WHAT IS OFFSHORE? WHY INCORPORATE OFFSHORE?
– USES & ADVANTAGES OF OFFSHORE COMPANIES
Any country other than the one where you live could be considered “offshore” providing you are from outside the jurisdiction that you choose (both as a citizen or a resident), you can obtain some special financial or asset protection. If you live in the US, other countries are offshore. If you live in the UK, countries besides UK are offshore.
Offshore businesses have estimated that 65% of the world’s hard currencies are held in offshore banks and that around 40% of world trade in goods are transacted through offshore financial centres. Offshore companies and/or offshore trusts are not the illicit hideaways that many of you would have believed. They can in fact provide you with enormous tax savings and asset protection in a legal manner if set up correctly. They can also afford the ultimate beneficial owner a certain amount of anonymity. In addition offshore companies provide corporate structures necessary for the efficient operation of international companies as:
- Trading Companies
- Holding Companies
- Commercial Holding Companies
- Personal Holding Companies
- Investment Companies
- Public Investment Companies
- Private Investment Companies
- Other Offshore Company Formations
- Shipping Companies
- Yacht Owning Companies
- Property Holding Companies
- Asset Protection Companies
- Shield Companies
- Offshore Captive Insurance Companies
- Professional Services Companies
- Dot Com Companies
- Employment Companies
- Intellectual Property & Royalty Companies
Import/Export and general trading activities are one of the most popular uses of offshore companies. The offshore company would take orders from the supplier, have the goods delivered straight to the customer and invoice the customer directly. The profits arising from the difference in the selling/purchase prices are accumulated in the tax free offshore company.
Many clients use offshore holding companies to own and fund subsidiaries in various jurisdictions, implement joint venture projects, hold publicly quoted companies, and so on. In certain circumstances it is possible to make capital gains arising from the disposal of investments free of tax. Subsidiaries may also benefit from tax deductions and interest paid on the capital provided by the holding company. In addition, it can be separated into two categories:
COMMERCIAL HOLDING COMPANIES
Jurisdictions which are partners to many double taxation treaties can be used as channels to pass on profits. The dividends can be transferred by a commercial holding company to offshore parent companies without additional taxes or low taxes in these jurisdictions.
PERSONAL HOLDING COMPANIES
Assets like investment portfolios or property in perhaps different countries owned by an individual could be hold by an offshore company. This beneficial administrational structure allows among other things for confidentiality and privacy.
Several of Cityscope’s current clients combine the offshore holding company with a trust owning the holding company for asset protection reasons.
Offshore companies are popular vehicles for corporations and individuals to hold investment, including bonds, equities, cash, precious metals and so on. Offshore investment companies may be set up for third party stock trading or personal stock trading via the internet and/or to invest in managed funds.
High net worth individuals also often use offshore investment companies to hold portfolios in different markets, and currencies. In addition to tax minimization, the use of such offshore investment structures provides for privacy and asset protection as well as diversification of a portfolio and lowering the risk by using and investing in multiple jurisdictions and currencies.
PUBLIC INVESTMENT COMPANIES
The regulations of some offshore jurisdictions are favourable for collective investment schemes, if the underlying investment is construed for the optimization of tax benefits.
PRIVATE INVESTMENT COMPANIES
Individuals can set up an offshore company for the purpose of owning and managing his or her investment portfolios, and sometimes for the protection of capital gains, and against inheritance taxes. In this way accumulated funds can be invested worldwide and construed to bring the highest tax benefits.
INTELLECTUAL PROPERTY & ROYALTY COMPANIES
Intellectual property can be owned by an offshore company. Examples are IT software, technology rights, music, literature, patents, trademarks, and copyrights. The offshore company can then licence or franchise the intellectual property rights to various companies or individuals around the world, interested in exploiting those rights. The resulting profits can accumulate tax free in the offshore company. Often, the rights are held by a trust for asset protection purposes, with the trust licensing the offshore company to exploit the rights.
The use of offshore companies to own or charter merchant ships and pleasure craft is very common worldwide. Shipping companies may accumulate profits in tax free offshore jurisdictions and, if each ship is placed in a separate offshore company, it can obtain significant asset protection by isolating liabilities to each ship.
YACHT OWNING COMPANIES
Particular offshore jurisdictions proved popular for yacht owning, because the vessel may fly under their flag (as for instance the British offshore territories allow flying the Red Ensign).
PROPERTY HOLDING COMPANIES
Owning real property and land through an offshore holding company can lead to significant tax advantages including legal avoidance of capital gains, inheritance tax, and property transfer taxes. It may also simplify sales, because the property can be easily transferred by handing over the title to the individual owner, thereby reducing legal and other administrative costs.
ASSET PROTECTION COMPANIES
To protect one’s assets (for instance against lawsuits) any individual with substantial liquid funds should consider having an offshore company plus offshore bank account. The legislation of most offshore jurisdictions makes it very difficult, time-consuming and expensive to launch debatable litigations. For instance complainants are quite often asked to deposit considerable bank bonds as security with the governments, and local attorneys have to be retained and paid in advance. And unlike in some other countries it is virtually impossible to check other people’s bank balances.
To guarantee a high degree of protection for the least cost it’s highly advisable to use a trust which would own the offshore company. Such structures for asset protection should always be designed tax neutral.
In some cases, for instance to avoid compromising his negotiating position, it could be crucial for a beneficial owner to remain anonymous. A Shield company offers this confidentiality, and during negotiations its nominee director can act on his behalf.
Captive insurance companies provide in-house service and exclusively insure risks for their parent and sister companies. Incorporated in an offshore jurisdiction and properly planned the insurance premiums are deductible for tax purposes in the accounts of the parent company, but not taxed as income in the offshore captive insurance company.
PERSONAL SERVICES COMPANIES
Many people offering their services internationally can benefit significantly from using an offshore company. The offshore company employs them and contracts with the buyer of the services. The fees earned can accumulate offshore tax free. Payment to the employees may then be structured in such a way as to minimize personal income tax in the country of residency.
Typical clients include consultants, IT professionals, engineers, designers, authors, entertainers and so on.
DOT COM COMPANIES
People working in the IT area can use offshore companies to develop, buy and sell software and other technologies. Sometimes it is advisable to use separate offshore companies for every single project to minimize risks and to be able to go public with the most promising of them.
Expat staff working on assignments worldwide is often recruited by offshore companies. Using those corporate vehicles usually makes the wage and salary administration much simpler, cuts down the tax liabilities of the employee and reduces possible exchange problems.
OTHER OFFSHORE COMPANY FORMATIONS
Especially large companies like banks, fund managements and insurers use the advantages of offshore structures very actively because of the strong tax benefits those jurisdictions offer. Offshore banks for instance can pay interest to investors without withholding tax.
Cityscope Holding Ltd. recommends the following jurisdictions for your consideration:
- British Virgin Islands
- Cayman Islands
- Cook Islands
- Costa Rica
- Czech Republic
- Dutch Antilles
- Hong Kong
- Isle of Man
- Marshall Islands
- New Zealand
- Puerto Rico
- St Lucia
- Turks and Caicos Islands
- United States of America
- United Kingdom
Benefits and DisadvantagesBenefits:
- Gains within the offshore jurisdictions and/or from outside can profit from a very low or even zero tax rate.
- Much better privacy protection.
- Beneficial legislation and supportive governments largely reduce the level of bureaucracy.
- To incorporate a company is easy and inexpensive.
There are too many jurisdictions around the world, all with very different advantages and disadvantages, quite diverse rules and restrictions. Please contact us to discuss which jurisdiction may be the most suitable for your needs.