Offshore company formation 2019:
why we should have an offshore company?

According to the Tax Justice Network, around $32 Trillion of the money have already flowed to Offshore. [1]

offshore company

What does it mean? And why does this kind of situation happen?
It is very natural for money to move from unstable to stable economies or countries. It is also natural for business owners to look for a more flexible and stable country in terms of business activity and tax regulation. We can classify these jurisdictions as offshore countries.
One may say offshore company is about tax evading or keeping illegal fund somewhere else.

It is not true, offshore companies are 100% legal.

Google, Apple, Starbucks, Microsoft, and many other big companies have cut their taxes by billions of dollars using a 100% Legitimate ways of company structure. So you can do the same thing. You do not need to have large amount of money to think about this system. With small amount of money and small company you can save a lot your income and reinvest on your business.

What is offshore company?

There are many articles and websites that are talking about Offshore Company. 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 for the term “offshore company”.

An offshore company is a company you establish in a foreign country in which you are not allowed to do any business inside that country. For example, you incorporate a Belize Company under the laws of Belize country. You can do business from your home or any other places except Belize. You are prohibited to conduct any local economic activities inside Belize. It is also called International Business Companies (IBCs) in some countries.

In general, the main characteristic of an offshore company is being a tax-free company in its country of formation. 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 and the profit is not returned to the country, the company is not forced to pay any form of tax.

Thereafter there are certain countries such as 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

Why countries offer offshore company

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. In this way, they can bring some more revenue for their country; create more job opportunity and make a new form of income for their corporate services agents. In addition, the government will also make a profit in the form of annual government fee or license fee.

In fact, their plans somehow depend on the existent of inflexible and strict company laws in advanced countries. Without them, offshore countries will not be able to survive; even if they offer good opportunities for doing business and personal services. The reason is that offshore jurisdictions are targeting wealthy people from developed countries who are tired of current laws and limitations exist in their own home country. So, developed countries should have a strict law for offshore countries to make revenue. It is funny but it is true.

At the same time, however, offshore countries can´t sustain 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.

Thus, it´s natural for people to go to a place that offers more freedom. It seems that when it comes to the financial aspects of businesses, an offshore company is an up-and-coming trend these days.

There are, of course, instances where developed countries don´t always accept offshore businesses; situations vary for every prime minister or president in each government. For example, one president of the US refused to deal with Offshore, while another recommended it in his State of the Nation address. It may be hard for us to understand these speeches, but this is something we can get off of the Internet.

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.

Reasons for incorporating overseas / offshore company

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 choice. 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 form an offshore company:

  1. To meet legal requirements

    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 starters. It gives your business a legal identity and you can make your own brand with lower cost possible. Another reason that one might want to have an overseas company is the possibility of purchasing property or licenses in other countries. For example, you can own a property in Malaysia through your foreign company. It will be 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 an offshore company does not necessarily to bring better banking opportunities. Many European banks are trying to apply more restricted regulation on offshore companies from tax-haven jurisdictions. For example, a Labuan company might have more limited banking opportunities than a Cyprus or a UK company. In contrast, if your company is incorporated in Peru or Nigeria, it will be very difficult to get a suitable bank account. Thus, you might have better banking infrastructure if you form your 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, and software developing have more chance 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 accident 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 wife. Unfortunately, the lawsuit is field every second in the world. In this situation, the chance that many of them are illegitimate is high. So, it is common for people to find a way to protect themselves against such an uncontrolled situation.
  4. 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 valid address in the commercial buildings; many countries law do not allow you to place your business in a residential building. Also, you should take care of the accounting, audit, and secretarial cost as well. In addition to all above-mentioned costs, the company has to pay tax too. In contrast, incorporating an offshore company is very cheap. You can handle your 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 tax-free.
  5. Low capital requirements

    Offshore companies are 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

    Offshore jurisdictions offer flexible company laws that provide more benefits to offshore companies. An offshore company has the flexibility in terms of the structure of the company, amount of capital, number of directors and shareholders, location of the meeting, and etc. Indeed, some people may like to incorporate a company in Europe in a country like Cyprus, Malta, Estonia, Bulgaria, and the UK to get advantage of their flexibility. They would like to have access to better court, better legal structure, and more flexible company laws. These countries might not be a good place for you, but for many people these places are ideal.
  7. Tax-saving

    In fact, taxes are the biggest challenge for macro and small businesses. Many of these businesses end up with almost nothing after paying their expenses. Then, they need to pay a huge percentage of that small profit to the tax authority. Thus, this is very normal for small business owners to find a way to reduce their taxes. The issue is how they can do it legally?

    One way is to focus on tax avoidance, which is the practice of reducing taxes legally. Most of offshore jurisdictions are tax haven. So practically, you do not need to pay any tax on your income. Some countries are not a tax-free country, but you can structure your company a way that you are not obligated to pay any tax. One of the interesting tax avoidance examples can be Apple, Inc. Apple has a holding and trading companies in Ireland and their technology company are located in California. Ireland law allows some Irish companies to claim as Non-residence Company if they are associated with another company. They will be tax-exempt if the 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 in 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 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 business with an overseas bank account gives you unlimited freedom. You are able to operate and control your business from anywhere without being worry about anything. You are not be limited geographically. An offshore company is a perfect choice for online business.
  9. No Tax Reports

    No tax, a very remarkable feature of an offshore company, can guarantee us one important thing; there is no need to make tax reports. It means, no need to pay for an expensive accountant or auditor. In some accounting documents, there´s one that´s called "two sets of books." This is a characteristic known in certain countries. But with the offshore company, a book can be prepared to show the real financial condition of the company. To the surprise of most people, According to Accounting Web [2], the audit fees are increasing every year and it has climbed to $9.2 billion in 2016. Thus, with an offshore company, you do not pay fee for your audit and report it to the government.
  10. Offshore and the Power of Competition

    Imagine that over 50% of your profit is subject to tax. If you think that 50% tax is ridiculous, we recommend you re-calculate. As a matter of fact, one country amongst the developed countries uses this tax rate. In this case, if you have a profit of USD 100, you only get USD 50 after taxes. If you want to keep USD 100, you´d have to sell your products and services for double the prices. On the contrary, if there´s no tax, you´re not forced to sell your goods for twice as much. Ideally, you can sell your products and services at half price. It´s crystal clear. Moreover, there´s no need to prepare tax reports, no need to keep staff for day to day accounting, no need to pay expensive fees towards a professional accountant or auditor. You can easily get the power of competition, legally and officially.
  11. Keeping HIGH Security

    Of course, you know very well how important it is to keep your security high. This is because your security is a matter of life and death, business or otherwise. 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 set up a company in Bulgaria and hide your identity by hiring a nominee as director and shareholder. 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.

Common countries to incorporate offshore company

The followings are the most common jurisdictions for offshore companies:

Other low-tax countries:

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

Legal or Illegal?

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

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.

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

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

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

The offshore company is not illegal. To incorporate a company, maintain it and do business globally, living wherever we like using such a system, are part of our rights.

To maintain high security, use an overseas address, get our own secretaries, and open bank accounts in reputable banks, are all legal and are our lawful rights.

References:
General FAQ:

What is the cheapest offshore company?

the cheapest offshore company can be incorporated in Belize as Belize IBC with only EUR 599. the second cheapest is Seychelles company which cost you around EUR 799.

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