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11 reasons for offshore company formation (2022)

11 reasons for offshore company formation (2022)

What is offshore company and why we need it? Where is the best country for offshore company registration?

Author:
K.,Alan
Publication date:
08 Sep 2020
Last update:
08 July 2021
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Google, Apple, Starbucks, Microsoft, and many other well-known companies have offshore company formation as part of their company structure. They use it for expanding their business globally and plan their tax legally. It is very natural for business owners to look for a more flexible and stable country in terms of business activities and tax regulations. Offshore company registration is cheap and has a low maintenance fee. Why don't you do it? Read this article to see why and how to expand your business globally with the lowest possible maintenance fee.


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Contents

What offshore means?

What is offshore?" The term offshore means a place outside the border, whether on land or at sea. It also means "overseas", outside the jurisdiction of origin. The term offshore is mostly used for offshore construction (oil platform), offshore development (outsourcing system development), and an offshore company (tax haven corporation).

Large corporates normally move their production units and factories overseas or outsource them where the labour cost is lower. We normally call this process "offshoring".

Offshore is also used to describe foreign banks, corporations, foreign investments and deposits.

What is an offshore company (What offshore company means)?

There are many articles and websites about offshore company meaning. I found them somehow so difficult for newcomers to understand the term fully. So I will try to give you a simple and useful definition of offshore company.

A definition of offshore company means you establish a company in a foreign country while managing and operating its business from your own country of residence. It is also called International Business Companies (IBCs) in some countries. Thus, it is an international company and you can conduct your business with anyone around the world except inside the country you established the company. An offshore company example can be a Belize IBC. For instance, you incorporate a Belize Company under the laws of Belize country. You can do business from your home or any other places except from Belize and with local businesses. You are prohibited to conduct any local economic activities inside Belize.

In general, the main characteristic of an offshore corporation is being a tax-free company in its country of formation, having a low maintenance fee, and more flexibility. Tax haven countries such as Belize, Seychelles, British Virgin Islands (BVI), Cayman, Anguilla, Panama, and Bermuda do not impose any form of taxation on companies and those companies are fully tax-exempt.

Separately from above-mentioned jurisdictions, companies incorporated inside countries like the UK, Hong Kong, Delaware, Uruguay, and Cyprus can be considered as offshore companies if they operate their business outside the country. So, as long as the operation of the company is done outside the country of incorporation, the company is not forced to pay any form of tax.

Thereafter there are certain countries such as offshore company Ireland, Netherland, Malta, and also the UK in which people are incorporating a company as part of tax mitigation structures.

In conclusion, generally an offshore company should have at least the following main characteristics:

  • No taxation in their home jurisdiction.
  • Should have business flexibility.
  • The regulation should be lighter compare to the developed country.
  • A high level of privacy and confidentiality.

NOTE: Recently, there have been many changes in offshore company formation and many offshore jurisdictions are participating in automatic exchange of information. Therefore, the level of privacy and confidentiality has decreased compared to a few years ago; however, by hiring a nominee you can still maintain a certain level of privacy.

Why do countries offer offshore company incorporation?

Well, this is all about bringing some additional revenue to the country. Normally, small and non-developed countries that do not have enough resources for their income, create flexible company laws to attract foreign investors and businesses. Thus, they offer offshore company formation services. In this way, they can bring some more revenue for their country; create more job opportunities and make a new form of income for their corporate service agents. In addition, the government will also make a profit in the form of annual government fee or license fee. One offshore company brings in a profit of a few hundreds dollars per year.

In fact, their offshore business opportunities somehow depend on the existence of inflexible and strict company laws and structures in advanced countries. Normally, offshore jurisdictions target businesses from unstable countries and developed countries who are tired of laws, limitations, and risks in their own home country. They also target new online small businesses that do not need official offices.

In fact, offshore countries cannot be flexible if they accept all directions that come from developed countries. That is why there is always a minor tension between offshore jurisdictions and developed countries. So, offshore company setup is not always as easy as it looks. You need to check the regulation of your country of residency to make sure that you meet all the requirements and restrictions. Please get advice from an expert when you are going to register offshore company.

