An offshore company is not a new term. In fact, it has been well-known as a powerful tool for many successful entrepreneurs and investors who are well perceived of its advantages and values.
In this article, we outline a comprehensive guide to an offshore company, including what an offshore company is, its great benefits that have attracted numerous business people, as well as how to set up your offshore company.
1. What is an offshore company?
Let’s get started with the definition of an offshore company. An offshore company is a company incorporated or registered in a jurisdiction that is different from where its investors reside. Note that this type of company is different from an onshore company >> Learn more
In a simplistic manner, an offshore company’s meaning indicates nothing more than a company that is established in another country. Let’s say you are living in Singapore and you incorporate an International Business Company (IBCs) in Belize to do business, so that is an offshore company.
So, how do offshore companies work? One key feature with regard to an offshore company that you need to know is that offshore companies would be prohibited from conducting any economic activities within offshore jurisdictions.
Notwithstanding, law amendments in each offshore country can bring different bonuses and barriers to an offshore company registered in that particular jurisdiction. In some cases, you may also find out an offshore jurisdiction in which your offshore company can be allowed to do business inside the territory, but is required to suffer local tax along with many compliance obligations.
Sometimes people can feel confused due to the misconception about the offshore company – which is said to be a tool for tax evasion or hiding money from the government. It, however, is not such case. Offshore companies are legal since they are governed by the jurisdiction regulations where they are incorporated or registered.
In addition, not only does an offshore company take advantage of a favorable tax regime offered by most offshore jurisdictions, but also there are more possibilities when it comes to incorporating an offshore company.
What are these enticements? Let’s look at our following parts.
2. What are offshore company benefits?
“How can I benefit from an offshore company ?” is a typical question. And here are some advantages of going offshore:
2.1. Tax benefits
This seems to be the top reason why people opt for setting up offshore business. By forming an offshore company, foreign investors can be entitled to gain a deduction of tax burden. In other words, they are often tax-exempt or just pay a modest rate of tax by virtue of the business-friendly taxation laws of certain jurisdictions.
Take Hong Kong as a typical example, the territorial taxation system in this country allows profits which derive from trading activities outside its territory to be not subject to suffer profits tax.
2.2. Asset protection
Beside offshore company tax advantages, protecting your wealth is another appealing factor that makes people seek offshore, especially when your company is incorporated in a jurisdiction with a strong reputation and stability in both politics and economy.
Obviously, the act of moving your assets to offshore corporations and legal business structures abroad helps to create a stronger protection layer for your wealth from unexpected liabilities.
Some offshore centers which offer favorable laws regarding financial privacy such as the BVI, Belize, Seychelles et cetera have been widely preferred in the world as deemed best destinations to go for asset protection.
2.3. Minimal maintenance requirements
Not only do offshore companies offer simplicity during the setting-up process, but they also are offered more flexible regulations after the incorporation stage.
There are fewer requirements in terms of annual reports and financial accounts with the Companies Registrar (providing that they do not carry out business activities inside the jurisdiction whey they register). In addition, most offshore companies tend to be easier to maintain in comparison with onshore companies.
It should be worth mentioning that the level of information in which the registrar of companies at each offshore jurisdiction requires could be not the same.
Our advice is that once you have come to the first step for offshore company formation which is to choose a suitable jurisdiction (a guideline of full steps on how to set up an offshore company will be discussed in the last part), do examine whether you can fulfill that jurisdiction’s requirements after registration.
2.4. A high degree of confidentiality
Typically, most offshore countries do not disclose the company directors, beneficial owners, shareholders to the public, thus you can feel secure that all information would be kept confidential. However, it is a must to register and maintain these profiles and data with the Company Registrar.
Because of many potential benefits, offshore company setup is the widely-used solution for tax planning strategies of many small and medium sized enterprises.
>> Related article: Tax Evasion vs Tax Avoidance vs Tax Planning
3. Some popular countries where you should set up an offshore company
Try to search for the offshore company on the internet and you will find out a variety of choices of offshore jurisdictions that may be best suited with what you need. Below we list out some popular countries where you should put into consideration for your offshore company incorporation:
- Cayman Island
- The British Virgin Island
- United Kingdom
- Hong Kong
Please read Best Offshore Company Jurisdiction For Foreigners to get better understanding of these options!
4. Proceed to the incorporation process
One of the driving forces that leads to the popularity of the offshore company is its ease of incorporation. The offshore company setup process is very straightforward and easy.
