Offshore companies, once used to evade taxes and conceal assets/business ownership from tax authorities, have lost their effectiveness. The days when registering a foreign company in the Cayman Islands, the Isle of Man, Nevis, BVI, or Dominica allowed for complete tax avoidance are truly behind us. However, if the priorities are different (genuine offshore business, asset protection, efficient tax planning), there is a high probability of success for such projects.
Many people misunderstand the concept of an offshore company. Registering a foreign company does not automatically imply the use of a tax haven. An offshore company is simply a business registered in a jurisdiction that is different from your own.
An offshore company does not have to be registered in the classic tax havens. For example, you can register an offshore company USA in such states as Delaware, Wyoming, and some others. This will allow you to get a business tool for the profitable conduct of international business from a respectable jurisdiction.
What are the main advantages of offshore companies?
When discussing the benefits of registering a foreign company for business purposes, it is important to note that this format is not universally applicable and may not be equally suitable in every situation. This means that in many (but not all) cases, having a real economic substance in chosen jurisdiction appears to be much more promising. However, speaking in general terms, offshore business is indeed highly advantageous, and this is due to several reasons simultaneously.
Key arguments in favor of using offshore companies:
- Ease of registering an offshore company. In most cases, the process takes 1-2 days (provided that you have prepared all the necessary documents).
- Minimal government fees, often being zero or close to zero.
- Minimal organizational requirements. Such companies are often not required to have a local director or secretary.
- No mandatory reporting requirements (or they are minimal/formal).
- No currency control.
- Business-friendly corporate legislation.
- Adequate level of confidentiality. While complete anonymity is not achievable in today’s reality, utilizing professional officers’ services often helps to mitigate major concerns.
- Tax advantages. This is the most significant benefit you gain after registering a foreign company in an offshore jurisdiction. However, remember that in most cases, you will not be able to conduct business in the same country. It is also important to consider that offshore company registration does not automatically exempt you from tax obligations in your tax residency jurisdiction.
- Investment freedom. Offshore jurisdictions rarely restrict specific business sectors or interests. In the worst case, you may need to obtain a license, but the organizational procedures are simplified and time-efficient.
- Favorable conditions for relocation. Classic offshore jurisdictions aim to attract affluent individuals not only to conduct business but also to choose the country for permanent residence. After registering a foreign company, the procedures for obtaining residency permits, permanent residency, or citizenship are often significantly streamlined.
Best offshore solutions
Offshore solutions should be tailored to individual needs, and it is important to adapt them to the specific business task rather than the other way around. However, to give you a general idea of modern tax-free and low-tax jurisdictions and their applicability to real business, we have prepared several optimal options for those who want to open a foreign offshore company in 2023:
- Hong Kong: An offshore company here provides direct access to the markets of China and the entire Southeast Asian region. There is no currency control, and taxes are relatively low. It is a highly respectable and versatile option. The only potential issue is opening a corporate bank account.
- Singapore: Arguably the most advantageous offering, especially if you wish to combine the registration of a foreign company with changing your jurisdiction for permanent residence. Singapore ensures exceptional personal security, offers modern business infrastructure for entrepreneurs, and provides advanced financial services for offshore companies.
- British Virgin Islands: A classic tax haven with extremely favorable business conditions. There are no requirements for mandatory shareholder meetings or financial reporting, beneficial owner’s information is not publicly available, and no corporate income tax is levied.
- Cayman Islands: Arguably one of the best available options if the purpose of registering a foreign company is asset protection rather than conducting business as a priority. This jurisdiction is well-suited for the legal formation and operation of various funds.
- Belize: One advantage of this jurisdiction is the use of USD as the official currency. It also possesses other characteristics of classic offshore jurisdictions: no taxation, no requirements for a resident director, no access to information on beneficial owners and shareholders, no audit and reporting obligations.
Types of offshore companies
There are two types of such companies: International Business Company (IBC) and Limited Liability Company (LLC). And there are indeed significant differences between them. Therefore, when choosing an offshore option, pay special attention to this aspect, if the jurisdiction allows for such a choice.
International Business Company is geared towards international business activities such as trade and investments. Tax exemption or substantial reduction can only be achieved if the company’s income does not come from local sources.
Key points to consider:
- The level of tax benefits for a foreign company in an offshore jurisdiction varies. Most commonly, businesses are exempt from taxes such as capital gains tax, corporate tax, personal income tax, and stamp duty.
- Additional advantages can be obtained when opening a foreign company, including confidentiality, asset protection, flexible options for share issuance, and minimal reporting requirements.
- Typical jurisdictions that offer favorable conditions for establishing such companies include Panama, BVI (British Virgin Islands), Belize, Dominica, St. Vincent (this list is not exhaustive).
Limited Liability Company (LLC) – It is a hybrid structure that allows for efficient distribution of powers, rights, and responsibilities among members through modifications to the articles of association. It provides limited liability for beneficial owners and partners.
Key points to consider:
- LLC is a fiscally neutral structure, allowing for bypassing corporate taxation restrictions. This is achieved through a partnership format, where taxes are paid by individual members of the offshore company rather than the company itself.
- Individuals, companies, and trusts can act as shareholders.
- LLC offers flexibility in ownership and payout systems.
- It is a good choice for implementing complex investment projects.