Lastly, we should understand that the world is changing dramatically. Many offshore countries are changing their systems and regulations based on new demands, technologies, and economic relations with other countries. So, offshore business is not just one color now. There are different colors in each jurisdiction and we need to choose a color that matches more to our needs when opening offshore company.

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Why offshore company incorporation?

The reason why business people would incorporate a company in offshore countries is to take advantage of flexible and sufficient regulations that are not available in their own country. For example, they might form a company for tax saving purposes, low maintenance fee, asset protection, and international business opportunities.

An offshore company is not necessarily suitable for all businesses. For example, if you have a local business and your income depends on the local market, going offshore is not a good idea. Offshore company formation can be suitable for plenty of businesses such as global (international) businesses, e-commerce or web-based businesses, advisory and couches, forex and stock traders, investors, and buying a property in a foreign country.

In the following we will explain some of the advantage and reasons people register offshore company:

Generally, business owners prefer to form a business relationship with a legal entity rather than an individual. So, incorporating an offshore company, which has a very low maintenance cost can be a good start for freelancers and beginners. The opening offshore company gives your business a legal identity and you can make your own brand with lower cost possible. Another reason that one might want to incorporate offshore business is the possibility of purchasing property or licenses in other countries. For example, you can own a property in Malaysia through your offshore corporation. It will be even easier and faster to buy a property if you own a local Malaysian holding company.

2). Better banking infrastructure

Well, this is a very important issue and I need to be clear. Having one offshore company does not necessarily bring better banking opportunities. Many European banks are trying to apply more restricted regulation on offshore businesses from tax-haven jurisdictions.

For example, a Labuan company might have more limited banking opportunities than a Cyprus or a UK company have. Also, if your company is incorporated in Peru or Nigeria, it will be very difficult to get a suitable bank account. In contrast, you might have better banking infrastructure if you incorporate offshore company in Belize, BVI, or Cyprus.

In fact, there are still many banks that are welcoming offshore companies. You need to be clear about what you are expecting from banks and what kind of activities your business is carrying out. Most banks prefer to accept a company with low-risk business activities. Activities such as coaching, advisory, international trading, and software development have more chances to be accepted. Please check the bank terms and condition and their restricted activities.

3). Asset protection

It is very important to protect your asset against your financial enemies that wish to seize your assets for themselves for whatever reasons they have.

They can be any private parties, creditors, attorneys, even family members, or ex-spouses. In unfortunate cases like accidents or failure in business, there might be a lawsuit against you in court. In some countries, the law lets creditors seize the assets that are under your family members like kids, parents, and even your wife.

Unfortunately, the lawsuit is filed every second in the world. In this situation, the chance that many of them are illegitimate is high. So, it is normal for people to find a way to protect themselves against such an uncontrolled situation.

4). Offshore corporation has low maintenance costs

In most countries, starting a business is not as easy as you think. It takes time and you have to spend a lot of money. In most cases, you must have a real office with a valid address in the commercial buildings, a minimum of one staff, and an official contact number. Also, you should take care of the accounting, audit, and secretarial fees too. Many countries do not allow you to place your business in a residential building. In addition to all the above-mentioned costs, most probably the new company is not tax-exempt.

In contrast, incorporating an offshore company is very cheap. You can handle your offshore business from home and everything can be operated remotely. In most jurisdictions, you are not obligated to file an audited account and many of them are corporate tax-free. Please get advice from a local tax expert in your country regarding your income tax obtained from your offshore corporation.

5). Low capital requirements for offshore business

Offshore company formation is very flexible in terms of the capital of the company. There is normally no minimum paid-up capital or very low minimum paid-up capital requirements.

6). More flexibility

Many jurisdictions offer flexible company laws for offshore company incorporation that benefits business owners.

An offshore company has flexibility in terms of the structure of the company, the amount of capital, number of directors, shareholders, and officers, location of the meeting, and etc.

