Everything You Need To Know About the Offshore Company Registration Process
Table of Contents:
- What is an offshore company?
- New tax laws and regulations in the offshore company formation service industry
- Offshore company & global tax laws: what you need to know
- What are controlled foreign corporation (cfc) laws ?
- Differences between offshore companies and 'onshore' companies
- Ehy register a company in an offshore country?
- What type of businesses benefit from incorporating offshore?
- Why set up an company offshore?
- Advantages of offshore companies
- Different types of offshore company formations
- What is an offshore ibc?
- What is an offshore llc?
- Best Offshore countries and offshore companies
- List of offshore company formations
- How to incorporate offshore?
- Setting up an offshore company in an simple 3 step process
- Offshore company incorporation document requirements
What is an Offshore Company?
Offshore companies are simply entities established outside the country where its main operations are carried out.
The term 'offshore' just means that the company acts as a non-resident of the country where it was formed.
Another prominent feature of an offshore company, is that usually the company's members and directors live outside the country where the company is incorporated giving the entity a non-residential status.
An offshore company definition, however, is not definite, as it largely depends upon the purview of the entities activities and the jurisdiction which the business entity is formed.
Many countries omit the word 'offshore' entirely from the company ordinances even though the entity might function similar to an offshore company such as Malta or the UK.
Herein is what makes the offshore formation market so confusing; as many modern financial centers like Luxembourg, Cyprus, and Malta have international business entities that enjoy many of the same benefits in regards to tax benefits and corporate flexibility as traditional Caribbean tax havens even though they are in Europe are not generally considered offshore jurisdictions.
There are, however, some distinguishing features which separate traditional offshore jurisdictions from modern 'onshore' financial centres, namely offshore jurisdictions usually have: fewer reporting requirements, public registries are not open to the public, and generally offer more tax reductions possibilities.
Despite these differences, many of the same financial activities and offshore corporate services can be found in both types of offshore jurisdictions such as the creation of Captive Insurance funds, Hedge Funds, Bank Accounts, and Mutual Funds to name a few.
New Tax Laws and Regulations in the Offshore Company Formation Service Industry
The International offshore financial industry has changed dramatically in the last years since 2010 and will continue to do so.
No longer are numbered Swiss Bank Accounts the norm and gone are the days of evading taxes through traditional offshore tax havens or anonymous offshore Bermuda banks accounts.
Most offshore jurisdictions or 'tax havens' are now party to many multilateral tax agreements and are monitored by international financial regulatory bodies and policies such as the Tax Information Exchange Agreement (TIEA), Common Reporting Standard (CRS) regulation and Foreign Account Tax Compliant Act (FATCA) - that are radically reshaping the offshore industry.
These new regulations originating from high-tax jurisdictions and the multilateral organizations serving them, see offshore financial centres as an existential threat to the global financial order, as they undermine the authority of regulators and governments of high-tax countries.
Naturally, such bodies see the outflow of capital as a loss of tax revenue, and like any self-serving governing group is trying to preserve its authority and its revenue by imposing financial regulations that serve their own ends.
This is a common narrative and is widely accepted amongst academics and government officials, but the changing nature of commerce and capital is quickly making this model obsolete. Capital is increasingly becoming more fluid, transcending boundaries, eliminating intermediaries and with it, traditional forms of exchange that had once defined their relationship.
Even so, there is tremendous pressure to keep the capital in high-tax jurisdictions which have resulted in numerous bodies and laws to do just that.
Despite these new policies the offshore company formations are thriving; however, there are significant changes that require understanding.
- Financial accounts are more transparent, (depending upon the jurisdiction) due to TIEAs, FATCA and CRS and;
- Complete anonymity is harder to achieve due the issue of tax residency and the global push toward financial tax transparency
Though, there are still ways to maintain privacy through multi-jurisdictional approaches, nominee and account signatory services that can help shelter and insulate beneficial owners. That being said they are only open to certain situations and are not meant as a means to help tax evasion.
That being said, offshore corporate formation these days is not about hiding money from the government in a Caribbean tax haven.
The international offshore company formation industry is about taking advantage of local and international corporate tax laws and capitalizing on opportunities provided by multi-jurisdictional incorporation.
