Request a callback
Tax Engineering

Offshore company formation

Offshore companies are entities registered in jurisdictions with 0% tax outside of the tax residence of directors and shareholders. Depending on the fiscal policies of each jurisdiction, the offshore company will have or not to pay corporate tax. Therefore, companies can be classified into two groups: offshore companies that do not pay taxes and onshore companies that have accounting and fiscal obligations. The most important financial centers for setting up offshore companies are: Panama, Belize, Anguilla, Vanuatu, Bahrain, Costa Rica and Seychelles. On the contrary, the most important onshore jurisdictions are Delaware, United Kingdom, Cyprus, Bulgaria and Hong Kong.

During the period of low tax recollection, tax detractors, arguing points of view that have no justification whatsoever, have fiercely criticized offshore companies. The characteristics of offshore companies that were criticized the most are:

Offshore companies do not develop any commercial activities within the boarders of the country of incorporation. The growth of E-commerce has enabled many companies with the possibility to sell their products and services in countries to which previously they did not have access, either because of the distance or linguistic and cultural differences. Now a days a company and an offshore company in particular can sell its services in any country in the world, whether it has high and low taxes rate, without having to have a physical location there. For example, an IT office established in Hong Kong can hire a developer who is working in Hong Kong (with the corresponding payment of taxes and responsibilities) or Germany and then sell its product, for example software, to United States. However, offshore companies are obliged to have a physical address in the country of registration and legal representation in order to carry out any type of communication with the tax authorities. In order to avoid any type of legal action against you in your country of residence it is advisable to develop your business activity using offshore companies registered in the countries where the laws are more flexible and on the top of that exists the possibility to save on taxes. Registering an offshore company is legal and goes with "save" or "delayed payment" and not with "disobey".

Offshore companies do not pay taxes. In the business world there is a constant competition between companies that try to produce more, to sell more and as a result increase their revenues. So, why can´t the countries do the same and compete between themselves in attracting more and more investors by lowering the tax rate? Each country tries to achieve the welfare of its citizens but all countries do not have the same government, geographic location, culture and, of course, their infrastructures are not of the same level either. To increase the budget of any particular country the government has two options: to ask for credits to other countries (not viable) or to create a legal investment programs through a reward. For example, some countries in order to raise capital, lowered or eliminated taxes for non-residents (individuals and legal institutions) giving them an option to set up a business and to profit from a favorable tax regime without taking an advantage of local infrastructure or facilities that were financed with the taxes paid by the local citizens. And even carrying out a business using offshore companies with tax exemption status the final beneficiaries are still required to declare the dividends transferred to their country of tax residence. However, there is a possibility to "delay the payment of taxes" if the final beneficiary decides not to transfer the dividends generated by his company to his fiscal residence. A person who can justify that he has income from other companies in his country of fiscal residence will not be required to repatriate the money generated by his offshore company and could withhold the money in the country of registration of the company without taxing until he needs it.

13 advantages of offshore companies

The main advantages of opening an offshore company are the following:

  1. Offshore companies enjoy a tax-exempt status.
  2. Anonymity strictly guaranteed by law.
  3. Possibility to open a bank account in the name of an offshore company.
  4. Setting up an offshore opens you the way to a wide variety of overseas markets.
  5. Offshore company is not obliged to submit annual accounts and audits in most of offshore jurisdictions.
  6. No restrictions on capital flows.
  7. Offshore schemes allow you to protect your assets against claims of potential litigants.
  8. Offshore companies can be registered with bearer shares.
  9. The possibility to operate in jurisdictions with political and financial stability.
  10. Offshore company formation is an easy and quick process.
  11. An offshore company opens up access to all of international markets.
  12. Through an offshore company you can accumulate dividends generated from your business activity and re-invest it in any other country or businesses "delaying the payment of taxes" in your country of residence.
  13. Doing business using an offshore company gives you the possibility to perform your own tax planning.

Difference between offshore and onshore companies

Depending on the tax rate paid by companies, we can classify them in two groups: offshore companies and onshore companies. The main differences between the two are the following:

If the company is incorporated in an offshore jurisdiction where the taxes are equal or close to 0% this company will automatically obtain a tax-exempt status and won´t be obliged to present accounting or auditing reports to the tax agency of this jurisdiction. On the contrary, if the company is incorporated in an onshore jurisdiction, such as Cyprus, the final beneficiary of the company will be asked to pay 12.5% of income tax and file accounting and auditing reports annually. Comparing corporate taxes of offshore with onshore jurisdictions, such as Spain, France, Germany or United States we can see that in some countries the income tax rates are doubled reaching 30% in some cases.

Depending on the jurisdiction where the company is incorporated it can be more or less opaque. Offshore jurisdictions are considered to be the most anonymous jurisdictions in the world due to the fact that the Commercial registers of these countries are not public and the only way to obtain any information about the final beneficiaries is through court order in case of money laundering. Moreover, if an offshore company issued bearer shares or uses Nominee services, both for director and shareholder, this company can achieve a complete anonymity because the only individuals inscribed in the records of the company are the Nominees or the lawyers. On the contrary, onshore jurisdictions lack privacy due to the fact that the majority of the countries have a public commercial register.

Offshore and onshore companies are legal instruments used to protect property and personal income through investments made in the countries outside of the country of fiscal residence of the client. If you make investments outside or within your country of residence, you can put your real estate and bank accounts in the name of an offshore or onshore company protecting your assets from the government or any legal issue.

Incorporation of an offshore company is a quick, simple and economical process. The offshore company can be easily managed from your own country of residence without having to travel to the offshore jurisdiction and thus avoiding the waste of time and money on trips, notaries and tax advisers. The expenses of setting up an offshore company are very low when compared to the onshore countries like Spain or Germany. Depending on the jurisdiction, the registered capital of an offshore company is 1 USD, whereas in Spain the social capital is 30.000€ for a LTD or €60,000 for a Corporation. In addition it is not necessary for shareholders or managers of an offshore company to have social insurance which minimum cost is about €3.000 per year. Also offshore companies are characterized by the quickness of the incorporation. Depending on jurisdiction the whole process can take from 3 to 5 days in Belize and 10 to 17 days in Cyprus.