What are Offshore Taxes?

Offshore taxes are penalties that a company must pay when it does business in two different regions of the world. Corporations that pay offshore taxes gain benefit from producing goods and services from regions where income levels are low. Since the products are then sold in areas that collect a much higher premium, the business owners are able to be much more profitable. The reason governments implement offshore taxes is to encourage businesses to employ native workers instead of outsourcing employment opportunities.

Businesses have taken advantage of employing inexpensive laborers from other cultures for thousands of years. In more modern times, governments around the world have tried to reduce this trend by applying offshore taxes to anyone who operates a business overseas. Not only does a corporation of this type deny local citizens of employment opportunities, but it also takes away a lot of tax revenue and gives it to other countries. Since all regions would like their wealthiest business members to support the local economy, offshore taxes are applied when they decide to do business abroad.

Various offshore taxes are also applied to goods and services as well. For example, if a company decides to buy steel from another country because it is available at a lower price, they would have to pay port fees and other taxes. This encourages business owners to support other companies within the region, and it makes it more difficult to run a manufacturing plant on multiple continents. The same type of offshore taxes would apply to companies that outsource their customer service or other skilled positions overseas.

Another reason that offshore taxes are applied is for financial reasons. Local banks use deposits from businesses to make loans that stabilize the economy, so most governments charge penalties when companies use overseas banks. Since some regions have very loose laws when it comes to financial regulation, many corporations find it beneficial to pay these penalties and keep their money in other countries.

The reason businesses intentionally pay offshore taxes is because they still make a greater profit than if they kept all of their business transactions within their home country. While most countries charge anywhere between 10 and 50 percent in offshore taxes, corporations may find that they can sometimes save 200% or more on employment costs alone. For skilled workers in the technology, research, or medical fields, the savings could be even higher.