In addition to offshore jurisdictions, some european countries like Cyprus, Malta, Estonia, Bulgaria, and the UK also offer flexible company acts. These countries may be a good choice for those who like to have access to better court, better legal structure, and more flexible company laws in Europe. These countries may not be a good place for those who want a tax-free company without any reports, but for many people these places are ideal.

7). Tax-saving

In fact, taxes are the biggest challenge for new, macro, and small businesses.

Many of these businesses end up with almost nothing after paying their expenses. They end up with a small amount of profit. Thus, this is very normal for small business owners to plan their taxes.

The issue is how they can do it legally?

Our basic suggestion is to get advice from a local tax advisor in your country to avoid any legal issues for your company and yourself. Generally, offshore company setup is one of the common practices to reduce the tax legally.

In fact, most offshore company formation occurs in tax-haven jurisdictions. So practically, you do not need to pay any corporate tax on your profits.

Changing the structure of the company helps to reduce the tax legally. One of the interesting examples can be Apple, Inc.

Apple has a holding and trading company in Ireland, and its technology company is located in California. Ireland law allows some Irish companies to claim as non-resident companies if they are associated with another company outside the country. They will be tax-exempt if they are managed and controlled out of Ireland. In addition, "US law asks where a company was filed (IRC Sec. 7701(a)(5))". So, none of Apple's Irish companies pay taxes anywhere at all.

Another way is to pay fewer taxes. For example, for Japanese and US companies with high corporate tax, a Bulgaria company with only a 10% tax can be very interesting. Incorporating a company in Cyprus, Malta, and Bulgaria will grant you a VAT number and you can enjoy a lower tax rate. In addition, holding companies in Cyprus and Malta are taxed exempt for the dividends received by their trading companies.

The third option is something that we call tax deferment. It means you are postponing the payment of taxes by reinvesting the profit into your company again. You can pay tax only when you decide to sell the company a few years later.

8). Offshore Internet Business

An online-based offshore business with an overseas bank account gives you unlimited freedom. You are able to operate and control your business from anywhere without being worried about anything. You are not limited geographically. An offshore corporation is a perfect choice for an online business.

9). No Tax Reports

According to Accounting Web, the audit fees are increasing every year and it has climbed to $9.2 billion in 2016. Thus, with an offshore company formation, you do not need to pay audit fees. It means, no need to pay for an expensive accountant or auditor. No tax is a very remarkable feature for offshore business. It can guarantee us one important thing; there is no need to make tax reports. With an offshore company setup, you do not need to make the complicated double accounting. A simple bookkeeping can be prepared to show the real financial condition of the company.

10). Offshore and the Power of Competition

There is a big chance to be competitive with big companies if you register offshore company. Since there is no tax or almost zero tax on products and services you can offer your services or products at lower prices. In addition, there are no professional accounting, audit, and tax report fees. It allows you to compete with big companies in the market.

11). High security (privacy & confidentiality) when opening offshore company

Of course, you know very well how important it is to keep your security high. Without security, you can easily fall into trouble under unforeseen circumstances.

In general, offshore jurisdictions offer good privacy and security for those who are willing to incorporate their company there; However, the level of security varies between these countries. Sometimes, the tax rate is not a case for you and the most important factor is your privacy for whatever reasons.

You can hide your identity by hiring a nominee as director and shareholder by onshore or offshore company registration. With this system, your security will be kept as tight as possible. You can get the ultimate solution to your security issues with an offshore company. This is the biggest advantage for people or companies who want their identity to be kept private.

At the moment, the best country for offshore company with high privacy and high value is British Virgin Islan (BVI). Other juristiction like Seychelles, Cayman Island, and Delaware are also a good places for high privacy.

