What is offshore?

Offshore can be defined as a tax-free investments made by a natural or legal person in a country other than its country of residence. Offshore investments are also known as investments in tax havens or extraterritorial jurisdictions. What advantages and disadvantage do you have in offshore? Is it legal?

The causes that have led large companies and businessmen to transfer their money to offshore financial centers are: the tax burden of developed countries, wars and socio-migratory changes. The free movement of capital between countries and the access to internet have contributed to the commercial expansion around the world providing companies and investors with the key tool to protect their money and save on taxes.

Moving your funds to  offshore is legal  and having a company or bank account in any offshore jurisdiction is not illegal. The legality of the structures are based on the principle of "tax avoidance" taking advantage of all legal resources to avoid tax evasion. We should not confuse the definitions "tax avoidance" with "tax evasion". "Tax evasion" is the illegal behavior of a natural or legal person not to pay taxes. The global crisis and tax evasion is causing many countries to take  anti-offshore  measures such as automatic information treaties. The purpose of the information exchange treaty is to eliminate the criminal activities from the banking circle and to increase the recollection of taxes. Please note that the automatic exchange treaty affects only personal and corporate bank accounts but does not affect any company that doesn´t have a corporate bank account opened in a country that has signed a bilateral agreement. Which means that in this case the financial information of this offshore company will not be reportable. Right now the treaty of automatic exchange of information is causing many problems to the countries due to the fact that it is not a treaty in which banking information will be reported automatically among all the countries who signed it. In order to receive the information about the citizens who own accounts in other countries, the governments of these country should not only be members of the treaty but must sign a bilateral agreement between them in particular. If both countries have not signed the bilateral agreement, there will not be any kind of automatic exchange of information even if both of them are members of the treaty.

The main advantages of moving funds to offshore are:

• There is no tax payment for non-residents.
• Bank secrecy for companies.
• Protection of heritage.
• No paid up share capital.
• No requirement to file annual accounts.
• Formation of offshore companies without physical presence.
• No social security payments.
• Lax requirements for imposition of money in the bank.
• Free flow of capital.
• Regulated and solvent banks.
• No audits.
• Very stable financial centers. An investor with little confidence will cause the exit of its investments to another more stable country.
• There is no restriction on the nationality of the investor.
• Multiple double taxation treaties with other countries.
• Good infrastructures in telecommunications.
• Offshore banks speak several languages: English, Spanish, French, German, Russian and Chinese.
• Opening of offshore bank accounts without physical presence.
• Support to SMEs with laws favorable to their development.

The main disadvantages of not moving your funds to offshore are:

• Impossibility to carry out tax planning.
• There is no bank or mercantile secret.
• The heritage may be seized if the natural or legal person has outstanding debts.
• Payment of high social capital.
• Annual accounting and auditing are mandatory.
• Limitation of cash payments.
• High corporate tax.
• The commercial register is public. No privacy.
• No commercial confidentiality when purchasing products or services.
• International expansion strategies development is almost impossible.

Moving money offshore

Why do I have to transfer money offshore? How do I do that? Is it legal to transfer it offshore? What advantages and problems can I have in future?

Moving money from your country of residence to a tax-free jurisdiction is completely legal and will not cause any problem with the tax authorities of your country as long as the money you want to transfer is taxed. For example, imagine that a person has a company in a jurisdiction with high taxes and every year pays all the taxes that correspond to his commercial activity: corporation tax, value added taxes and income taxes. Once the taxes are paid the beneficiary of this company is free to do with this money whatever he wants. He can buy a second home abroad, invest in foreign stock exchanges or open new lines of business in both physical and e-commerce in any country in the world.

Moving money offshore is simple. However, when a person registers a company that generates annual dividends and then without declaring them he transfers this money generated from his offshore company to his current account in his country of resideence that´s when the problem arise. In this case the tax authorities of your country of residence can question you about the source of this income? Logically, when not being able to justify it through your business activity in your own country of residence, you may be subject to some type of administrative sanction.

The tax authorities are always pending the transfers of money from one country to another but if this money or real estate is declared, this transfer of funds will not cause any problem. The logic of the fiscal authorities when sanctioning natural persons or companies is based on the increase of unjustified patrimony. That is to say, someone who declares to have returns of 15,000 pounds a year and has in his current account 100,000 pounds and has 3 houses on his name worth 200,000 pounds each obviously has a patrimony that doesn´t correspond to his declared earning. Or a company that declares annually that it has a profit of 20,000 pounds and has on its corporate accoung 300,000 pounds and 3 offices valued for 100,000 pounds each is making the same mistake by presenting an unjustified patrimony. How do I avoid this situation? The magic formula is very simple: have nothing registered on your name in your country of tax residence. The tax agencies are based on: if you have money in your current account or have a company in your country I can force you to pay, but if you do not have any current account or assets on your name, I will hardly be able to recover the money because you have nothing to seize.

As long as the money is declared and is of legal origin, transfering money offshore is very simple, but you have to take some precautions always. Depending on the foreign bank and the amount you need to transfer, you can always ask for a certificate of origin of funds. Once justified before the entity, you can transfer all the money of the country without any restriction.

Also anyone can carry cash with him when travelling to another country, but due to the regulations against money laundering one can carry only 10,000 pounds. How can I carry more money when travelling? You will have to talk to your financial institution or tax agency and ask them to issue a certificate so that you will be able to withdraw the amount of money you want from the country. On arrival to another country, you will have to present the certificate to the relevant authorities in order to be able to purchase a house or to make an investment. When making a wire transfer of any amount higher than 100,000 EUR it is possible that you will be asked to fill in a certificate explaining the purpose of said transaction. Once completed and presented you can make a wire transfer.