Setting up an offshore company – is it worth the hassle?

Setting up an offshore company – is it worth the hassle? That will be the topic of today’s article.

Nothing written here should be considered as tax or legal advice, but we do hope it will be useful for you.

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Introduction

A terrible beast named “offshore” often terrifies those who have not yet been lucky enough to ride the most exciting attractions of big business. Quite often in the modern world, offshore companies are identified with fraud, crime and betrayal of the homeland.

In part, this attitude is due to the lack of a worldwide definition of this term, and misconceptions. In reality these days, with financial transparency, data is shared across the world, so you can no longer evade taxes with offshore companies.

In reality as well, things are like this: offshore is a phenomenon that is gaining more and more popularity, the rules and principles of offshore are available to everyone, and the very mechanism of their work is completely legal. So, first things first:

Offshore or offshore zone is a country or territory located in a certain country that offers foreign companies special economic conditions.

Particularly attractive of these conditions are large tax benefits or no taxation at all.

There are three types of offshore zones:

Classic offshore company

It is the classic offshore companies that are most popular among businessmen. Usually these are small, warm, island countries offering foreign companies a complete absence of tax obligations, a liberal policy regarding auditing and financial reporting, and low annual payments independent of income. The most famous offshore companies of this type are the Cayman Islands, Bermuda, British Virgin Islands, Panama, Belize, Seychelles, etc.

Low tax offshore companies

This type of offshore is characterized by a reduced tax rate and the same indulgent, as in classic offshore, attitude to documentation. Such zones include the Bahamas, Scotland, Panama. However, this includes those countries that can still legally require the company to provide full financial statements. These include Hungary, Cyprus, Monaco, San Marino, etc.

European zone off-shores

Zones of this type are called “offshore” because in some cases, depending on the specifics of the country and the type of activity of a particular company, they also set a reduced rate for taxation of foreign companies. However, the need to keep accounting records, provide the necessary reporting, undergo audits remains unchanged. A striking example of a European offshore is Holland, where the tax on the activities of companies operating abroad does not exceed 1%.

So what is an offshore company? 

This is a company that does not operate in the country where it is registered. The owner of an offshore company, in turn, should not have the status of a resident of this country. For example, a German who registered his company in the Bahamas, provided that his company operates in Germany, is the owner of an offshore company.

Offshore companies are companies that enjoy tax incentives and are registered in offshore zones, that is, in countries or territories that purposefully attract international business by providing them with tax incentives.

In other words, an offshore company has a certain legal status. It is determined by the legislation of the country where the company is registered. It is important to note that the choice of jurisdiction for the registration of a company is carried out on the basis of international tax planning, which is aimed at finding the most favorable conditions for business development.

Offshore companies continue to be the most popular way of doing business. They allow you not only to receive tax benefits, but also allow you to optimize the tax burden. There is a whole list of countries where not only the registration of offshore companies is allowed, but also business activity with many countries of the world is not prohibited. Despite this, interest in offshore companies and companies registered in these jurisdictions remains quite high.

How offshore companies work: advantages and disadvantages

The main advantages of having offshore companies include:

• no taxation in some situations. However, remember that just because your company can pay a 0% rate, that doesn’t mean that you can get away with paying 0% as well, unless you “offshore yourself”. In other words, if you move to the Cayman Islands and set up a local entity, you can legally pay 0% tax. In comparison, it is legal to set up a Cayman entity whilst living in London, but you would still need to pay local personal taxes even if the entity doesn’t always need to pay.
• flexible legislation;
• support of foreign businessmen at all levels.

Such advantages provide good opportunities for doing business through offshore companies. You will protect your company not only from liquidation attempts, but also against unlawful claims, illegal claims, and more.

However, there are drawbacks to registering an offshore company. Even the ability to conduct business through offshore schemes and the use of offshore companies can have implications. Therefore, the first drawback is the choice of jurisdiction where the future company will be registered.

