incentives to offshore companies for securing incorporations and migration of companies. A business person may simply choose to move to take advantage of the cost benefit on offer.
Another angle to the lower cost argument springs from a very specific example to the Middle East. Most countries in the Middle East, including the UAE, are not party to the Hague Convention. As a result, if a business has a parent company in a foreign jurisdiction like the BVI, etc. and wishes to incorporate a branch / subsidiary in the UAE, the corporate documents of the parent company need to be notarised and legalized from the BVI. The costs and time lag for getting this process completed can be very cumbersome, when compared to a holding company in a locally-based offshore company like those incorporated in the Jebel Ali Free Zone or the Ras Al Kahimah Free Zone.
Simpler filings requirements
While most jurisdictions are strict about documentation, there are a few that are flexible / relaxed on the regular / annual filing requirements, as long as the basic due diligence of the company and its ownership is provided from time to time. Some companies choose to shift house, simply to make company secretarial tasks less onerous and back breaking. For examble companies may choose a Ras Al Khaimah or BVI offshore company for their minimal filings requirements over a Jersey or Guernsey company for maintaining a group holding company.
Additional business opportunities
Often, offshore jurisdictions offer specific advantages / opportunities for certain regulated activities, like offshore funds, that are attractive to prospective investors who already have an entity in a less opportune jurisdiction. Migrating from their current set up to the new jurisdiction which offers the business opportunity is the most prudent solution in such a scenario.
For example companies often migrate to the BVI from other offshore jurisdictions in order to take advantage of significantly lower annual maintenance fees, the flexibility of the BVI’s legislation (which facilitates a wide range of corporate transactions) and the BVI’s superior global reputation in the business world.
It is often seen that multiple companies incorporated in a variety of jurisdictions under a single group, may migrate to the BVI all together, in order to simplify the group’s audit process or to streamline a proposed re-organisation.
Additional reasons to migrate to the BVI include the BVI’s inclusion in the OECD White List and the quality of the BVI’s service providers, legal, fiduciary, accounting and other financial services.
Restrictions on Migration
There are a few limited circumstances where a company that has been incorporated in a jurisdiction cannot migrate to another jurisdiction:
The laws of the jurisdiction in which the company is registered do not explicitly permit it to do so;
The company is in liquidation, or subject to equivalent insolvency proceedings, in another jurisdiction, as described hereunder:
A receiver or manager has been appointed in relation to any of the company’s assets; or
The company has entered into an arrangement with creditors that has not been concluded; or
An application made to a Court in another jurisdiction for the liquidation of the company’s subsidiary or branch, or for the company to be subject to equivalent insolvency proceedings, has not yet been determined.
It is a commonly held misconception that the process of continuing to another jurisdiction may be disruptive to the company’s business operations or otherwise. In fact, a migration to the more flexible jurisdictions like BVI, Seychelles, etc. does not affect the continuity of the company as a legal entity and similarly, any assets, rights, obligations or liabilities of the company are not affected in any way under the respective laws.
(This article is contributed by Mr. Chaitanya Kirtikar, Asst. Manager – Offshore Department).