Offshore Company & Global Tax Laws: What You Need to Know
Though you are free from local taxation from the jurisdiction where you incorporate, that does not mean you are free from all taxation period.
You still must abide by your local tax laws in the country where you live, and if you are American, unfortunately, you are taxed on worldwide income (however if you live a nomadic lifestyle or are a resident in a foreign country you can benefit from the Foreign Earned Income Exclusion (FEIA) which allows you a tax exemption of upwards of USD 120,00 USD+.
The US has a very unique tax code that makes it difficult for citizens to reduce their tax burden unless they move residence (and even then Americans still must pay their taxes, if they earn more than the foreign exclusion amount), or give up their passport altogether.
Similarly, Americans are also required to report every foreign bank account through FBAR, if the account has more than 10,000 USD at any given point. Though the USA is not a signatory of the Common Reporting Standard (CRS), it has its own version, FATCA, which requires foreign financial institutions to report all American tax residents to the IRS.
This means essentially, that all foreign banks must comply with the US edict or face being shunned by American banks and institutions. What this means for American investors, is that - Uncle Sam has its eye on you.
If you live in countries that have a territorial tax system, which is the majority of the world other than the US and Eritrea, then you are given more room to properly structure your assets offshore so as to best minimize your tax burden, as you are taxed not on all worldwide income but on income generated within your country of residence.
For example, if you are a UK citizen and decide to incorporate a Panama offshore company, there are no reporting requirements nor taxation on capital gains, while CFC laws would still require you to report it to UK authorities there are many exemptions and tax deductions that you can qualify for which may exempt from paying any taxation on foreign income.
What are Controlled Foreign Corporation (CFC) Laws ?
Each country has its own Controlled Foreign Corporation (CFC) laws which are a set of rather complex tax codes that determine the tax liability of foreign-held companies by owned by an individual.
CFC laws are designed by countries to keep their citizens from running off with their capital to low tax jurisdiction, use of shell companies or continually deferring their tax burden.
However, not all countries participate in CFC regulations; if you live in many countries in Europe for example, you will be exempt as there are no common tax laws in the EU. Each country has its own requirements, CFC laws regarding foreign income and Tax Information Exchange Agreements (TIEAs).
If you live in a country that is a signatory of the CRS regulations, which as of June 2019, there are 106 countries, your tax information is automatically shared.
It is important that you speak with an international tax attorney or consultant first so as to better understand the implications of your tax responsibility, or speak with us and we can assist you in the process.
It is important to note that each persons situation is unique. There is no one solution that fits every situation.
It's important to pair the right company with the right account to for your circumstances as there is no 'one size fits all solution'.
Why is this important?
Because there are different requirements in each jurisdiction.
If for instance you have a Seychelles Company and are looking to open an offshore account in Singapore, you will most likely will find it more difficult, as Singaporean bank officials are wary of opening up foreign corporate banks accounts without a proper reasoning, and generally will do so only in certain circumstances as they usually require individuals to have a Singaporean company.
Some jurisdictions are tightening their requirements and regulations in efforts to clean up their image and appease OECD regulators, as a result, places like Panama and Honk Kong, two of the worlds most widely used offshore jurisdictions are becoming much more difficult to open accounts without a Panama or Hong Kong-based company.
Differences Between Offshore Companies and 'Onshore' Companies
Offshore companies function very similarly like any other company in a modern onshore financial centre and can carry much 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.
However, there really are no clear-cut boundaries as offshore financial services and corporate laws can be found in modern onshore financial centers.
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.
And today, around 60% of the companies on the Fortune 500 list are incorporated in Delaware.
Panama has taken its inspiration from US corporate laws, originally modeled after Delaware’s in 1927, that have evolved to include progressive business regulations from Lichtenstein that has created an offshore financial centre that has parts of both worlds.
Many nations aim to attract offshore businesses by making corporate and tax laws friendly to investors and international corporations.
Offshore jurisdictions offer tax-exempt status to foreign companies, provided they restrict commercial activities 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, phishing creditors, or intrusive foreign parties.
This is not to say that your details will never be shared, as it depends on whether the country is party to any TIEAs that are signed with your primary country of residence, which facilitate automatic tax information or are a signatory of the CRS. Both of which makes it much more difficult to remain anonymous.