The second drawback is the presence of restrictions on the part of many countries to work with offshore companies and jurisdictions. Some states, such as the United States and EU members, are more thoroughly checking partners and companies that are registered in such regions, which will contribute to an increase in the period for fulfilling financial obligations.

How to open an offshore company: Registration process

Offshore registration involves going through several stages:

• Choice of organizational and legal form, registration of a legal address. Each jurisdiction has its own requirements for the location of an office on the territory of the registrant country. When deciding to register a company, all the details are important.
• Payment of fees and services of the Registrar State. The amount of government fees will become clear after the client chooses the jurisdiction. An indicative price list is posted on the pages of each of the offshore zones on our website. To draw up a general estimate of services, contact the specialists.
• Opening a bank account, contribution of the minimum authorized capital (if required by law). The amount of the contribution is determined and communicated to the client in advance by our experts.
• Each stage requires the collection of a specific package of documentation. As a rule, the entire package is translated into the state language of the country of establishment of the enterprise. After filing an application for registration of a company, a certain amount of time passes until the decision on registration is made.

How to register an offshore company on favorable terms without risks?

Saving time, own funds and registering an offshore company without risks directly depend on contacting a reliable seller of services, a registered agent.

Get the selection of the right offshore company according to your needs, advice on the services that are most suitable for business, the selection of a foreign bank for opening a corporate account.

Experts in this sphere will lead to the following result:

• Registered offshore company with a package of necessary constituent documents.
• Entering information into the State Register of Jurisdiction.
• Obtaining the required licenses.
• Confidentiality of the founder’s identity using a nominee service.
• Providing substance (real presence) – renting office space, hiring employees among the local population.
• Accounting and financial services on demand.

Required documents for registering a company offshore

Among the most important documentation, the future owner of an offshore company should have the identity cards of the beneficiaries, shareholders and managers of the company in stock, the collection and execution of other documents is carried out by the employees of our company.

The full list depends on the client’s belonging to the chosen offshore company, the type of activity of the company, the composition of the participants, additional documents may also be requested. A clear list of documents required for submission to specialists will be announced by the lawyer of our company after receiving primary information about the founder and the type of activity of the future company.

How much does it cost to open an offshore company?

In addition to being able to establish your offshore establishment, you can also buy off-shore ready-made companies. The registration process is simplified, which saves the customer time and money.

But the price of registering an offshore company depends on a number of factors such as the choice of jurisdiction, payment of registration fees and services, obtaining certificates of ownership of the company and others. For each jurisdiction there is an established (fixed) cost, which includes all the parameters necessary for the selected jurisdiction. For more details you should contact your chosen specialists, who can give you exact information and data on further expenses.

If true, it is impossible to get an answer to the question of how much it costs to open an offshore company right away. It is necessary to analyze a lot of input data, customer needs. Offers on the Internet with a specific price indication do not give the full truth.

Clients are lured by pointing out the low cost of opening offshore companies. Usually indicate the cost of registration through the register of firms of jurisdiction, services of a local notary. Then, domestic businessmen are surprised at the need to pay a significant amount of money in order for an open offshore to function normally.

Registration of an offshore company is a complex of numerous services. A separate case implies a different set of services. Accordingly, the cost of opening offshore companies varies. Comparison is difficult. Comparison begins with the analysis of the same sets of documents, procedures, services.

The expert determines the final cost of opening offshore companies after completing a detailed survey of the client, drawing up a tree of needs, and analyzing the “big picture”.

Make sure that the announced cost of opening offshore companies includes the connection of a corporate account of a banking institution from the required country.

The total cost of the costs consists of the following procedures:

• Registration of constituent documents.
• Apostle.
• Nominee service.
• Mandatory budget payments.
• Payment for courier services.
• The cost of opening offshore companies with the listed procedures from a popular jurisdiction fluctuates conditionally in the range of 2000-5000 US dollars. Speaking of expensive low-tax jurisdictions (Austria, Liechtenstein, Luxembourg, Switzerland), the notional cost is in the tens of thousands.