Best countries to incorporate offshore company

The followings are the most common jurisdictions to register offshore company:

  • Belize: Belize is one of the best offshore jurisdictions that offer cheap and fast offshore company formation services.
  • Seychelles: Seychelles is one the fastest and one of the best jurisdiction for offshore company registration.
  • The British Virgin Island (BVI): BVI is one of oldest and best jurisdiction for offshore company. It can be considered as one of the good overseas holding company when you want to register offshore company.
  • Nevis
  • Mauritius
  • Cayman Islands
  • Antigua
  • Anguilla
  • Hong Kong

Other low-tax countries:

One important fact about US companies, the US is the best country to set up an offshore company for the non-US citizen. The US is one of the most secure places for offshore business owners in terms of privacy. Unlike other jurisdictions, the US refuses to participate in tax information exchange with OECD's initiative. It means that your business information in US jurisdictions can't be accessed by your home country government. Some of the most common US jurisdictions are:

Is offshore company setup legal or illegal?

Ok, this completely depends on how you want to use it. It is the same as other types of company formation.

One may say the offshore corporation is about tax evading or keeping illegal funds somewhere else. If you incorporate an offshore company or any type of corporation and use it for tax evasion and fraud, it is definitely illegal. It does not matter which kind of company you use or in which country you incorporate. What you want to do is illegal.

We do not aim or support such an idea. What we offer or provide is how to expand your business globally and plan your tax legally in a more efficient and cost-effective way.

So, offshore company formation is 100% legal. If not why do reputable banks set their branches up in offshore jurisdictions? Why do some countries like the UK, Hong Kong, Singapore, Ireland, or Malaysia offer offshore incorporation? And, why do they have the offshore system?

If you think carefully, you will find out the answer.

Offshore company registration is not illegal. An opening offshore company, maintaining it, and doing business globally, living wherever we like using such a system, are part of our rights.

Maintaining high security, using an overseas address, getting our own secretaries, and opening bank accounts in reputable banks, are all legal and are our lawful rights.

Who benefits the most from offshore company formation?

In general, businesses that do not depend on a specific physical address and operate their activities from anywhere in the world benefiting the most from offshore corporations. For instance, the following business activities benefit the most if they move to offshore business:

  • Software development companies
  • Online businesses
  • E-commerce
  • Consultancy and advisory
  • International based company
  • International trading
  • Forex and stock trading
  • Offshore savings and investments
  • Overseas Holding Company
  • Ownership of intellectual property

Indeed, not all individuals who incorporate an offshore company receive the same benefits as others receive. It depends on your citizenship, where you reside, and how the tax regulation of your country of residency works. For example, if you are a Japanese citizen living in Malaysia and register offshore company in Belize with a corporate bank account in Mauritius, you do not need to pay tax anywhere for the income you make from your offshore business. Neither to Japan or Malaysia. You only pay tax for the income you receive from the source inside Malaysia.

In conclusion, if you would like to enjoy the full benefit of your offshore business and take advantage of your financial freedom, you should think and live globally.

General FAQ

What is the cheapest offshore company formation?

The cheapest offshore corporation can be incorporated in Belize as Belize IBC with only EUR 599. The second cheapest offshore company formation in or services is Seychelles company which costs you around EUR 799.

What is the best offshore jurisdiction for a holding company?

It depends on your plan and company structure; however, in tax-haven jurisdiction, British Virgin Island (BVI), Delaware, and Belize are the best offshore countries for business and holding companies. Cyprus is the best country to set up an offshore company in Europe. It also is the best offshore jurisdiction for a holding company. The tax rate for a Cyprus company is 12.5% on net profit. The dividends of non-resident shareholders are tax-free. Cyprus holding company is tax-exempt on revenue from sale of securities and dividends.

What is the best offshore company structure?

There is no specific company structure that can be called as the best offshore company structure; however, based on your needs and tax plan you can structure your company. For example, for higher privacy you may hire a nominee director and use a Cyprus holding company for your tax plan. This all depends on your business activities, country of residency and level of privacy.

What is the difference between offshore and onshore company?

Onshore company or domestic company is a form of corporation that usually operates its business inside the jurisdiction that is registered while offshore companies cannot perform any kind of business inside the country that is incorporated. Unlike offshore corporations, onshore companies do not have preferential tax options. Onshore companies have less privacy and confidentiality compared to offshore companies. Onshore companies' information are traceable easily and most onshore companies' information is available in public. Onshore companies have higher maintenance fees than offshore companies.

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