Though places like Panama and Nevis both known for the banking secrecy laws and fierce asset protection clauses, will not share your details or make you report anything to your own country, however, the issue is the country of permanent residence may require you to report your foreign income, assets, or companies.
In this situation, the only way release your self from the bondage of your home country is to move residence and become a primary tax residence of a country that does not tax foreign earning.
Confidentiality, in today's offshore company formation industry does not mean complete anonymity as it used too, it means that your assets, and business structure are not open to the public and are not shared or given out to curious organizations, creditors, lawyers or whoever comes asking.
If you are trying to hide your money from your government. Let me stop you. You should always follow your country's tax laws.
If your country is a member of the Common Reporting Standard (CRS) or has any Tax Information Exchange Agreements (TIEAs) with the offshore jurisdiction where your company is held then it is likely that your government already has access to your tax information.
Confidentiality in offshore companies is not about hiding from the government, it is about having privacy so that unscrupulous people, unwarranted lawsuits, threats, spouses, legal dispute etc. will not have access to your company nor your assets.
Despite the changes in the international system a properly structured offshore company there still are tax advantages and levels of security when properly designed are not found in any local domestic company.
Why Register a Company in an Offshore Jurisdiction?
Anyone stands to benefit from incorporation offshore. If we remember that offshore formations aren't necessarily about getting established in some fancy Cayman Islands Company (although in reality, the Caymans are a lot less fancy and exotic then the name implies).
If you are an American and you form a company in Cyprus, that is considered an offshore company.
A foreign company established in a country other than the country of your residence, for all intensive purposes is considered an offshore company.
The confusion comes for most people is because there is such a tight association with the term offshore company and illegality. Whether its money laundering, tax evasion or straight-up drug dealing, the media has done a great job in misinforming people.
Offshore Companies are literally for anyone who owns a global, internet-based, digital, or services company.
It can also act as a holding company for assets or accounts, for holding property, intellectual property, patents, investments as well as conduct other financial and investment-related activities.
The benefits gained will be determined primarily on what one is hoping to achieve.
While nearly everyone is hoping to reduce their taxes. It might not necessarily work for everyone to go from paying 40% taxes to 0% overnight. Though anyone can start a company offshore, not everyone receives the same benefits.
Offshore Business Company: What Type of Businesses Benefit from Incorporating Offshore?
It really depends on what your business is, where you reside and what you hope to achieve by going offshore.
Some individuals who are to benefit the most from a foreign-based company are those with business and financial activities in:
- Offshore savings and investments
- Forex and stock trading
- Professional service company
- Holding Company
- Internet services
- International based company
- Digital-based Company
- International trading
- Ownership of intellectual property
Companies that are established offshore are really best suited for international companies and businesses with a global or non-localized structure. Internet services industries, or any digital-based company, as well as services (coaches, teachers, trainers) as well as brokers, and currency traders.
Online businesses and anything not dependent upon physical infrastructure work well as it gives the individual more room to change locations and not be dependent upon the country of residence to define their tax burden.
For instance, even though you are a citizen of a high tax country, if you hold a UK passport, live in Thailand, have an online e-Commerce business where you take online payments processing and host your site in a third country, you could incorporate a business and have an offshore bank in Hong Kong where you would be able to minimize your overall tax burden much more than if you lived, worked and had your company all in the UK.
The difference here is that onshore incorporation keeps you holed up in one jurisdiction, where you then can not take advantage of the global opportunities that open to you when you diversify your asset and company structure.
For today's entrepreneur, too best take advantage of your financial freedom, the most reliable strategy is to create a global mindset, by creating an offshore lifestyle maximizing your international leverage by diversifying your residency, company and accounts across multiple jurisdictions.
Why set up a Company Offshore?
Individuals choose offshore company formations for any number of reasons.
Tax-saving and confidentiality are always at the top as foreign jurisdictions provide a level of savings and security not normally found in traditional 'onshore' jurisdictions.
Offshore financial centres offer supportive corporate laws that give space for companies to exist without restrictive reporting requirements, high overheads, and strict disclosure requirements.
Such countries offer protective legal systems that enable asset-sheltering to non-residents clients who benefit from having an asset structure in a foreign countries legal system.
In other words, forming a company outside the country of one's own residence adds additional protection through a separation of powers. One country's legal and court system is separate from another making much harder for malicious entities to get at your assets.
