offshore corporations

tax haven companies

Offshore corporations are companies that are characterized by being registered in a country, usually a tax haven, in which they undertake no financial or commercial activity. For this reason, they are also called non-resident companies. They are owned and controlled by foreign citizens or corporations conducting their business elsewhere in the world and using the tax haven only as the legal and registered address of the corporation.

Offshore corporations benefit from very favorable laws and regulations. The best known of them are undoubtedly the tax advantages. Except for a small annual registration fee (which usually does not exceed US $ 200), offshore companies are not only exempt from corporate taxation but also from other taxes such as value added tax (VAT ), sales tax or social contributions.

They are also often used by their owners, to circumvent (or in some cases to evade) the payment of personal taxes. Among the most notable of these we should mention estate tax, property transfer tax, personal income tax, and sometimes even taxes on vehicles or vessels.

But tax advantages for offshore corporations are not the only ones by far. There are various additional benefits that make them very attractive. Among these, the following stand out:

Fast and cheap company incorporation. In most jurisdictions an offshore corporation may be formed in less than 48 hours and with minimal documentation requirements. A copy of the passport and proof of address are usually sufficient. The cost of incorporation ranges usually between 1,000 to 2,000 dollars or even less.

There are usually no limitations on the citizenship of shareholders and directors. It is often possible to form the company with only one person fulfilling all the roles.

Simple and affordable administration. The tax exemption implies that the company doesn’t need to file tax or VAT returns. Neither do most offshore jurisdictions require submission of annual accounts, avoiding costly accounting and auditing processes. Therefore, the company may keep its own books and register its activities as it sees fit.

Strict confidentiality. Personal data of corporations’ shareholders and owners are usually not listed in the company register. The use of representatives known as nominee directors or nominee shareholders (also called trustees), as well as bearer shares, are still accepted in many tax havens. This way, an even higher level of privacy protection is received

There are no thin capitalization rules, allowing creating a company without subscribed capital expenditure.

Favorable legislation exists for certain business transactions involving capital, for example, financial assistance to third parties or mergers.

Freedom of investment. Many countries have strict financial regulations for the protection of investors that discourage or prevent participation in certain businesses, securities or funds. Offshore corporations are not subject to such regulations, so that a whole world of global investment opportunities, which otherwise could not be accessed, opens up.

Possibility of relocating the corporation to another jurisdiction, without stopping the activity of the company or changing its structure.

However, offshore corporations also have some drawbacks. Some countries have implemented anti-circumvention measures, that prevent companies based in tax havens to participate in certain investments. In some cases there are also anti-avoidance or “controlled foreign corporation” (CFC) rules in place. That is, the owner of the offshore company must include its profits directly in his personal income tax declaration, even in the event the company does not distribute any dividends.

In case nominees are used as directors or shareholders, document management may also get more complicate. In particular, banks may want to establish who the beneficial owner of the company is, requiring additional documentation to prove this.

types of offshore corporations

The most common form of offshore corporation is called IBC (International Business Company). This type of entity exists in almost all offshore jurisdictions, although in some cases under other names. From a legal point of view, it usually takes the form of a limited company, but the use of suffixes that refer to public or joing stock companies such as Corporation, Incorporated, S.A., etc. is allowed.

Another form of organization, existing only in certain jurisdictions, is the LLC (Limited Liability Company) which actually combines aspects of partnerships and corporations. An LLC is transparent for tax purposes, i.e. its members must declare the profits obtained from the company in their individual tax returns, the same way as partnerships. But the LLC as well has limited liability as members cannot be found personally liable for company debts. The LLC originated in the United States and its structure has been copied by various offshore jurisdictions. Because the American IRS treats all LLC’s similarly, whether domestic or offshore, this variant is relatively popular among Americans. It offers no significant differences compared to other offshore corporations such as IBC’s for citizens of other countries though.

Because of their outstanding advantages, whether fiscal or otherwise, their great flexibility and the variety of potential uses they offer, offshore corporations have grown in popularity and are used profusely by individuals and businesses from the most diverse industries of the economy,

offshore corporations

tax haven companies

types of offshore corporations

related topics