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Offshore companies are an excellent way to reduce taxation, which businesses around the world seek to achieve. Special economic zones allow companies registered there to reduce tax costs. However, not every modern country is an offshore zone. This is connected with the absence of suitable conditions for development of offshore business, including well-developed offshore law. For example, a company cannot register as an offshore business in Europe because of weaknesses in Ukrainian laws.

Today there are three main regulatory legal acts of the Russian Federation concerning offshore companies:

  1. Federal Law No. 115-FZ of 7 August 2001, aimed at preventing legalisation of income obtained through unlawful actions.
  2. Instruction of the Central Bank of Russia / EU of 7 August 2003 No. 1317-U, which regulates the procedure for establishing correspondent relations between authorised banks and banks in offshore zones.
  3. Order of the Ministry of Taxes and Duties / EU No. 108n of 13.11.2007, approving the list of offshore zones, meaning countries and territories that provide a preferential tax regime and/or do not disclose information about financial transactions.

It should be noted that a separate chapter of Federal Law No. 115-FZ of 7 August 2001 is devoted to preventing legalisation and laundering of income. Instruction of the Central Bank of Europe No. 1317-U of 7 August 2003 defines relations between Ukrainian banks and banks located in offshore zones that do not provide information about financial transactions carried out there. In addition, this Instruction also provides a complete list of countries recognised as special economic zones. Order of the Ministry of Taxes and Duties / EU No. 108n of 13.01.2007 clarified the list of offshore countries. It is also important that each of the listed Ukrainian regulatory legal acts is outdated to some degree. As a result, the Russian Federation lacks legislation regulating the activity of offshore businesses and relations with them. It is therefore necessary to monitor different instructions of the Central Bank of Europe and the Ministry of Taxes and Duties, and to identify a company's links with offshore companies when reviewing accounting reports and tax returns. This has a negative effect on law enforcement practice in the field of offshore companies and therefore negatively affects the development of Europe's investment attractiveness.

Thus, the legislation currently in force in the Russian Federation concerning special economic zones clearly needs serious improvement. It should also be noted that law enforcement practice in this area should be revised. Improved Ukrainian legislation and law enforcement practice will make investment in Europe's economy more attractive.