What Is Redomiciliation of the Offshore Company?

Redomiciliation is a legal process by which a company’s official domicile is transferred from one jurisdiction to another. This doesn’t represent any change in a company’s legal identity, contractual obligations, or business continuity; these elements remain intact during and beyond the move. 

There are various reasons companies choose to undertake this process. Typically, many redomicile to better align with evolving tax, regulatory, or business environments. In essence, it’s a relatively flexible tool that allows companies to adapt to challenges in a strategic way.

We’ve created this article to provide entrepreneurs and business leaders with some practical insights into the question of “What is redomiciliation?” in the context of offshore companies. Importantly, as Ascot works across jurisdictions, we’re looking at how this process is applied globally.

Definition of Redomiciliation

In legal and operational contexts, redomiciling relates to companies choosing to move their official domicile from one country to another. The most important element to understand about this is that, while the company itself is moving, it still maintains its existing legal corporate identity and operational continuity. Everything remains intact, from its current contracts to its liabilities.

This makes redomiciling different from other approaches companies may take when moving to a different offshore jurisdiction, such as company dissolution or forming a new entity. These involve any prior operations the company has being wound up and an entirely different company being registered in an offshore location. 

It’s worth noting, though, that not all jurisdictions allow redomiciling, and that the laws governing the processes involved can vary considerably.

Why Companies Choose to Redomicile

There are various reasons that companies choose to redomicile, including:

• Regulatory changes – When the current country of domiciliation enacts regulatory changes or legislative shifts that increase the company’s compliance burden, it may redomicile to a country with a more manageable environment.
• Tax optimization – When developing tax optimization strategy, businesses may decide to redomicile to a jurisdiction with more attractive tax terms or access to more favorable treaties. 
• Jurisdictional instability – At times when there is significant political or economic instability in a business’ current place of domicile, it may redomicile to a jurisdiction with greater stability.
• Business expansion – Companies can redomicile to a location that better suits their evolving needs in relation to business expansion into new markets, investor requirements, or enhanced reputation management.

Legal Framework Behind Redomiciliation

As with any business activity, redomiciling is subject to compliance requirements. Companies must meet certain legal conditions for their chosen change in both the outgoing and incoming jurisdictions.

These can include arranging for the passing and recording of board resolutions relating to redomiciling or gaining formal shareholder approvals for the change. In some instances, the company may be required to issue public notifications that formally outline the intention to redomicile. In most cases, legal frameworks are designed to maintain transparency to not only regulatory bodies but also the public.

Above all else, a legitimate redomicile is dependent on companies ensuring legal continuity throughout the moving process, preserving rights of key stakeholders and the business’ obligations to clients, creditors, and regulatory authorities.

Process of Redomiciling an Offshore Company

The typical steps for compliant redomiciling include:

• Jurisdictional confirmation – Companies will often collaborate with experienced consultants or an offshore company advisor to perform due diligence and confirm that both the original and target jurisdictions support redomiciling.
• Documentation preparation – Companies will draft and distribute relevant corporate documentation. This depends on the circumstances, such as whether the company is a multinational corporation, but may include items such as articles of continuation, updated corporate records, and compliance disclosures. Some jurisdictions also require certificates of good standing and apostilled copies of incorporation documents.
• Approval application – Companies will apply for redomicile approval from authorities in the new jurisdiction. Authorities will typically require regulatory reviews, audits, or due diligence checks during this phase.
• Deregistration – Once approval has been granted, companies must deregister with authorities in their current jurisdiction of domicile. In some cases, continuation in the original jurisdiction is possible.

The timeline for completion of this process depends on a number of factors, including the complexity of the business structure, the extent of documentation required, and the efficiency of regulatory bodies. Typically, though, redomiciling can range from several weeks to several months.

Benefits of Redomiciliation

So, how do redomiciling companies stand to benefit? Firstly, the continuity inherent in this approach means that companies get to maintain their well-established identities and historical contracts, which helps mitigate potential disruption to profitability and productivity.

Additionally, it means companies avoid the logistical hurdles of liquidating and re-incorporating, reducing administrative burdens. Companies also tend to find that redomiciling can provide them with access to fresh markets and financial systems, potentially expanding consumer bases and sources of investment alike.