Offshore companies help mitigate unreasonable tax burdens imposed by their home jurisdictions, protect assets during complicated legal troubles and/or inheritance matters by safeguarding wealth from environmental or economic instability in one’s home country.
Offshore foreign incorporations also give:
- Tax savings
- Asset protection
- Offshore banking solutions
- Foreign investment opportunities and;
- New lifestyle possibilities
Offshore Corporations are recognized as a separate legal entity; essentially meaning that it operates as a separate person, distinct from its owners or directors.
This separation of powers makes a distinction between the owners and the company. Any actions taken by the company are not passed to its directors.
All debts and financial liabilities taken on by the company can not be redressed through its owners.
This protects the assets and finances of owners and directors affiliated with the company.
While there is no single standard offered by all offshore jurisdictions, there are a number of attributes and distinctions unique to financial centres 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.
Advantages of Offshore Companies
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 you greater anonymity.
- Tax Benefits – Most jurisdictions offer zero to low corporate taxes, with an 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.
Different Types of Offshore Company Formations
There are many different types of offshore companies, each having slight differences usually dependent upon the jurisdiction and the corporate laws where the company is incorporated rather than the name itself.
Offshore entities that roughly refer to the same type of structure:
- Offshore Company, Foreign Corporation, Non-Resident Company, International Business Company, International Company, Private Limited Company
They all are synonyms and can be used interchangeably.
There are other more specific types of companies such as the Isle of Man New Manx Vehicle (NMV), Belize Limited Duration Company (LDC) or a Mauritius Global Business Company (GBC) that each have its own distinctions and offshore corporate laws that support it.
However, there are two main offshore company structures which we will go into in detail, namely an:
- International Business Company (IBC) and;
- Limited Liability Company (LLC)
Other offshore formation structures that have different capacities and used for different purposes are:
International Business Company (IBC)
What is an Offshore IBC?
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 from 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 on capital gain tax, corporate tax, income tax and stamp duty.
- An IBC also benefits from confidentiality of ownership (usually), 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.
- While they are traditionally known to be originating in tax havens, IBC can be found in modern low tax environments such as Malta, Cyprus, Gibraltar, Scotland
Limited Liability Company (LLC)
What is an Offshore LLC?
A Limited Liability Company (LLC) is a company 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.
There are many benefits of an Offshore LLC which are given due to its pass-through tax structure, making it particularly attractive for investment purposes or for shared business ventures.
Best Offshore Countries & Companies
While there are many different offshore jurisdictions to choose from, each with their own distinction. We regard these three as the best offshore formation companies, based on overall corporate legislation, financial and banking environment, ease of registration process, corporate structure, flexibility and price.
However, each company is not suited for every circumstance, as it depends upon the individual's circumstances, their business needs, their tax residency, citizenship status, etc...
These top three company formation products each have their own unique characteristics.
1. Panama Company
Panama Corporation is the world's best offshore formation company. It offers products at very reasonable prices, without compromising on services. It still has a favorable banking environment, despite a tighter regulatory environment that is open to non-residents, though it is more difficult to open a bank account for non-residents who have no opened a Panama Company.
A Panamanian Corporation requires no audition, no financial account preparation, no local corporate taxation and only a minimum of one director who can be a citizen of any country.
The registration process is simple and smooth though does include KYC forms and due diligence processes, but can be done entirely online without needing to fly down to the country and can be completed in a matter of days.
2. Nevis LLC
A Nevis Limited Liability Company (LLC) is a strong entity structure that gives individuals as members a distinct form of protection rather than being shareholders. An Offshore LLC is a strong liability corporate structure that can be used for a variety of investment and joint collaborations. As members, it can be governed by one or any number of individuals and are shielded legally with limited liability.
There are low maintenance costs and low yearly fees.
There are great hindrances that prevent creditors from the pursuance of claims. In order for a foreign court to go after assets held in an LLC, a 100,00 US bond must be filed prior to submitting the legal documents. There is a statute of limitations of two years, and a creditor must who beyond a reasonable doubt that a member transferred assets to the company specifically with the intention to defraud creditors.
Nevis has very strong privacy and confidentiality regulations making the names and personal details of company members not available to the public or foreign entities unless it is apart of a criminal investigation.
