Is the Marshall Islands a Tax Haven? Offshore Jurisdiction Review

The Marshall Islands, a small island nation located north of the equator in the Pacific Ocean, has gained significant attention as an attractive offshore jurisdiction for businesses. With its zero or nominal tax rates, the country offers a compelling environment for company formation and operation. The Republic of the Marshall Islands is recognized as a convenient tax haven that provides substantial financial benefits through its low-tax regime and streamlined business incorporation processes.

The Marshall Islands Business Corporations Act of 2023 has further solidified the country's position in the offshore business world. The jurisdiction is particularly known for its ease of company formation, which, combined with its favorable tax environment, makes it an appealing option for those looking to optimize their global tax position.

Global Offshore Business Environment in the Marshall Islands

The Marshall Islands, a small yet opportune tax haven for offshore company formation is located in the South Pacific and offers a range of offshore financial products for the savvy international investor.

The Marshall Islands Business Corporations Act exempts all International Business Companies (IBC) or Non-Resident Companies as they are referred to, from paying any local taxation. Offshore Bank accounts are also possible to establish in conjunction with a company and still are accepting non-residents without too many hassles.

Corporate legislation permits the use of an offshore vehicle to be used for virtually any type of business venture, save a few. This has attracted a large amount of foreign investing and businesses who have come to the islands since 1990 to make the most of the advantageous market. The distinction that sets the Marshall Islands apart from the other offshore jurisdictions is that the corporate legislation allows companies to be taken public as well as raise capital and carry out third party trading.

Together with their inviting tropical climate, absence of tax information-sharing agreements and confidentiality laws makes the Marshall Islands a popular choice for individuals and companies looking to form an offshore company in the South Pacific.  

For more>> Marshall Islands Offshore Company

Benefits of Marshall Islands as a Tax Haven

1. Marshall Islands IBC’s are not required to pay any taxes
2. Tropical climate and environment
3. Only one Director is required as well as single ownership opportunities
4. Modern corporate legislation
5. Flexible corporate structure arrangements
6. There are no public register of company officers
7. English is the official language
8. Wide range of business possibilities
9. Confidentiality ensured for Directors and beneficial owners
10. No requirements to file accounts or annual accounts to the Government
11. No tax information exchange agreements
12. No need to submit financial accounts nor audited accounts
13. No exchange controls
14. Stable economic and political jurisdiction
15. Highly regarded offshore market that does not have a bad reputation

Legal Framework

The Marshall Islands' legal system is based on US common law, providing familiarity and predictability for many international investors. The jurisdiction's corporate legislation allows for significant flexibility in company structures and operations.

The Republic of the Marshall Islands Business Corporations Act forms the backbone of its corporate legal framework. This legislation enables swift company formation, typically within 24-48 hours, with minimal documentation and verification processes.

Corporate entities can be established with only one director or shareholder, who need not be residents of the Marshall Islands. There is no requirement for physical presence or local directors.

Annual reporting requirements are minimal, with no obligation to file financial statements or tax returns for offshore companies. This light regulatory touch has positioned the Marshall Islands favorably among businesses seeking operational simplicity.

Financial Secrecy and Privacy

The Marshall Islands ranks 51st on the Financial Secrecy Index according to the Tax Justice Network, indicating a moderate level of financial opacity. The jurisdiction maintains strong privacy protections for corporate entities and their beneficial owners.

Information about company ownership is not publicly accessible, providing confidentiality for investors and business owners. The registry of companies does not disclose details about shareholders or directors to third parties without proper legal authorization.

There is no automatic exchange of financial information with most foreign tax authorities, though this has come under increasing scrutiny from international organizations.

Bank accounts opened in the Marshall Islands offer significant confidentiality protections, though anti-money laundering regulations do require basic due diligence on account holders.

Benefits for Foreign Investors

Foreign investors benefit from the Marshall Islands' comprehensive tax exemptions on international business activities. Offshore companies pay no corporate tax, capital gains tax, or dividend tax on their worldwide income.

The jurisdiction offers tax and duty exemptions for specific private sector investments, creating additional incentives for certain industries. These targeted exemptions can significantly reduce operational costs for qualifying businesses.

Registration and maintenance costs for Marshall Islands companies are relatively low compared to other offshore jurisdictions. Annual fees are predictable and reasonable, making long-term planning more straightforward.

The use of the US dollar as official currency eliminates exchange rate risks and simplifies international transactions for businesses operating globally. This currency stability is particularly attractive for investors concerned about monetary fluctuations in other jurisdictions.

Tax Policies in the Marshall Islands

Corporate Tax Structure

The Marshall Islands has established itself as a tax-friendly jurisdiction with a zero or nominal corporate income tax rate. This policy has attracted significant international attention, including scrutiny from the European Union, which has placed the country on its tax haven watchlist.

Companies incorporated in the Marshall Islands are not subject to corporate income tax on their worldwide income. This zero-tax policy applies to all business earnings, regardless of where they are generated.

