Offshore Company Formations
What is an Offshore Company?
An offshore company can be broadly defined as a business entity established outside the owner's country of residence. In the financial sector, the term “offshore” has become associated with commercial practices abroad that deal in investments, bank accounts, insurance policies or real estate, to name a few. The specific definition of an offshore company varies by jurisdiction.
Offshore companies function like any other company, can carry out the same business activities, have similar management structures, issue shares to shareholders, etc.—the main difference being the tax structure and the level of confidentiality.
Many nations aim to attract the business of offshore business people by making their corporate laws friendly to specific types of companies. Offshore jurisdictions offer tax-exempt status to foreign companies, provided they restrict commercial activities to outside the jurisdictions’ borders and do not engage in any type of business exchange with local residents. Additionally, many offshore jurisdictions’ corporate laws are written to ensure client confidentiality, the details of which are not usually made available to the public or intruding foreign governments.
There are no clear-cut boundaries, however, as offshore financial services can be found in traditional onshore jurisdictions. The US state of Delaware, for instance, is one of the most historically significant corporate havens. Its simple legal structure and favorable corporate tax laws were shaped in the early 20th century to make it attractive and easy to form and manage a corporation within the state. Today, around 60 percent of the companies on the Fortune 500 list are incorporated in Delaware.
Similarly, offshore companies often exist and conduct themselves just like any standard company. Panama’s corporate laws, originally modeled after Delaware’s in 1927, but blended with Spanish civil law, have evolved to include progressive business regulations from jurisdictions such as Lichtenstein. Corporations formed in Panama enjoy a unique legal climate, making this jurisdiction a popular destination for businesspeople choosing to set up companies offshore.
Why set up an Offshore Company?
Business owners choose offshore company formations primarily to take advantage of tax-saving incentives, as well as strict confidentiality laws that provide a level of security and anonymity not normally found in traditional “onshore” jurisdictions. Offshore financial centers also offer supportive corporate laws, protective legal systems and appropriate asset-sheltering structures.
Many businesses, entrepreneurs and investors opt for offshore company incorporations to:
- Mitigate unreasonable tax burdens imposed by their home jurisdictions
- Protect assets during complicated legal troubles and/or inheritance matters
- Safeguard wealth from the consequences of political and economic instability in one’s home jurisdiction
While there is no single standard offered by all offshore jurisdictions, there are a number of attributes and distinctions unique to financial centers considered offshore. These include ease of incorporation procedures, management flexibility, financial accounting discretion, and nominee services, to name a few. In the next section, we’ll discuss these in more detail.
Features & Benefits of Offshore Incorporations
An offshore company has a variety of uses and benefits for clients wishing to engage in international financial trade and investment activities. Depending on the specific offshore jurisdiction, an offshore company may have the following features and advantages:
- Ease of Incorporation – Registration and incorporation procedures are very straightforward and, in some cases, may take only 24 - 48hrs for the process. This, of course, requires that you prepare and provide all the required documentation before submitting incorporation paperwork to the appropriate authorities.
- Minimal Fees – There are very low associated fees, after start-up costs; many jurisdictions have fees between US$200-300 per year.
- Flexible Management and Minimal Reporting Requirements – Minimal number of directors and shareholders are required. Financial reporting, account information and annual returns are also often not required or remain minimal.
- No Foreign Exchange Controls – Most all jurisdictions have no restrictions on foreign exchange.
- Favourable Local Corporate Legislation – Many offshore jurisdictions have supportive legal frameworks to promote and encourage the growth of the offshore industry and foreign investment, which supports and gives companies a high degree of flexibility.
- High Confidentiality – The details of owners, account and financial information remain confidential, though to a varying degree, depending upon the jurisdiction. Some have minimal publicly available information (Hong Kong and New Zealand), whereas in (Nevis, Panama, Seychelles) absolutely no public information is available. The availability and use of nominee shareholders and directors give total anonymity.
- Tax Benefits – Most jurisdictions offer zero to low corporate taxes, with exemption on most other taxes such as income, sales, capital gains, value added, estate, succession, gift, and stamp taxes.
- Freedom in Investment Opportunities – No limitation in regards to the business activities involved. Companies are free to engage in virtually any economic, financial or business activity. In some jurisdictions there are necessary formalities and licensing that must be obtained prior to setting up certain types of business operations (as in the case of bank, insurance, real estate industries).
- Relocation Possibilities – Many jurisdictions offer smooth transition possibilities between jurisdictions without any needed restructuring or complicated documentation.
Types of Offshore Company Formations
Each company has a variety of unique features and structures dependent upon the jurisdiction and its unique corporate laws. In this section, we’ll cover two main offshore formation vehicles:
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- An International Business Company (IBC) refers to a type of offshore company, which engages in international business activities in trade or investment and remains exempt to local corporate taxation, provided that its revenues does not come from local sources.
- Jurisdictions provide varying degrees of tax benefits, though most usually offer exemption of corporate tax, income tax and stamp duty. An IBC also benefits from confidentiality of ownership, asset protection, a wide versatility of share issuance, flexible management arrangements, and minimal financial reporting requirements.
- There are many such structures available, some of the more popular being Panama, BVI, Belize, Dominica and St. Vincent. For all options featured by Sovereign, view the Corporations (IBCs) menu at right.
- A Limited Liability Company (LLC) is a company different from a corporation that provides limited liability to its owners and partners. It is a hybrid business entity with a flexible arrangement, allowing power and responsibilities to be named and distributed through its charter.
- An LLC provides a tax-neutral vehicle that bypasses corporate taxation due to its existence as a partnership. Therefore, the burden of tax falls upon the individual members of the company rather than the entity itself.
- A Member of an LLC has the same responsibilities as a shareholder in a normal company, which may include individuals, companies or trusts and allows for flexible levels of ownership and remuneration.
- The flexibility of an LLC is ideal for structuring international orientated joint venture arrangements, as the company can enjoy all of the benefits of incorporation, without any tax liability.
- Read Benefits of an Offshore LLC for more details and information. For all options featured by Sovereign, view the Limited Liability Companies (LLCs) menu at right.
Setting Up an Offshore Company
The formation of an offshore company is a simple straightforward process. The Articles of Association and the Articles of Memorandum are drafted, which represent the details and by-laws of the company and are filed by an offshore company agent (such as Sovereign Management and Legal); together with the initial company registration documents, it is sent off to the appropriate Register. Once these documents are approved, a certificate of incorporation is issued signifying the formation of the new company.
Any additional requirements of a newly formed company post-incorporation are dependent upon your needs and wishes, which may include the appointment of the company’s first director, the first meeting and appointment of company officers, registration of directors (in which nominee services may be used), and issuance of company shares.
How to set up an Offshore Company with Sovereign
If you are interested in how to open an Offshore Company with Sovereign Management and Legal, please contact us or use the Jurisdiction-specific IBC and LLC options at right.
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Summary of our Basic 3-Step Process to Incorporate Offshore
- Receive payment for your incorporation package
- Confirm your identity
- Submit a due diligence form
Once these 3-steps have been completed, we will contact you to establish whether or not there are any additional requirements, documents or signatories needed to successfully file your application with the appropriate Registry.
Alternatively, if you would like more information regarding what Sovereign offers, you can chat with us, call us or simply click on the Let's Get Started button below.