Just like any other business venture, the primary objective for establishing a company offshore is no different but to derive maximum economic benefit from the business. An offshore company, also known as non-resident company, ready-made company, or International Business Company (IBC) is basically a company which carries out its operations in a country other than its own.
There are a wide range of advantages which motivate companies to form businesses in offshore jurisdictions including low or zero tax, privacy and asset protection.
As in many onshore territories offshore companies are incorporated within a statutory framework requiring the creation of a Memorandum and Articles of Association or company bylaws which outlines the legislation the new entity operates under, the scope and purposes of the organisation as well as the rights of members’ and subscribers. Directors or nominee directors, members and shareholders usually commission a company formation agent to submit an application for a new company registration. Once all prerequisites are met a certificate of incorporation is issued and authorised by the Registrar of Companies.
There are many different types of offshore companies including a company which has a limited liability, company limited in guarantee, protected shell companies, IBC, companies that issue shares, trusts, and partnerships. These are some of the many different types of companies which may be formed offshore. Although the general principles are the same it is important to appreciate countries offering offshore incorporation under different laws. There are some exceptions, for example the British Virgin Islands (BVI) and Seychelles have almost identical corporate legislation.
Tax Saving Benefit
The most important benefit of offshore companies is that they are not liable to pay corporate taxes and can continue with their business operations without having to pay tax. This can result in considerable tax savings. Since the offshore country does not tax profits the authorities do not require annual accounts and thus there is also a significant reduction of regulatory compliance costs.
Offshore firms are allowed to perform your business as a foreign entity which means that offshore businesses are eligible to rights equivalent to a natural person. The companies can therefore purchase as well as sell property, invest in bonds and stocks, and can generally deal in any type of unregulated business so long as it abides by the laws of the jurisdiction in which it is operating.
Privacy
Incorporating a company in an offshore jurisdiction means that the business does not publically disclose financial records. In addition the use of nominee shareholders and directors can keep the details of executive directors, shareholders and beneficial owners away from the public gaze thereby providing a high degree of privacy. Many companies are also held by a Trust the Trustees thereof keep the ownership of the company confidential.
Asset Protection
Another advantage of offshore entities is they provide asset protection against law suits and claims instigated in the owner’s home jurisdiction cannot be enforced in the offshore country. There asset protection is usually twofold. First it is extremely difficult to find out the details of the beneficial owner. Second, if information concerning ownership does come to light any court rulings in the owner’s home jurisdiction cannot be enforced offshore. This is a useful shelter against business related law suits, damages claims and alike. It is also provides strong protection in matrimonial disputes where one partner seeks to claim against the others assets.
Estate Planning
Offshore companies are excellent tools for estate planning. It is possible to buy or transfer property and other assets to a company. Once the asset is sold the shares of the company holding the assets are transferred to the buyer of the assets. The ownership of the assets have not changed hands only the ownership of the company. Since the asset has not changed hands there is no Stamp Duty tax, no Capital Gains Tax (CGT) and no Inheritance Tax.
Similarly a company may also be used to own intangible properties which may comprise of copyrights or permission for software in the form of a certificate, patents, and trademarks. Once these rights have been bought by a company which was formed offshore, it is up to them to either enter into license, franchise or otherwise exploit such rights.
Businesses may use such companies for general international or to administer wealth and invest in portfolios comprising of different investment opportunities such as bonds.
Conclusion
Offshore companies are useful business tools which can help mitigate tax liability, protect assets and provide a high level of privacy. In a nutshell, following are the benefits of offshore companies:
- International trade
- Tax benefits by virtue of holding companies that act as intermediaries
- Privacy
- Personal security
- Allows fixed capital ownership
- Services rendered by professionals
- Royalty and patent in addition to holding of copyrights
- Holding property and other valuable assets
- Entering the stock market
- Knowledge on how to raise capital
- High savings on the reduction payroll and commuting expenditure
- Increased profit via intangible properties and franchising
In order to make the most of the above mentioned benefits, it is important that you pick up the correct set of rules that best address your business needs. There are some jurisdictions that may be suitable for professional services, whereas others may be good from investment point of view.
In addition, there are jurisdictions that specialise in the ownership of property, shipping management. Others are more suitable for conducting businesses in financial trading. Therefore, it is important that you consult an expert e.g. http://www.business-inc.co.uk/ for forming an offshore company.
Majority of the organisations that are offshore in nature look to cater to your business commands that shall maximise your business objectives. These goals would include, company’s inception, its incorporation, protection of the assets, management of the company, services which are secretarial in nature and banking services pertaining to the companies.