It is almost impossible to manage an offshore company without understanding all the principles (or at least the basic ones) not only of management, but also of control imposed by tax authorities and other regulators. In accordance with the laws of most jurisdictions, offshore companies must pay taxes in their country of incorporation (if any, since usually it is a fixed annual rate of several hundred dollars that is included by your registered agent in the annual cost of the offshore company maintenance) regardless of the place this company is managed from, that is a company can be managed from the country of incorporation or another country.
In some cases a foreign company is also taxed at the place of business and residence of its managers and directors, in addition to the place of incorporation
When managing an offshore company from another country, some difficulties may arise. For example, the director of a company established in Cyprus is a non-EU national. Under the laws of their home country they will not receive any benefits under the double taxation agreement.
When using the services of professional directors, there is an issue of tight control of the company’s operations by the actual owner. The professional director and/or shareholder in turn will seek to minimize their responsibility for the company’s operations.
Examples of the Offshore Company Management
What can happen if you fail to properly manage your offshore company?
- The Gibraltar Financial Services Commission has established the rules and requirements for offshore companies taking into account the peculiarities and subtleties of the offshore company management structure, including the situation when it is managed from another country. In case of failure to comply with the prescriptions of the Commission the company will be deprived of its license to do business in the state of its registration. Also, the Guidelines note that professional directors must have all the information about the company, similarly to its actual owner. Consequently, the functions of a manager include control of the legality of company operations. Of course, these Guidelines are not legally binding outside of Gibraltar, but other jurisdictions may have similar regulations, compliance with which allows to avoid issues.
- The professional director has no relation to the assets of the offshore company. They are paid a salary just like other employees. The amount of salary does not depend on the size of the company’s income. Shareholders are not involved in the day-to-day operations of the company. They are authorized to appoint/dismiss the previously appointed director at the Shareholders’ Meeting. Most often, such a situation occurs when an offshore company is purchased. In this situation, the director carries out all the operations as instructed by the company’s beneficial owner, which is not always expressed in clear orders, but rather recommendations and wishes. This approach to company management has certain advantages:
- In this situation, taxes are paid only in the country of the offshore company incorporation.
- The current director is aware of all the company’s operations.
However, there is also a disadvantage which is the high cost of hiring directors of this level.
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Offshore Company Discretionary Management
To enable a person to act on behalf of an offshore company and enter into agreements it is necessary to issue a general power of attorney. In fact, such a power of attorney gives a person all the powers of the company’s director. According to the general power of attorney, the authorized person has the right to perform any operations on behalf of the company, to represent it in court and/or other bodies, to manage the company’s bank accounts.
The main disadvantage of a general power of attorney is specifying the name of the actual company owner, therefore the issue of personal data security after signing this document is rather controversial and one should clearly understand it.
Before you purchase an offshore company you need to be clear about the following:
How will your offshore company be structured, and how exactly do you want it to be structured?
How will you use your offshore company?
Is the offshore company you choose suitable for achieving all of your goals (opening a bank account of the level and type you want, merchant account, PayPal account)?
Is the cost of the offshore company incorporation and annual maintenance suitable for you? Is it reasonable for your business?
Before making a rash act being tempted by advertising tricks such as the cheapest offshore, ready offshore with 50% discount, ready companies in XXX with already opened (for you?) bank account, foreign bank account in 8 minutes, please consider whether all of this can be true.
If you think it through, check, consult, it may in fact turn out that the bank that opens your account in 8 minutes has no banking license, no direct SWIFT, and ready-made discounted companies have already been in use, and the cheapest offshore when buying will become the most expensive one to use it in the second year. In the offshore industry, the stingy does not pay twice, they pay the most expensive: the failure of a business idea, missing the right time to implement this idea and the obstacles to business that could have been avoided with timely advice.
The experts of InternationalWealth.info and Offshore Pro Group offer you free consultations on the most relevant issues. Please email your questions to firstname.lastname@example.org and we will get back to you ASAP.