28/08/25
Choosing where to base your business isn’t just a question of tax rates – it’s about reputation, compliance, and long-term security. This piece explores the key differences between onshore and offshore structures, highlights the legal and regulatory landscape, and considers what recent developments – including a major 2025 Supreme Court decision – mean for businesses weighing their options.
🌍 Understanding the Legal Landscape: Onshore vs. Offshore Rules
Onshore business structures operate within domestic legal frameworks such as those in the UK, Germany, or Canada. They are fully subject to corporate tax, annual reporting requirements, and strict regulatory oversight, but benefit from credibility, access to local banking, and public trust.
Offshore entities – commonly set up in jurisdictions like the Seychelles, Cayman Islands, British Virgin Islands, or Jersey – traditionally offer low or zero tax, fast incorporation, and lighter compliance burdens. However, international pressure has significantly reshaped these regimes. Enhanced anti-money-laundering (AML) standards, OECD’s Common Reporting Standard (CRS), and public registers of beneficial ownership in some jurisdictions have curtailed anonymity.
In the UK, HMRC applies the “central management and control” test to determine whether a company is UK-tax-resident. If real decision-making occurs in the UK, the company will be taxed as UK-resident regardless of its place of incorporation (HMRC guidance).
Property held via offshore companies faces further tax exposure – including the Annual Tax on Enveloped Dwellings (ATED), the non-resident Stamp Duty Land Tax (SDLT) surcharge, and UK Capital Gains Tax on disposal (GOV.UK).
Transparency requirements are also increasing: the UK’s Register of Overseas Entities aims to reveal the ultimate owners of foreign-held UK property. Yet enforcement remains weak – as of April 2025, only around 3% of fines imposed for non-compliance have been collected (FT, Reuters).
🧐 Comparing the Structures: Practical and Strategic Factors
Onshore structures deliver regulatory certainty, easier access to finance, and a positive reputation with clients and investors. These advantages come at the cost of higher tax liabilities and administrative obligations.
Offshore structures can still provide tax efficiency in certain circumstances (e.g., international joint ventures or asset holding), but the days of “hidden” profits are over. Increased transparency regimes, economic substance rules, and global scrutiny mean that businesses using offshore centres must demonstrate genuine commercial purpose.
For UK-based directors, relying on an offshore incorporation without shifting actual decision-making abroad is ineffective – HMRC will treat the entity as UK-resident and tax it accordingly.
Perception risk is another key factor: while lawful, offshore arrangements often face public suspicion. Companies must weigh the reputational cost of being associated with secrecy, especially in an ESG-conscious era.
In high-profile sectors such as real estate, energy, and finance, regulators and courts are increasingly willing to challenge aggressive offshore planning.
💼 Recent Developments: Courts, Enforcement, and Real-World Lessons
A pivotal moment came with the UK Supreme Court’s decision in Commissioners for HMRC v Dolphin Drilling Ltd (24 June 2025). The Court ruled against the taxpayer, limiting deductions linked to offshore-leased assets in the oil and gas sector. The judgment sends a clear message: anti-avoidance provisions will be interpreted strictly, and creative offshore structures will not escape scrutiny (UK Supreme Court summary).
In property investment, the historic benefits of holding UK assets offshore have eroded. ATED, SDLT surcharges, and CGT liability now make many such structures tax-inefficient compared to domestic ownership (GOV.UK).
Enforcement, however, remains inconsistent. While powers to penalise “enablers” of offshore evasion exist, recent reporting suggests HMRC has not issued significant fines in this area, raising concerns about deterrence (Guardian).
These developments show that while offshore strategies are not dead, they are far from risk-free – and require careful legal planning, genuine substance, and a willingness to withstand scrutiny.
Onshore structures provide certainty, trust, and simplicity, while offshore options may still deliver strategic advantages in the right context – but only if legally sound and commercially justified. The balance has shifted: tax efficiency must now be weighed against compliance risk, reputational exposure, and potential litigation.
Before choosing a structure, businesses should consider their operational needs, stakeholder expectations, and the evolving legal environment.
NUR Legal advises clients on the full spectrum of structuring options – ensuring compliance, mitigating risk, and securing long-term value. Contact our team for tailored advice on whether onshore or offshore is right for your business.
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Emil Korpinen