What is an Offshore Company?
In general, an offshore company is a company that is incorporated or registered in another jurisdiction other than where the original principals are located. An illustration of an offshore company refers to a resident in Singapore that choose to incorporate an International Business Company (IBC) in Belize to conduct business.
However, it crucial to note that certain jurisdictions, such as Belize, that prohibits offshore companies from dealing any business or economic activities with their locals. While some jurisdictions grant exemptions by allowing companies to conduct business with the locals, these companies will be required to be taxed based on local tax rates and comply with regulatory obligations.
Due to many myths and misconceptions circulating about offshore companies in the market, many may be confused or simply disregard the idea of creating an offshore company. The most common misconception is that offshore incorporation acts as a tool for tax evasion from the government, but it is not the case as offshore companies are legal entities governed by the jurisdiction regulations where they are incorporated. Moreover, offshore companies are not only used for benefitting from the jurisdiction’s favourable tax regime that is offered but also there are a lot more other possibilities when it comes to incorporating an offshore company.
What is the Benefit of Establishing an Offshore Company?
1. Tax-Efficiency
One of the leading reasons corporates form an offshore company is the tax entitlements available for foreign-owned businesses. Firms can gain tax benefits or exemption from tax because of the business-friendly taxation laws of certain jurisdictions.
Certain jurisdictions offer low or zero tax rates, to attract foreign investments and help accelerate economic development in their country. There are, however, rules and laws that companies must follow within the jurisdictions to enjoy these low/zero tax rates. With differing tax treaties, companies would have to choose their offshore jurisdictions carefully so that they can structure an efficient tax arrangement to fully benefit from it. Taking Hong Kong as an example, the taxation system in the country allows any profits which are derived from trading activities outside its jurisdiction to be free from profits tax.
Hence, with good tax planning, businesses can have an additional option to re-invest or retain the profits for future expansions, increasing efficiency, and cash flow.
2. Asset Protection
Another appealing factor for opening an offshore company is wealth and asset protection. Jurisdictions with a stable and strong reputations in both politics and the economy are most favoured to incorporate an offshore company as it enables stronger security and assurance.
Corporates that set up an offshore company usually desires certain privacy in their asset. Confidentiality offers an additional layer of protection for the company’s assets, of which sensitive financial details are kept out of sight and reach from the public. Offshore companies provide a highly effective asset protection and effectively screen your finances away from the public view.
Offshore jurisdictions like Panama and Belize, exercise extremely strict privacy laws. They have laws in place to ensure that none of the identity of the shareholders will be disclosed and investments will be protected from external parties, this level of privacy is unsurpassable anywhere else in the world.
3. High Confidentiality
Most of the offshore jurisdictions do not disclose any information on the company’s directors, beneficial owners, shareholders to the public, but with a condition to register and maintain all these profiles and data with the Company Registrar annually. With that, companies will be much more assured that all the information and data are kept confidential.
4. Simple Maintenance
Offshore incorporation is usually associated with simplicity as not only is the setup process simple, but they are also flexible in terms of regulations and compliance after the incorporation stage.
The requirements for annual reports and financial accounts with the Companies Registrar are flexible and easy to maintain. In addition, the level of information required in which the registrar of companies need to provide varies for each different jurisdiction. This gives businesses the option to choose which offshore country is best suited for their compliance standards. Nonetheless, most of the offshore companies tend to be much easier to maintain in comparison with an onshore company.
5. Business Opportunities
Some businesses may find it difficult to conduct deals with other parts of the world. For example, a company located in the United States will find it a challenge to conduct business in South East Asia, therefore incorporating an offshore company in Hong Kong streamlines and allows the company to break into the network of South East Asia through the offshore entity. Business decisions can be easily made without worrying that the company might fail to comply with certain regulations.
Some of the preferred offshore locations
- Belize – Popular offshore jurisdiction based on fees, fast incorporation time, and ease of document requirements
- The British Virgin Islands (BVI) – BVI and Cayman Island are pretty much similar and shares common features, only plus point is that incorporation fees are much more affordable
- Panama – Situated in a strategic location, strict banking secrecy laws, low corporate taxes, and reliable currency of Balboa that is 1:1 ratio to USD.
- Cayman Island – Located out in the western part of the Caribbean Sea, one of the common choices for most foreign investors who are seeking tax-free benefits.
- Seychelles – Economic and politically stable, convenient location, the official language of English and French
- Singapore – One of the lowest tax Asian countries of 17%, politically and economically stable, professionally managed central bank
- Hong Kong – 100% foreign-owned company welcomed, low taxes of 16.5%, financial hub’s resilience
Although the process of setting up an offshore business is relatively simple, it requires plenty of research and planning, with location and jurisdictions being one of the integral parts of the company’s formation. The right business location can assist to boost the company’s awareness to the right customers, while a poor decision can lead to a negative impact on your business opportunities.
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As a partner who grows with your business, Desfran provides a suite of business solutions which includes new market entry consultancy services, new market requirements like business incorporation and registration, establishing banking relationships, marketing services, and regulatory compliance, all of which can all be fulfilled through Desfran’s bespoke solutions. We continuously stay on top of trends and movements in the financial industry to help your business grow by identifying, maximising your business potential while providing comprehensive customised solutions.
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