Everything You Need To Know About the International Offshore Company Formation Market
What is an Offshore Company?
Offshore companies are simply entities established outside the country where its main operations are carried out. The term 'offshore' can be used to differentiate between those non-resident entities whose business transactions remain 'outside' the jurisdictions boundaries and traditional business entities who conduct activities 'within' the boundaries of a jurisdiction. 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 the Luxembourg, Cyprus, and Malta have international business entities that enjoy many of the same benefits in regards to tax benefits and corporate flexibility even though the countries are considered modern high-tax jurisdictions. While there are some distinguishing features which separate traditional offshore jurisdictions and modern corporate jurisdictions, namely: public registry, filing of financial of accounts, and annual audits, though 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, or Mutual Funds to name a few.
Changes in the Offshore Corporation And Formation Service Industry
The International offshore financial industry has changed dramatically 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 such as the Tax Information Exchange Agreement (TIEA), Common Reporting Standard (CRS) regulation and Foreign Account Tax Compliant Act, policies that are radically reshaping the offshore industry.
These new regulations originating from high-tax jurisdictions and the multinational 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.
Despite these new policies the offshore company formations is thriving. Though there are significant changes that require understanding. Financial accounts might be more transparent, it still provides enormous tax savings and benefits to businesses and investors involved in activities such as international trade, investing, online business activities, or financial licensed companies among others.
However, complete anonymity is something that much harder to achieve with the global push toward financial 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, 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.
Differences Between 'Onshore' and 'Offshore' Companies
Offshore companies function like any other traditional 'onshore' company, 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.
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% 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 centres 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 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.
Features & Benefits of Offshore Corporations
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.
Different Types of Offshore Company Formations
There are many different type of offshore companies, each having slight differences, however its usually dependent upon the jurisdiction and the corporate laws where the company is incorporated rather than the name. Offshore entities that refers to the same type of structure are:
- Offshore Company
- Foreign Corporation
- Non-Resident Company
- International Business Company
- International Company
- Private Limited Company
They all roughly 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 law that supports it.
There are two main offshore company structures which we will go into in detail, namely:
- International Business Company (IBC)
- 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 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 on capital gain tax, 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.
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.
How to Set Up an Offshore Company?
Forming a 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:
(1) Company registration documents
(2) Appropriate governmental fee
(3) Personal details (passport copy, 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 or they registry is satisfied 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 details a bit more of what to expect when beginning the incorporation process.
Basic 3-Step Process to Incorporate Offshore
- Confirm your identity
- Submit a due diligence form
- Receive payment for your company product package
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.