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    What is an Offshore Company?

    Offshore Corporate Service Provider EST. 1996

Everything You Need to Know About Offshore Companies: Definition, Benefits & How it Works

Table of Contents:

 

Offshore Company Definition?

An offshore company is defined as a company that is incorporated in a jurisdiction that is other than where the beneficial owner resides.

An offshore company is simply a company that is incorporated in a foreign jurisdiction.

An Offshore Company definition is not something fixed but will have varying definitions depending upon the circumstances. The term Offshore can be used as apposed to Onshore.

While an onshore country refers to a domestic company that is formed within a country and is taxed as an entity by the country, an offshore company is a company incorporated outside the borders of the country and is therefore not considered liable for taxation if all income is generated outside the borders.

Why would anyone want to have a company that is located outside of where they live?

Most people start offshore companies in foreign offshore jurisdictions in order to make the most of local laws that offer low or no tax advantages to non-resident companies.

Offshore jurisdictions seek to attract foreign capital by offering low tax business zones for non-resident entities. Countries establish tax-friendly policies in order to benefit from the yearly fees that are required in order to register.

How Do Offshore Companies Work?

An offshore company works as a corporate entity that is allowed trade, hold assets and conduct normal business activities legally outside of the jurisdiction where it is incorporated.

Offshore countries offer tax exemption to companies that move too or are incorporated within the jurisdiction if they limit their transactions and dealings to outside of the borders of the country. 

Companies that are formed in such jurisdictions are non-resident in nature in that they do not conduct any financial transactions within its borders.   

What is an Offshore Company All About?

Forming a company outside the country of one's own residence adds additional protection that is found only when a company is incorporated in a separate legal system. A separate legal and court system makes it much harder for malicious entities to break into your accounts and 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.

Onshore Companies vs. Offshore Companies

The primary difference between an 'onshore' vs offshore company is its tax obligation. While companies that are formed onshore are subject to the laws and tax codes of that particular state, offshore companies are no bound by local statues because it does not have any business dealings within the country.

Traditional onshore countries such as the UK and US actually have non-resident formation policies that allow foreign companies to incorporate while being able to remain free from any local taxation. Ironically one of the biggest tax havens in the world is not found in the Caribbean but is in the states of Delaware and Wyoming in the United States.

Offshore Company Uses

An offshore company can be used for any purposes similar to a local domestic company such as opening and holding bank accounts, enter into any sort of lawful agreement, conduct transactions as well as start and operate a business.

Offshore Companies are often called International Business Companies or IBCs which generally demarcate them from a traditional domestic company. Other terms are also used such as non-resident companies and foreign corporations.

Forming an offshore company provides many advantages no matter what you are looking for, whether its asset protection, privacy, or tax reduction. Creating an offshore structure allows you to move your business from a high-tax high regulation jurisdiction to a country where you are able to take advantage of local corporate laws and liberal company regulations.

Choosing the best place to form your company is about what is best for you. What local environment suits your personal needs.

Offshore Company Benefits

Each country has its own unique financial environment that offers particular advantages for different businesses. Individuals and companies choose to form an offshore company primarily for several reasons. While there are differences between each offshore jurisdictions, they tend to have the following similarities including:

  1. Confidentiality
  2. Asset Protection
  3. Tax Reduction
  4. Financial Privacy
  5. Lawsuit Protection
  6. Simple Corporate Regulations

1. Privacy

One of the most compelling reasons to use an offshore corporate entity is that when you use an offshore corporate structure it separates you from your business or assets and liabilities. As an entity, it takes on a separate legal identity separate from those who own it.

Financial transactions and business dealings would then be carried through the name of the business rather than a single individual.

2. Confidentiality

Most offshore financial centres have company registries that are not open to the public which provides confidentiality for directors and shareholders.

All the details of the company and its accounts are not open to the public unless there is a criminal investigation. While each country has its own level of transparency, you are more able to remain anonymous (depending on the country and your tax obligations with the country where you live) with your assets and company structure if its kept at arms length.

3. Tax Reduction

Most countries that act as offshore financial centres offer special taxation status to non-resident companies that are incorporating in the country.

These offshore business structures hold a special status that makes them nonliable to local domestic taxation nor or they obligated to pay taxes on their worldwide income, capital gains or income tax. Your taxation obligation may be more complicated depending upon the country where you live and its CFC laws, the offshore formation structure and the country where you incorporate. Tax obligations vary greatly from country to country so its important to make sure what your tax obligations are before choosing a jurisdiction. Tax obligations usually are determined by the country where you have permanent residency in and as a beneficial owner of a company you would be liable to be taxed in your country of residence. While IBCs remain tax-free, that may not free you as a beneficial owner from paying taxes.

Offshore tax havens offer tax benefits as a way of attracting foreign businesses and capital into the country. By incorporating in their offshore centre, they receive yearly company registration maintenance fees.

4. Simple Corporate Regulations

Offshore jurisdictions have created simplified corporate laws in an effort to attract foreign companies and individuals by simplifying regulations and by lowering the amount of bureaucratic red-tape.

Some of these simplified policies include no auditing nor financial reporting requirements as well as no secretaries nor need to hold company meetings.

5. Asset Protection

Separating your assets from you as an individual gives you a layer of protection should you be targeted by a lawsuit. Shielding your assets with an offshore structure, whether that's an LLC, Trust or Foundation, makes it much more difficult to tie you to your assets.

Whenever you have an investment or assets, it important that they remain distinct from your person; this ensures that they will not be liable to any of the debts that you incur as an individual. This is enabled by the fact that the structure takes on a legal right to incur debts/liabilities like that of a legal person.

6. Legal Protection

An offshore company separates you from the business entity and because the offshore structure is located in an overseas jurisdiction there is a separate legal system and set of laws that help protect the company should it become targeted in any asset search or lawsuit.

Most foreign offshore countries do not respect local court orders unless there is a criminal investigation with significant evidence of wrongdoing in order to break into assets of an offshore structure. Countries that have an offshore financial centre impose significant barriers to entry that prevent only the most strong-willed creditor the ability to break into the structure.

Should You Incorporate an Offshore Company?

Offshore incorporation offers a number of benefits that allows the businesses the ability to get global benefits by taking advantage of local conditions.

Incorporating offshore is becoming easier and more profitable as boundaries widen and peoples access to different countries and their markets become more accessible through the reduction of barriers brought by the increase in global communication. So the question is, are you ready to take advantages of the global possibilities?

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