The Use and Legality of Offshore Companies: Eventually, Everything Connects

The legality of offshore companies is often a confusing topic hyped even in the most well-informed media. No wonder that some people believe that any business incorporated in a low-tax jurisdiction is a tax evasion ploy. However, based on the knowledge-based view, experts argue for the connection between legitimacy of an offshore company and its modus operandi.

Let’s discuss the key aspects of offshore company formation and the relevant legal incentives, including opportunities to reduce the tax burden. To connect the dots, we will also focus on legitimate practices and strategies that IT entrepreneurs and high-net-worth investors widely use.

Legality of Offshore Companies

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Offshore jurisdictions: the key concept and features

An offshore jurisdiction or zone is a country or its part where the government offers zero tax rates for profits generated by non-resident companies abroad. The word ‘offshore’ is often used more broadly to refer to low-tax jurisdictions not necessarily granting tax exemptions but providing other attractive incentives, such as reliable banking, a stable economic environment, CBI (citizenship by investment) programs, simplified requirements for financial reports and audits, a broad range of other opportunities for international business development.

An offshore company is a legal entity registered in but generating income outside such a zone. This taboo to earn any profits in the jurisdiction of incorporation is the primary requirement. 

Over the past few years, many jurisdictions have revised their legislation to comply with the FATF and OECD recommendations. This fallback position questions their status as ‘classic’ offshore states. Nevertheless, they remain attractive because of other significant benefits. If you are interested in reading more about such jurisdictions, please look up our articles on St. Lucia, Nevis, BVI, the Republic of Seychelles, Serbia, Great Britain, Cyprus, the Netherlands, and many other business-friendly countries.

Legality and restrictions in offshore company formation 

If company registration in offshore jurisdictions were banned, this procedure would not be possible. Today, it is legitimate and subject to national laws worldwide.

Some restrictions do exist, but they are primarily about the purpose and format of offshore businesses.  It is utterly illegal to incorporate a company in a low-tax/no-tax zone purely for money laundering,  tax evasion, and concealment of other unlawful activities.

To confirm the status of a decent venture which you are starting in an offshore jurisdiction, you need to prove the operational and economic feasibility of your business idea. In some situations, you will have to present evidence that the company exists not only on paper. That is why many jurisdictions stipulate specific requirements for Substance.

Reasons to open offshore companies or divisions

Why do entrepreneurs and business representatives from different parts of the world open offshore companies? The main objectives are to cut expenses, protect property rights, diversify assets, and expand business in the international markets. 

They are lured by simplified requirements to reporting and audits, the high quality of the human resources and reasonable costs, the advanced infrastructure, other incentives, opportunities, and other reasons not available in their home countries. 


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The main legal strategies for offshore success 

Regardless of the purpose of registering a company in an offshore zone, one should stay well-informed about changes in the legislation of the place of incorporation. 

Experts of the International Wealth portal and international legal experts in various jurisdictions are ready to consult you on updates and suggest the most appropriate legal strategies for your offshore success. 

Here are some examples of the most popular options:

  1. Render services and IT technologies overseas remotely. In this case, service fees and payments are transferred to the offshore company according to a service agreement (software development, consulting, etc.). 
  2. Purchase goods at one rate and sell them at another. There is nothing new in this Transfer Pricing strategy, as the price difference usually yields a profit and is a legal opportunity for considerable tax reduction. However,  please note that it often attracts more focused attention from the controlling agencies.
  3. Sign long-term loan agreements featuring payment deferral for several months, years, or decades.
  4. Undertake a transfer of the ownership of an offshore company with the subsequent sale to third parties. It is a legitimate deal, both in terms of corporate and personal assets. There is a double benefit: confidentiality of the transaction and tax reduction on transactions with real estate.

 The main legal issues of offshore companies

Most of the high-profile cases involving offshore jurisdictions highlight the issues of tax evasion, money laundering, illegal schemes. This heated publicity has shaped a too common, deliberately biased negative perception of such jurisdictions.

Nevertheless, it is not an offense or crime to open a resident or non-resident business in offshore zones – if the company is not involved in any illegal activity

Any offshore jurisdiction has national laws, a taxation system, established procedures for the incorporation of companies. All states allow offshore company formation by their citizens (even though there are some restrictions). However, if you feel uncertain about the sustainability of your offshore business, our experts can recommend ways to shield your company from adverse circumstances.

Let us repeat once again: if you set up a company in some offshore jurisdiction, you should be aware of the relevant regulations, restrictions, and updates at home and in the host country. To avoid bitter mistakes and scams, you need to rely on the advice of professional experts and stay informed at all times.

Please remember: it is safe only when you work gwith overnment-licensed agents and their registered sub-agents.  And remember, we are here to help you at every step!  

You are welcome to order free customized advice from our expert on tax laws, substance requirements, other milestones of business formation; to discuss your business objectives and possible customized solutions in selecting the jurisdiction for company incorporation, banking opportunities, international business development options.  To book a private session, please contact us at the email address or in chats given at the top of this page.

Advantages of offshore company formation

Registration of an offshore company can be very beneficial:

  • It extends your opportunities to go international, develop relationships and networks with foreign partners in your target markets. Our experts can recommend many attractive locations to launch your international business in a form that will suit your needs.
  • It is possible to enjoy a certain level of personal privacy, even though almost all offshore jurisdictions have to keep the registers of ultimate beneficial owners. You can hire professional directors, registered shareholders, and agents remotely. But first of all, choose the right jurisdiction. Such countries as Nevis will offer you many advantages.
  • You can profit from your assets by developing an investment fund,  a holding company, or e-commerce. This sector is particularly popular with foreign entrepreneurs in Hong Kong.
  • When carefully arranged, your banking can securely safeguard assets. Yes, when acting on your own, you will have to face many challenges. But there is a reliable solution: our experts will help you choose a proper offshore bank for personal and commercial use, as well as open an account remotely. For example, banking and company formation in St.Lucia may exceed your expectations.
  • You can quickly develop a niche for consulting services and international trade; your assets will be wisely invested if you decide to buy or register a company in such a classic offshore jurisdiction as BVI.
  •  IT technology is one of the most promising and significant sectors of commerce. We recommend the idea of starting a limited company in Singapore – the jurisdiction famous for financial services, e-commerce, and technology startups.

There are also many additional benefits offered by low-tax midshore, onshore and offshore territories. Please email us or let us know your contact details, and we will send our prompt, detailed feedback. 

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