Foreign companies operating in the Marshall Islands also benefit from these favorable conditions, as there are no withholding taxes on dividends, interest, or royalties paid to non-residents.

The corporate structure is further simplified by the absence of capital gains taxes and stamp duties, making it particularly attractive for shipping companies and international holding entities.

Personal Income Tax

For individuals, the Marshall Islands offers an equally attractive tax environment. There is no personal income tax imposed on residents or non-residents for income earned outside the country.

This policy has made the Marshall Islands popular among:

• International entrepreneurs
• High-net-worth individuals
• Remote workers
• Digital nomads

The absence of personal income tax extends to all forms of income, including capital gains, dividends, and interest. This comprehensive tax exemption provides significant financial benefits to individuals establishing tax residence in the jurisdiction.

No inheritance or gift taxes exist either, allowing for effective wealth preservation and transfer strategies across generations. These policies create opportunities for personal tax planning that are unavailable in many higher-tax jurisdictions.

Indirect Tax Regime

While direct taxation is minimal, the Marshall Islands does maintain a system of indirect taxes that fund government operations. Import taxes represent a significant revenue source for the national government, with specific rates applied to various categories of goods.

Notable aspects of the indirect tax system include:

• Import Tax: Applied to most imported goods
• Exemptions: Goods in transit are exempt from import tax
• Refunds: Import tax on re-exported goods is refundable

The country does not impose a value-added tax (VAT) or goods and services tax (GST), which further simplifies the business environment. There are no export taxes, encouraging export-oriented businesses to establish operations in the jurisdiction.

Local government authorities may impose limited fees and licenses, but these are generally minimal compared to tax burdens in other countries.

Advantages for Foreign Entities

The Marshall Islands exempts International Business Companies from corporate taxes. This allows foreign entities to significantly reduce their tax burdens. Companies pay only minimal annual fees rather than income or capital gains taxes.

The jurisdiction provides strong financial privacy protections. There are no public registries of company ownership or financial accounts. This confidentiality appeals to businesses seeking to protect sensitive information.

The Marshall Islands uses the U.S. dollar as its currency. This eliminates currency exchange risks for many international companies. The stable currency and economy provide a secure environment for offshore operations.

Setting Up Business in the Marshall Islands

The Marshall Islands offers an attractive business environment with streamlined processes for company registration and minimal taxation. Entrepreneurs benefit from efficient formation procedures, clear regulatory frameworks, and access to international banking services.

Company Formation Process

Establishing a business in the Marshall Islands begins with choosing an appropriate corporate structure. International Business Companies (IBCs) remain the most popular option due to their tax-exempt status on foreign-sourced income.

The formation process typically requires:

• Selecting a unique company name
• Appointing at least one director and shareholder
• Preparing articles of incorporation
• Engaging a registered agent in the Marshall Islands
• Paying the registration fees

Registration can usually be completed within 1-2 business days once all documentation is submitted correctly. The process is deliberately efficient to attract international investors.

Digital submissions are now accepted, eliminating the need for physical presence during the formation process.

Regulatory Requirements

The Marshall Islands Business Corporations Act governs company operations with relatively light regulatory oversight compared to many other jurisdictions. Companies must maintain:

• A registered office address within the Marshall Islands
• A local registered agent to receive legal documents
• Corporate records including director and shareholder information
• Articles of incorporation and bylaws

Non-resident companies face minimal reporting requirements when conducting business exclusively outside the Marshall Islands. Local companies with domestic operations follow a different regulatory framework.

The government maintains confidentiality provisions that protect beneficial ownership information, offering significant privacy benefits for international entrepreneurs.

Banking and Financial Services

While the Marshall Islands has a limited domestic banking sector, offshore companies typically access international banking services through partnerships with financial institutions in other jurisdictions.

Many entrepreneurs establish accounts in neighboring financial hubs such as Singapore, Hong Kong, or the United States. Digital banking solutions have become increasingly popular options for Marshall Islands companies.

Key considerations for banking include:

• Anti-money laundering compliance requirements
• Documentation of company structure and ownership
• Verification of business purpose and activities
• Ongoing transaction monitoring protocols

Financial services providers often require enhanced due diligence for Marshall Islands entities due to the jurisdiction's tax-advantaged status.

Reporting and Compliance Obligations

Marshall Islands companies enjoy streamlined compliance requirements, particularly for offshore operations. IBCs are exempt from most major taxes, including corporate tax on foreign income.

For resident companies, a different tax structure applies: $80 for the first $10,000 of income and 3% for income exceeding that amount. Annual filing requirements include:

• Payment of annual government fees to maintain good standing
• Updating corporate records when changes to directorship or ownership occur
• Maintaining financial records (though not necessarily filing them publicly)
• Complying with any industry-specific regulations if applicable

Companies must also adhere to international standards regarding anti-money laundering and counter-terrorism financing, despite the jurisdiction's tax-friendly reputation.