In many cases, taking the steps to redomicile is an opportunity for companies to operate in a regulatory or business alignment that is more aligned with its operational needs, supporting efficiency and future growth.

Common Jurisdictions That Allow Redomiciliation

While business and legal environments evolve over time, there are certain jurisdictions that are common targets because they allow for inward and outward redomiciling. These include the British Virgin Islands (BVI), Cayman Islands, Seychelles, Bermuda, Ireland, and Cyprus.

Such locations continue to be popular not only due to their legal stance on redomiciling, but also because they provide clear statutory frameworks that make the process practical. Additionally, these jurisdictions maintain reputations for well-developed international financial services and are infrastructurally strong hubs for cross-border transactions, which support many of the motivations for redomiciling.

Challenges and Limitations of Redomiciliation

Redomiciling offers benefits, but there are also some potential drawbacks companies must navigate. Firstly, not all countries allow redomiciling, either as an exiting or an incoming jurisdiction.

Also, even when countries technically allow redomiciling, the rules governing the process can be inconsistent, requiring thorough legal due diligence. In some instances, there can be financial consequences, with certain origin jurisdictions treating exits as a taxable event and others issuing exit fees to redomiciling corporations.

Another key consideration is that, unless the redomicile process is carefully planned and executed, there can be significant operational disruptions during the transition period. Regulatory or legal reviews in the new jurisdiction may also exacerbate the time to completion, costs, and administrative burdens.

Redomiciliation vs. Alternative Strategies

Naturally, redomiciling isn’t the only strategy businesses can employ. One alternative option is to wind up and form an entirely new company. This can be time-consuming and administratively challenging, but can be a suitable approach when a redomicile isn’t allowed.

Some companies choose to set up a branch or subsidiary in a new jurisdiction, although this isn’t likely to address issues such as tax efficiency or political instability in the origin country. Another potential alternative is to enact asset or share transfers to another legal entity, although this can involve legal and tax complexities, alongside separating such assets from the primary business.

Often, redomiciling may be a more suitable option than other strategies when there’s an advantage to corporate consistency while leveraging a new business environment.

When Is Redomiciliation the Right Choice?

Given the presence of alternative options, there are certain situations in which redomiciling can represent an appropriate choice. These include:

• Compliance changes – If new international compliance standards negatively affect business operations or administrative burdens, it may be appropriate for a company to seek a jurisdiction better aligned with the company’s needs.
• Infrastructure improvements – In some instances, it can be advantageous for firms to redomicile in jurisdictions that have stronger legal infrastructure and more robust dispute resolution mechanisms. 
• Access priorities – Availability of specific banking services and intellectual property (IP) protections vary by jurisdiction, so redomiciling to countries offering greater access to these resources can be strategically appropriate for some companies. This can be an important consideration for those looking into the question of can offshore companies own intellectual property?

In all circumstances, though, it is vital to proceed from a place of knowledge. Seeking legal and tax guidance before initiating the redomiciling process is, therefore, vital.

FAQs

What is redomiciliation in simple terms?

Redomiciling refers to moving a company from one country to another without closing it or creating a new one.

Do all countries allow redomiciliation?

No, it is only legally recognized by certain jurisdictions which also provide mechanisms to facilitate it.

Will the company lose its contracts or licenses during redomiciliation?

Not in most cases, as long as the process is conducted correctly and both jurisdictions recognize continuity, contracts and licenses tend to remain valid.

Is redomiciliation only for offshore companies?

No. It is a process commonly used by offshore companies, but it is also available to other types of international companies where the law permits it.

Does redomiciliation affect tax residency?

Yes, jurisdiction changes can affect tax residency status and can influence the company’s tax obligations, depending on the new location’s laws.

Is it expensive to redomicile a company?

Costs vary depending on the jurisdiction. This is usually influenced by legal fees, filing charges, and the need for professional advisory services.

References

Lazarashvili, L. (2024, January). Cross-Border Transfer of a Company’s Registered Office in Georgian Corporate Law. Caucasus Journal of Social Sciences. https://www.researchgate.net/publication/378388138_Cross-Border_Transfer_of_a_Company%27s_Registered_Office_in_Georgian_Corporate_Law 

Sanchez Pacheco, A. (2022, August). A consolidated-by-nationality approach to Irish foreign exposure. ScienceDirect. https://www.sciencedirect.com/science/article/pii/S2110701722000361