Nevis has very secretive banking codes, whereby they do not reveal any information, even to this day. Even the corporate registry of Nevis does not know the directors and members of the companies that are incorporated, as even the premier stated, "We feel very strongly that people are entitled to some semblance of financial privacy".
Despite the trend toward greater banking transparency, it seems Nevis is one of the last to hold out.
3. Scotland LP
Scotland Limited Partnership (LP) is perhaps one of Europe's leading offshore company structures. Though it is relatively unknown in comparison with its rival company structures in more popular jurisdictions such as Cyprus or Malta, this has played to its benefit as it has largely been able to maintain its liberal financial policies and banking environment.
The limited partnership must be formed by two or more members, one being the general and the other the limited partner. An SLP is allowed to go into contracts and take on debts and acts as a separate legal entity. There are zero corporate taxes nor any requirements to submit any financial accounts, which makes it a very competitive EU based company.
The company structure is well recognized and because Scotland being part of the UK is not generally considered a tax haven it does not have any negative associations and therefore though exists as an offshore company, does so in an onshore environment.
See our Offshore Company Comparison Chart, for corporate details, regulations and cross country comparisons on the above few companies.
List of Offshore Company Formations
Here is a comprehensive list of offshore companies and their corresponding countries where we find offshore formation possibilities. This list represents jurisdiction and offshore structures that we use and engage in, in a regular manner.
Though this list does not cover every offshore possibility in the world, it does represent some of the best places in the world where it is currently possible to incorporate. If you have another offshore vehicle or country you would like to incorporate, get in touch to see if we can organize it for you.
Offshore Company Formations
- Cayman Islands Company
- Gibraltar NRC
- Hong Kong Company
- Ireland Company
- Isle of Man NMV
- Isle of Man PLC
- Mauritius GBC-2
- Samoa Company
- Scotland LP
- Singapore Company
- Switzerland AG Company
- UK Company
Limited Liability Companies & LLPs
- Anguilla LLC
- Cook Islands LLC
- Cyprus LLC
- Malta LLC
- Nevis LLC
- Samoa LLC
- St. Vincent LLC
- Swiss LLC (GMBH)
- New Zealand LLP
- UK LLP
International Business Companies (IBC)
- Anguilla IBC
- Bahamas IBC
- Belize IBC
- Brunei IBC
- BVI IBC
- Cook Islands IBC
- Cyprus IBC
- Dominica IBC
- Gambia IBC
- Malta IBC
- Marshall Islands IBC
- Nevis IBC
- Panama IBC
- Seychelles IBC
- St. Lucia IBC
- St. Vincent IBC
- UAE (RAK) IBC
- Vanuatu IBC
How to Incorporate Offshore?
Setting up an offshore company in a simple 3 step
- Confirm your identity
- Submit a due diligence form
- Receive payment for your company product package
There are however, some important questions you should ask yourself when setting up your offshore company.
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 jurisdictional Registry.
Offshore Company Incorporation Document Requirements
Forming an offshore corporation is not as complicated as it is often made out to be. In fact, the offshore corporate services industry is often not only easier to establish a company but often is quicker, less hassle with rates even comparable to that of many modern financial centers.
To form a company the entity must draw up and submit:
- Memorandum of Association
- Articles of Association
The Memorandum of Association represents the companies external affairs and complements the Articles of Association which represents the internal dynamics and structure of the company including the by-laws, purpose of the company, organization of its members including the Director, Shareholder, and Secretarial duties, as well any financial obligations, share capital, meetings, and any day-to-day tasks.
These documents are together sent with:
- Know Your Customer (KYC) documents
- Corporate Application Document
- Name, Date of Birth, Social Security or National Insurance Number
- Notarized Bank Statement
- Banking Reference Letter
- Professional Reference Letter
- Copy of Passport for Identity verification
- Copy of Utility Bill to confirm your physical address
These documents are sent off to the appropriate jurisdictions Corporate Registers Office.
Once these documents are approved, there might be additional documents needed to satisfy the Registry then 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), issuance of company shares, and the opening of any international bank account,
Our order process page goes into detail a bit more of what to expect when beginning the incorporation process.
Or contact us and get a FREE personalised consultation and see if going offshore is the solution for you.