In-Depth Information

Location

The Marshall Islands, officially known as the Republic of the Marshall Islands, are located in the Pacific Ocean just west of the International Date Line and are part of a larger body of islands referred to as Micronesia. There are over 24 coral atolls that account for a total landmass of 181 square kilometres that compromise the Marshall Islands that lie just south of Wake Island and north of Nauru. The most populous of the coral atolls is Majuro, which is the nation's capital.

Political Structure

The islands were seen to be apart of the Spanish East Indies in the 1874, later to be sold to the Germans and then occupied by the Japanese to be finally conquered by the US during World War II. The US gave the islands, that were part of the Pacific Islands at that time, self-governance in 1979 and full sovereignty in 1986 under a Compact of Free Association with the US.

The Marshall Islands is a presidential republic in free association with the US, in which the US provides defence and social services. Elections are held every four years to the lower house called the Nitijela.

The President is the head of state as well as the head of the government and is elected by the thirty-three senators who make up the Nitijela. Legislative power rests in the Nitijela, with the upper house called the Council of Iroij, which acts as an advisory body compromising of twelve tribal chiefs.

The executive branch consists of the President and the Cabinet of ten members who are appointed by the President. There are four political parties in the Marshall Islands: Aelon Kein Ad (AKA), United Peoples Party (UPP), Kien Eo Am (KEA) and the United Democratic Party (UDP).

Economy and Infrastructure

The Marshall Islands lacks natural resources and is mostly reliant upon a service economy. Fishing and agriculture also make a part of the market, though aid from the US represents a large portion of the islands GDP. The legal tender is the United States dollar.

The Gross Domestic Product (GDP) of the islands in Purchasing Power Parity (PPP) in 2011 was USD 150 million making the per capita income USD 2,500. The United States provides USD 57.7 million a year in assistance under the terms of the Amended Compact of Free Association that accounts for 60% of the country’s GDP.

Services, agriculture, and industry are the main sources of GDP for the Marshall Islands, compromising 60%, 22% and 18% respectively. The largest exports are oil and copra cake with the islands main trading partners being the US, Japan, Australia, New Zealand, Guam, and Singapore. The largest employer of the Islands is the government of the Marshall Islands, who employ 30.6% of the workforce.

Agriculture is grown in small farms, the main commercial crops are coconuts, banana, taro, pandanus, melons and breadfruits. The more modern economy is located on the islands of Majuro and Ebeye, which consists of banking, insurance, service, tourism and food processing. Fishing has also been an integral part of the economy of the islands and provides for a large part of the country’s foodstuffs.

The Marshall Islands are served by one main international airport in Majuro, while there are several other smaller airports and airstrips in the surrounding islands. The islands have several radio stations as well as broadband Internet services.

Population, Language and Culture

The people of the Marshall Islands are said to have been settlers from Micronesia who came to the islands during the 200 BC. European explorers first came to the islands in the 1520’s, the areas navigated and charted by the Spanish. The name stems from a British explorer John Marshall (1788).

The majority of the residents of the Marshall Islands are of Marshallese descent though there are a number of immigrants from the Philippines and other Pacific Islands. Ethically 92.1% of the residents see themselves as Marshallese, while 5.9% see themselves as mixed Marshallese, while 2% are in the others category.

There are two official languages, which are English and Marshallese, which the latter is seen as apart of the Malayo-Polynesian group of languages. In 2009 the total population of the Marshall Islands was estimated to be at 68,000 with a density of 342.5 people per square kilometre.

Religion plays an integral role in the identity and culture of the Marshallese people. The United Church of Christ 51.5%, Assemblies of God 24.2%, the Roman Catholic Church 8.4% and the Mormons 8.3% make up the majority of churches and faiths in the islands, with several other minority religions including Muslim and Baha’i Faith.

The culture in the Marshall Islands is similar to other islands in Micronesia and Polynesia in the South Pacific. Oceanic navigation, shipbuilding, canoe making and racing, were all important elements of Marshallese traditional culture. Elements of local traditions together with modern influences are still seen today through the display of local customs, ceremonies and practices.

Type of Law

The Marshall Islands has a mixed legal system with elements taken from the legal systems of the US and the UK together with local statues. The Marshall Islands company law is taken from Delaware and New York corporate law.

Principal Corporate Legislation

The details related to the formation of companies and non-resident companies is detailed and enshrined under the Association Law of the Republic of Marshall Islands 1990, which includes:

• The Business Corporations Act
• The Limited Partnership Act
• The Limited Liability Company Act
• The Partnership Act (revised)

Taxation of Offshore Companies

There are no taxes for any Marshall Islands Non-resident Domestic Corporations, which includes all taxes including, but not limited to:

• Corporate tax
• Dividends tax
• Income Tax
• Capital gains tax
• Inheritance tax
• Gift tax
• Stamp duty

However, there are taxes that are required to be paid if one is a local resident and conducts business within the country with a local corporate tax rate of 3%.

Marshall Islands Offshore Company Formations From Offshore Protection

Click below for more information on Marshall Islands-based offshore company formations:

• Marshall Islands Offshore International Business Company (IBC)