Despite the fact that each offshore jurisdiction can show differences in terms of requirements, we can outline the fundamental steps of this process as the followings:
- Choose a suitable jurisdiction &; business structure:
Keep in mind, choose the jurisdiction which best suits your needs. You may feel muddled because of so many choices of countries and do not know which one is the best.
And should it be the case, you are advised to take into account some factors that assist you to pick the most well-matched one to your company plan, key of which include jurisdiction reputation, taxation, company structure, residency situation, banking needs, compliance requirements, et cetera.
- Select a company name:
Naming requirements are crucial when deciding on your company name. Moreover, specific required criteria for a company name can be varied from jurisdiction to jurisdiction. Therefore, please well examine the eligibility of your chosen company name to get approval
- Fulfill due diligence requirements:
It is in need to understand your offshore location’s KYC process to fulfill all the needed requirements.
Please note that if a corporate body is going to be your company’s shareholder, further documents must also be submitted.
After you have done all the required documents, deliver them to the Company Registry of the jurisdiction that you choose and proceed to register your company.
Further details on a step-by-step guide to the process of offshore company formation can be found here: How to set up an offshore company for 2020
5. What are the uses of offshore companies?
An offshore company can be used for different purposes. Particularly, ease of administration with an offshore company is preferred by most e-commerce players. Internet traders can also use offshore corporate structures to keep its domain name in existence as well as control the internet sites.
For other business sectors, you can also explore the usefulness of having an incorporated company in overseas jurisdictions. Counselling business and international business prefer offshore structures by dint of its corporate flexibility and tons of tax benefits available. In another scenario, entrepreneurs in relation to holding businesses are more likely to go offshore to obtain better confidentiality or minimize certain types of tax (capital gains tax exemption for example). Such businesses are very typical examples of how an offshore company can be used for.
Because of its anonymity, an offshore company is also often recommended for those concerning cryptocurrency trading or foreign exchange transactions. Some popular offshore management vehicles for crypto-based companies include international business company (IBC), limited liability company (LLC) or a foreign trust. Learn more >> Offshore company for cryptocurrency: Pros &; Cons
6. Recent extensive changes to offshore company landscape
The offshore industry has been changed a lot. This is resulted from the practices of the EU and the OECD during recent years. To align with the accepted EU standard, there has been a massive transformation with regard to the taxation and company legislation in some landscapes where we often called “offshore” jurisdictions. What are the remarkable changes?
Removing ring-fencing is one of the very first responses that many countries considered when it comes to the adjustments of preferential tax regimes. Gone are the days when an International Business Company in many traditional financial hubs like Belize or Saint Vincent and The Grenadines are ring-fenced. These days you can find that both residents and non-residents get the right to start business with this type of company in Belize, and they can trade with local residents as well. Many things have changed, including tax policy for Belize IBCs. The Income and Business Tax (Amendment) Act, 2018 stipulated IBCs doing business in the country shall now be levied the income tax. Evidentially, the tax rates on foreign incomes other than passive income will range from 1.75% to 6%, depending on your incorporated type of business.
>> Related article: Belize Economic Substance Requirements &; Tax Guide
The emergence of economic substance rules is the second striking change. A large number of companies are reaping benefits from a favorable tax regime, but importantly they have no economic substance in the jurisdiction. The debates arose as people need more transparency and clarification for the legality of offshore structures. Many well-known offshore business centers have been increasingly taking step by step to implement the economic substance regime. Generally, economic substance requirements are applicable for certain businesses such as pure equity holding companies, financial services, banking and insurance businesses, regulated businesses and so forth. The economic substance rule was enacted in many offshore jurisdictions such as Belize, The Cayman Islands, The BVI and many others.
>> Related article: Guide to BVI Economic Substance Requirements
Further legislative adjustments to the offshore industry can also be found with the presence of the Beneficial Ownership Act in several countries. In-scope companies in places where this rule came in force must verify identity information of their beneficial owners to the competent authority via their registered agents.
Above are some key changes to the offshore sector that you should take into account. Please spend time to examine the system of law in relevance to your offshore business case in the jurisdiction for the best understanding and compliance before moving.
Would it be a great idea to establish an overseas legal business structure?
Look at the aforementioned offshore company benefits maybe you get the answer. Yes! As you can be seen clearly that there are dozens of drawcards that an offshore company can contribute to your business, internationalizing your business, keeping your assets safe, safeguarding your company’s, confidentiality, optimizing your tax burden, ease of incorporation and many more. We can also understand why there are a large number of entrepreneurs and investors flocking to places deemed the best jurisdictions to start their business.
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