Opening an offshore company – price factors

The factors include the classification of offshore zones:

• Mid-shores, low-tax jurisdictions.
• Classic offshore, island jurisdictions.
• Administrative-territorial regions of the countries.

Low tax zones include: Singapore, Panama, Malta, individual states that are part of the European Union, Great Britain. The private business of non-residents here is necessarily taxed when it is conducted abroad. However, at the same time it receives tangible tax benefits.

Midshore and onshore companies require the submission of annual financial statements, accounting reports, and audits. The registers of the enterprise are necessarily open to the public.

Low-tax zones remain popular with foreign businessmen due to their prestige, trust, and reputation. The average cost of opening offshore companies here is from $ 2,500.

The classic offshore zones include: Belize, Saint Kitts and Nevis, BVI, Seychelles, and others. The economy of such territories depends on fishing, tourism, banking and offshore business. Jurisdictions offer 100% tax exemption for non-resident companies and affordable company maintenance costs. An annual substitute duty is charged. There are no requirements for the preparation of financial statements, auditing. The business register is closed to the public.

Classic offshore companies are deprived of worthy of trust and prestige, but they are popular due to affordable prices – from 1900.

Administrative territorial regions – Hong Kong, US states. Here it was possible to achieve the minimum tax burden due to the competent optimization of taxation and local legislation. The cost of a package of services is from 2500.

Opening an offshore company – cheaper, so more profitable?

The low cost of setting up offshore companies is similar to the cheap prices for goods in supermarkets. A quality product is expensive. Cheap prices for low-quality products that can quickly deteriorate and harm health when it comes to food.

The cheap cost of opening offshore is suspicious and is claimed by irresponsible sellers, scammers through the following tricks and exceptions to the final price:

• Nominee service, apostle of documents.
• Annual renewal of the registration of an offshore company.
• Formal paperwork.
• Registration directly in the name of the client without a nominal value, due to which confidentiality is lost.

It is customary to refer to fraudulent schemes:

• Resale of an offshore company to two clients at the same time.
• Sale of a firm in an offshore jurisdiction that has unfulfilled mandatory third party claims.
• The use of figureheads in “nominee service”. Then it turns out that they did not take their consent, forged signatures. they don’t exist.

The Internet allows you to find out the cost of offshore services. By adding a symbolic share of the profit, we get arithmetic. The registration agent does not work at a loss. The cost of opening offshore companies is lower than “by market” means fraud.

A package of services, including offshore registration, nominee service and apostille of documents, a priori costs from 1000 US dollars.

Risks to buy an offshore company by low rates

Acting for the first time in a new service sector, the risks are multiplied. It is important to find reliable experts who thoroughly understand the registration of a company in an offshore zone, sale, re-domiciliation.

The new tool is required to reduce the annual costs of the business, not increase it. Benefits from it should minimize tax deductions. The cost of its application should be lower than the amount of minimized taxes.

The pursuit of cheap cost, promiscuity, lead to dire business consequences:

• Overpayment associated with the annual renewal of information about the company in the state register, the use of nominee service.
• The banking institution will unilaterally terminate the service agreement due to the identification of negative data (for example, fictitious nominee directors involved in other firms, exclusion of a legal entity from the state register).
• Imposition of penalties for non-filing of mandatory financial statements, which the founder did not know about.
• Reputational risks.
• Loss of assets at customs (seizure).

Why are offshore companies needed?

Let’s review it on our example. Suppose a certain businessman “X” disagrees with the extortionate tax rate in his country. He intends to stop giving the state his honestly earned money and at the same time manage not to be punished for tax evasion. It is the offshore company that will allow the businessman “U” to realize his grandiose plans – to save a lot without breaking the law.

– By registering an offshore company in Cyprus, a businessman, instead of 20 or 30% in his country (income tax), and 10-15% (dividend tax), will receive values ​​of 10% and 5%. When registering a company in for example the Bahamas, the tax rate will be 0%.

