Privacy, security, and freedom of speech and expression are reasons many businesses give for choosing offshore website hosting. The physical location of the actual servers that the web hosting company uses to run a website determines the laws under which the website operates. So a website that is hosted by a company with servers in Iceland must comply with the laws of Iceland. There are both excellent and questionable offshore website hosting companies in countries around the world.
But a website is only one part of a business, and legal regulatory structure can also come from the country where the business is registered, the country of residence of the business owner, and the point of presence--the places the actual physical work of a business is conducted, including manufacturing and shipping, or in the event of a service, the place of service.
If a business has significant points of presence in a country or state where the service or product is illegal, the business and the business owner can be held criminally liable, regardless of the place of website hosting.
While freedom, privacy, and security are important, many businesses seek offshore web hosting for an online business to find a legal environment where taxes, residency, regulations, and censorship laws are more tolerant of business activities that are considered illicit or criminal in the US and EU.
In the offshore web hosting world, bloggers, journalists, and publishers can use the more liberal freedom of speech and expression laws of the hosting countries, and perhaps avoid the DMCA Takedown and other intellectual property protections commonly used in the US and EU. But according to Texas lobbyist and attorney Jake Posey, offshore web hosting companies do have to follow the legal guidelines and intellectual protections of their country of origin.