Offshore Business Formation

Many of us are familiar with using corporate entities for business or holding personal assets. From a legal perspective an offshore company is very similar to an onshore company with which we are familiar but often without many of the bureaucratic requirements or legal obstacles that characterise onshore companies.

With correct planning, offshore companies may be used for various purposes and can afford many significant and legal tax savings throughout the world which may not be available onshore, all the while reducing the administrative overhead burden and/or cost.

There are many different ways to effectively utilise an offshore company in order to legally establish an efficient structure for tax purposes, for international business and investment purposes, or to provide an additional layer of privacy to your business operations.

The benefits of offshore companies depend on a number of factors, including the owner's objectives, the owners' country of residence abd citizenship, as well as the countries in which the offshore company will do business.

It is important that anyone wishing to utilise these benefits should obtain professional tax and legal advice to ensure they comply with applicable onshore laws. The list below sets out examples of uses of an offshore company. In practice the modern day use of the corporate entity is endless.
Offshore Trading Companies
An importing or exporting company might establish itself in an offshore jurisdiction. If a business in one country buys goods in a second country for sale to a third country, there is no particular need for the business to be established in the home country. By using an offshore company, it may be possible to legitimately defer taxation,or accumulate profits in a tax free or low tax area, which are then available for funding further international expansion. This is commonly practiced by many of the largest multinationals but is available to anyone doing business internationally.

Investment and Holding Companies
Investment & Holding companies set up in offshore jurisdictions may invest in securities such as shares and other certificates of participation, bonds etc. throughout the world without capital gains, dividend or other income being subject to tax. However, domestic tax legislation in the shareholder's country of residence or domicile is important and appropriate advice should be sought.

Real Estate Investment Companies
There are often great advantages in using an offshore property holding company for the purpose of holding an overseas property. Advantages include avoidance of inheritance tax, avoidance of capital gains tax, ease of sale that can be achieved by transferring the shares in the company rather than transferring the property owned by the company and reduction of property purchase costs to the onward purchasers. A further advantage includes the ability of several individuals to each own a part of the interest in the property, without the problems involved in having them each recorded as an owner of the property.

Finance Companies
An offshore finance company can fund the operation of subsidiaries in various countries. The subsidiaries would obtain the benefit of tax deductions on interest paid. If the finance company is situated in an offshore area where there are no income or corporation taxes and no requirement that dividends be paid, then the profits can be accumulated in a tax-free climate. These funds can be used to further finance the requirements of subsidiaries or reinvested, as business convenience suggests.

Confidentiality and Privacy
A high net worth individual with properties or other assets in a number of countries may wish to hold these assets through a personal holding company. This approach could possibly save legal fees and avoids publicity. As well it may be more efficient and cost effective than onshore probate procedures in the event of death.

Professional Services
Individuals who receive fees in respect of their professional services in capacities such as designers, consultants, authors or entertainers, may assign or contract with an offshore company the right to receive those fees. The offshore employment company may not have to pay tax on its income that can be reinvested in a tax-free climate to generate further income from the offshore company. As in other cases the specifics of the professinoals’ citizenship and residence, the circumstances of the purchaser of the services and the professional’s particular tax situation will affect the decision.

Patent, Copyright and Royalty Companies
An offshore company can purchase or be assigned the right to use a copyright, patent, trademark or know-how by its original holders with a power to sub-license. Upon acquisition of the intellectual property right the offshore company can enter into agreements with licensees around the world, who would be able to exploit the intellectual property right in various countries. It is thought preferable to acquire, for example, a patent at the patent pending stage before it becomes very valuable, so that the capital payment for the acquisition of the patent can be set at a lower amount. Often royalties paid out of a high tax area attract withholding taxes at source. In certain cases an interposing holding company may allow a reduction in the rate of such tax, depending on available tax treaty relief.

Captive Insurance Companies
There are a number of offshore jurisdictions that encourage the establishment of insurance companies. In a number of offshore areas it is possible to incorporate insurance companies that pay no tax in respect of their premium or investment income. Similarly, captive insurance companies have been created by many multinational companies to insure and re-insure risks of subsidiaries and affiliated companies. Captive insurance companies are particularly suitable for industries that might be insurable only at prohibitive premiums, or risks that would otherwise be uninsurable.

Offshore Banking Companies
Many offshore banking institutions have been established in tax havens in recent years. Many of these institutions are subsidiaries of major international banks. Such institutions pay interest free of withholding tax and engage in international financing from offshore bases, which are free from exchange controls. Such banking institutions and their associated trust companies are able to provide a wide range of financial services to their international clientele. For smaller businesses and individuals, bank licenses are generally not available unless they have an established banking operation in good standing in another jurisdiction.

The above examples are just a few uses and benefits that can be achieved by utilising an offshore company as part of a well-advised plan. No legal, tax or other professional advice is being rendered.

Interested? Our firm offers offshore company formation services in six primary offshore business locations: the British Virgin Islands (Caribbean), Samoa (South Pacific), Seychelles (Indian Ocean), Delaware and Nevada (USA) and Hong Kong (Asia). Other jurisdictions such as Cayman Islands, Bahamas, Anguilla, Belize and Panama can be arranged upon request.

Please click the Price List link at the left for our price list and jurisdiction comparison.

If you are a lawyer, accountant , tax advisor or financial consultant and require services for your clients, please contact us for further options.

(Any liability or loss incurred as a consequence, directly or indirectly from the use or application of the information contained herein, is specifically disclaimed.)