Many people form an instant mental picture when they hear the words "offshore company", with connotations of illegal or criminal activity and money laundering. With such negative connotations still lingering in the public subconscious, why would a large corporation, small business or individual form an offshore company? The reasons are very simple, offshore companies provide a very effective and legal means of mitigating taxation and increasing company profits.
For those who are not sure of exactly what an offshore company is; it is best defined as a company incorporated in a jurisdiction outside of the country in which you reside, are domiciled, or normally conduct your business.
When choosing a jurisdiction for your offshore company, the main criteria is certainly a jurisdiction that offers zero corporation tax on your company and other benefits that will allow you to mitigate your taxation - a tax haven. In this respect most Caribbean offshore tax havens offer tax free packages, that differ only on minor points, such as the time frame and fees for incorporating your offshore company.
The motivation behind individuals and corporations choosing to incorporate an offshore company is driven by the following benefits:
Reducing taxation is certainly the main reason why individuals and business corporations consider incorporating an offshore company, since companies that are incorporated in an offshore tax haven are not liable to income tax, wealth, gift or capital gains taxes in the Country of incorporation.
Additionally there is no corporation tax on company profits or personal taxation on directors fees or shareholders dividends.
Further, the governments of many tax havens have additionally provided a guarantee, that their laws on the taxation of offshore companies cannot be changed for a minimum of twenty years, providing peace of mind to their clients who have decided to use offshore companies as their main means of reducing taxation.
It is not only high net worth individuals, or large profitable corporations who would like to keep their business affairs confidential, as more and more individuals are also choosing to incorporate offshore in a jurisdiction that has strong privacy laws.
By choosing to keep their business affairs confidential, they are able to use their offshore company to enter into contracts; purchase shares in an existing company; buy property, or trade, whilst also remaining completely anonymous. This anonymity may be achieved if desired, either by using nominee shareholders when forming an offshore company (ie. the Directors of the company are paid nominees), or by forming the offshore company in a jurisdiction which has a closed registry, where details of company ownership are not shown in the registry and effectively unavailable to prying eyes.
In a criminal investigation it is possible for the police to request that the file be opened, it is a lengthy and complicated process with a court order needing to be obtained from the local court in the tax haven.
Using an offshore company as a tool for property purchases, especially a foreign property investment, it is not only a benefit for property developers but also individuals who are able to reap the financial rewards from using an offshore company as a tool for purchasing the property; whether it is a small vacation home, or larger investment property.
As an offshore company is allowed to own property anywhere in the world, and many foreign countries do not charge Capital Gains Tax on property sales, then owning a property through your offshore company will allow you to profit from any capital gains on your property, without paying capital gains tax.
Additionally, according to the laws of the country in which you purchase your property, you may also be able to avoid stamp duties and other taxes and closing fees relating to the sale of your property. This can happen if you set up an offshore company specifically to purchase and own a single property and when you come to sell the property, you sell the offshore company and not the property to a buyer.
For example you set up ABC Inc. specifically to buy your foreign vacation home. A few years later decide to sell, but instead of selling the property, you simply sell the company ABC Inc. to the buyer. As the ownership of the property remains in the name of the company at all times, there is no actual transfer of the property and therefore no stamp duty, transfer fees or closing fees to be paid.
To benefit from the above, you will need to check that local laws of the country in which the property is located, allow property ownership by an offshore company, as some countries have made moves to limit this use of the offshore company in this capacity. However the vast majority of countries permit properties to be owned by offshore companies, which are simply treated by the authorities, as a foreign company.
Incorporation of an offshore company is fast and simple, particularly with jurisdictions that offer instant online formations such as Anguilla or Dominica, where a company can be formed and shipped in a single working day.
Once incorporated, an offshore company is not required to prepare and submit annual financial reports or audits to the jurisdiction where the company was incorporated, although you will be expected to keep your accounting records in order and notify the jurisdiction of any change in the shareholding of the company.
With marital dispute and civil litigation cases sky rocketing in the courts, an offshore company can help you to protect your hard earned assets and should be considered an essential part in any pre-nuptial agreement.
An offshore company can protect your assets by holding property, cash and other assets on your behalf, with the added bonus that the ownership of these assets is something known only to yourself.
The time to take steps to protect your assets, is as soon as you have assets of any worth. It is often too late to start moves to protect your assets when something has gone badly wrong. So if you have assets worth protecting; do something about it today.
Another common use for an offshore company is income protection.
For example if you are self employed whether as a consultant, designer, artist or any other trade; incorporating an offshore company will in most countries, allow you to become an employee of your offshore company, where you can pay yourself a low salary each month, upon which tax would be payable. However, the remainder of your earnings and profits may then be held by your offshore company and used for purchases by the offshore company, such a cars, yachts and foreign travel etc. all of which you may enjoy, tax free.
A vital ingredient in all of the above business transactions, is your ability as the owner of an offshore company, to be able to open an offshore banking account under the company name, that will allow you to access your offshore company's funds through credit/debit card facilities, or wire transfers, and manage these accounts via online banking.
Offshore bank accounts, unlike many terrestrial bank accounts, will also often allow you to have a Multi Currency Account, where you may hold cash in several different currencies. This will allow you to avoid the cost of having to exchange payments from one currency to another currency. Additionally holding your cash in a basket of different currencies, will also often allow you to minimise fluctuations in the various currency exchange rates, and if you are good at predicting currency movements - even allow you to capitalise on these fluctuations !
From the above, you can see that owning an offshore company can dramatically reduce your taxation overheads, protect your assets, and allow you to enjoy the hard earned profits from your investments.
Forming the offshore company is quick, simple and inexpensive, and running the accounts of the offshore company need be no more difficult than logging into an online account.
In making your choice to form an offshore company in the Caribbean, you are also helping to sustain some small island economies that survive by offering these financial services.
For anyone who owns a business, or has financial assets worth protecting, owning an offshore company is a logical move.