– Apart from low taxes or none at all, offshore companies are attractive and easy to set up and use. You can open a company offshore in an hour. Most of these firms do not need financial red tape, collection of numerous documents, and passing inspections. Often, a fixed payment once a year is all an offshore company owner should worry about.

– The advantages of offshore also include absolute confidentiality. The fact of non-disclosure of the names of the owners of the company makes it possible to include representatives of the authorities and law enforcement agencies of the your country among its beneficiaries.

– An offshore company can play the role of both an intermediary and a business owner. In the latter case, the case will be reliably protected from raider attacks.

How do offshore companies work?

Using the example of the businessman “X”, already familiar to us, it is easy to understand the principle of operation of offshore companies. Let’s say Mr. “X” wants to sell a house in his city, the cost of which is 3 million dollars. In this case, the income tax will be about 500-600 thousand dollars. 

However, the businessman acts differently: he sells the house to an offshore intermediary company (of which he himself is) at a reduced price. The remaining profit he will receive when he resells the house, but already as an offshore organization.

So all this is just for escaping taxes, or paying less than you should do without offshore. 

The main benefits you will get from an offshore company

In recent years, more and more businessmen are thinking about opening an offshore company. The explanation is not difficult to find: such a business scheme allows you to get a large number of privileges. It can be used by both medium and large businesses. Companies using offshore companies even include such giants as Apple, Microsoft and General Motors.

• The company is a competent subject of international activity and law.
• By choosing the appropriate jurisdiction, a businessman is able to pay only the annual registration fee and is completely exempt from the need to pay income tax,
• The time required to set up an offshore company is minimal. You will not have to bother with collecting documents for a long time.
• A businessman has the opportunity to choose the optimal organizational and legal form of the company from a wide list, including LTD, LPP, LP, etc.
• Many states exempt companies registered on their territory from the need to undergo an annual audit. Accordingly, the cost of maintaining the enterprise will be minimal.
• By registering a company in an offshore jurisdiction, an entrepreneur can immediately open an account with a local bank. Often this does not even require a personal presence.
• In most offshore zones, information about the owner of a business is closed and can only be disclosed by a court order.

What factors you need to pay attention to when opening an offshore?

For an offshore scheme to work with maximum efficiency, an entrepreneur must be very careful in the process of choosing a jurisdiction. In order not to be mistaken, you should definitely consult with experts who are familiar with the peculiarities of doing business and registering a company in the most popular offshore zones. Differences in the legal framework can be manifested in:

• tax rates;
• restrictions on licensing of certain types of activities;
• relation to intellectual property;
• requirements for the minimum number of directors, shareholders;
• availability of benefits for certain types of activities, etc.

It is important to pay attention to such a factor as the existence of a double taxation agreement with our country.

Additional tasks will also be important, in addition to the desire to minimize the costs of taxes that the entrepreneur pursues. In particular, the purpose of opening an offshore company may be:

• protection against raider seizure or securing ownership of a certain asset;
• reduction of intra-firm costs;
• establishing business contacts with western or eastern business partners;
• work in a country with a stable economic and political system.

Thus, the use of an offshore company will open up ample opportunities for an entrepreneur to do business in the global financial market, while his assets will be reliably protected from possible economic shocks. These and many other advantages make such a scheme so popular among businessmen.

Pained by financial indecision? Want to invest with Adam?

Adam is an internationally recognised author on financial matters, with over 250.6 million answers views on Quora.com and a widely sold book on Amazon

Further Reading 

In the answer below , taken from my online Quora.com answers, I spoke about the following issues and topics:

• Is home ownership the key to wealth accumulation? Or is the situation more complex?
• Is ESG and sustainable investing just a trend?
• Does it really make sense to only invest $100 a month?
• How common is social mobility in the UK?
• What are the best jobs if you want to become a multi-millionaire?

To read more click on the link below

Is home ownership the key to wealth accumulation?