An offshore company is an entity formed outside the country where its main operations are carried out. The term 'offshore' means that the company acts as a non-resident where it is formed or incorporated.
Another prominent feature 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 entity's 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 similarly to a company, such as Malta, Cyprus, Scotland, or England.
Herein is what makes the offshore service industry 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.
There are, however, some distinguishing features which separate traditional offshore jurisdictions from modern 'onshore' financial centres, namely: fewer reporting requirements, public registries that are not open to the public, and generally as a whole tax havens offer more tax reduction 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.
The International 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 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 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 order, as they undermine the authority of regulators and governments of high-tax countries from collecting what they believe is their fair share of taxes.
Naturally, such bodies see the outflow of capital as a loss of tax revenue, and like any self-serving governing group tries to preserve its authority and 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.
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 formation market is thriving; however, there are significant changes that require understanding. Most importantly:
That being said they are only open to certain situations which laregly depend on your nationality and your country of residence. Offshore company formation these days is not about hiding money from the government and stashing it in a Caribbean tax haven.
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 from the United States, unfortunately, you are taxed on your 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 120,000 USD.
The United States 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 had more than 10,000 USD at any given point during the fiscal year. Though the United States 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, however, 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 worldwide income but on income generated only within your country of residence.
For example, if you are a UK citizen and decide to incorporate a Panama offshore corporation, there are no reporting requirements nor taxation on capital gains, however, CFC laws would still require you to report it to UK authorities. Though there are many exemptions and tax deductions that you can qualify for, which may exempt from paying any taxation on foreign income, though that does not free you from reporting requirements.
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 owned by an individual.
CFC laws are designed by countries to keep their citizens from running off with their capital to low tax jurisdictions, from using shell companies or using artificial means to continually defer their tax burden.
However, not all countries participate in CFC regulations. Many eastern European countries are exempt from CFC laws, and as there are no common tax laws in the EU can get away with not reporting their companies.
Each country has its own requirements and CFC laws regarding foreign income and Tax Information Exchange Agreements (TIEAs) which will determine your reporting and taxation obligations.
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 first so as to better understand the implications of your tax responsibility.
It is important to note that each persons situation is unique. There is no one solution that fits every situation. As such, it's important to pair the right company with the right bank account for your circumstances as there are no 'one size fits all solutions'.
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 bank account in Singapore, you will most likely find it more difficult, as Singaporean bank officials are wary of opening up foreign corporate banks accounts without proper reasoning, and generally will do so only in certain circumstances as they usually require individuals to have a Singaporean company with a large upfront deposit.
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.
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, the level of confidentiality, and asst protection.
However, there really are no clear-cut boundaries as offshore financial services and corporate laws can be found in modern onshore financial centers.
The state of Delaware in the United States, for instance, is one of the most historically significant corporate tax 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.
As a result as of today, around 60% of the companies on the Fortune 500 list are incorporated in Delaware, making America one of the largest tax havens in the world.
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 creating an offshore financial centre that has parts of both worlds.
Many nations aim to attract foriegn businesses and investors by making corporate and tax laws friendly to non-residents individuals 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 facilitates automatic tax information or are a signatory of the CRS. Both of which make 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, they will not share your details or make you report anything to your own country, however, the issue is the country where you reside which may require you to report your foreign income, assets, or companies.
In this situation, the only way to fully release your self from the bondage of your home countries reporting and taxation requirements is to move residence and become a primary tax residence of a country that does not tax foreign earned income.
Confidentiality and Asset Protection
Confidentiality, in today's offshore 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, as 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.
Despite the changes in the international system forming a properly structured offshore company with a bank account there still are tax advantages, levels of security and asset protection when properly designed are not found in any local domestic company.
Anyone stands to benefit from incorporating offshore. If we remember that offshore companies aren't necessarily about getting established in some fancy Cayman Islands International 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 that comes for most people is because there is such a tight association with the term offshore companies 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 act like any normal company but are held for taxation purposes outside the financial system where it is formed thus giving it certain benefits.
Companies formed offshore are often used by anyone who owns a global, internet-based, digital, or services company.
It can also act as a holding company for assets or bank accounts, for holding physical property, intellectual property, patents, or investments as well as many 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.
Individuals choose offshore companies for any number of reasons. Foreign jurisdictions provide a level of asset protection and security not normally found in traditional 'onshore' jurisdictions.
This is because offshore financial centres have supportive corporate laws and liberal regulations that give space for companies to exist without restrictive requirements, high overheads, and onerous disclosure policies.
Such countries have protective legal systems that enable asset-sheltering to non-residents clients who bring their capital into the country. Asset protection gives foreign investors the security needed to securely invest in a foreign country. As a result, many foreign banking and financial systems have created a set of strong legal codes to esnure the industry.
Forming a company outside the country of one's own residence adds additional protection that is found only in a separate legal system. A separate legal and court system makes it much harder for malicious entities to break into your assets.
Because offshore companies are recognized as a separate legal entity 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.
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:
Companies that are established in an overseas country or conduct business outside the borders where one resides are best suited for international companies as well as businesses with a global or non-localized structure such as internet-based service industries as well as services providers and consultants, brokers, and currency traders.
Online businesses and anything not dependent upon physical infrastructure works best 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 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 defining feature for most people if they desire to become completely tax-free will be dependant upon your country of residence. While most people may not be ready to move to a different country to escape taxation, it may not be as difficult as it may seem.
For today's entrepreneur, to 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.
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 companies that are formed offshore may have the following features and advantages:
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:
They all are synonyms and can be used interchangeably.
However, there are two main offshore structures which we will go into in detail, namely an:
An International Business Company (IBC) refers to a type of offshore structure, 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.
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.
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.
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...
1. Panama Company - Best Overall Offshore Corporation
2. Nevis LLC - Best Asset Protection
3. Scotland LP - Best European Company
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 form offshore companies in regularly.
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 offshore. 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.
Limited Liability Companies & LLPs
International Business Companies (IBC)
Setting up an offshore business in a simple 3 step
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.
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:
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:
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,