One can learn a lot from the critical mistakes of others. For example, some companies tend to ignore or are unaware of the existing requirements set for an offshore entity in a relevant jurisdiction. Such oversight may deprive them of the tax exemption and other bonuses associated with offshore incorporation. This article explains the importance of the annual renewal of the status of an offshore company, the procedure to be followed, the fees charged, and the Certificates to be obtained.
If you need to ask further questions, seek detailed advice, or practical assistance please send us a message to the e-address given at the top of this page. The InternationalWealth experts will share with you the most important insights and provide fee-based support in your registration of an offshore company, as well as the annual renewal.
Definition of the Annual Offshore Renewal
Once your offshore business has been successfully registered, the annual obligations need to be fulfilled and fees paid. Otherwise, the offshore company will be excluded from the respective jurisdiction’s Trade Registrar, and the rights to legitimate activities will be lost.
The Annual Offshore Renewal is your reasonable fixed fee for the legitimate tax-exempt status. It is payable annually to the government of the jurisdiction and the Registered Agent, who enables interaction between the Registered Office (mandatory for every company) and the local authorities.
During the first year starting from the incorporation date, clients receive the offshore management service involving customer relations managers. There is also assistance in communication with the bank representatives.
After the first year, the renewal services are provided, which are tailored to individual needs and the situation. The renewal fees’ value depends both on the scope of work performed annually and on the existing fees established in the relevant jurisdiction.
There are three types of fees related to offshore maintenance:
- the mandatory Government fee (the State Duty),
- the mandatory Professional fee (the Registered office fee),
- the optional fee.
The State Duty is charged by the jurisdiction according to the national law for the annual renewal of the offshore company. In different countries, this Government fee is called a Registration fee, a Franchise tax, or an Offshore fee.
The Professional Fee is paid by the company to its Registered Agent or Registered Office. The Registered Agent provides mandatory services of maintaining the good standing of the offshore company. By law, every offshore business needs to have a Registered Agent or a Registered Office.
The Optional Fees include all amounts paid by the offshore to the Registered Agent for optional services once a year, or on other agreed terms. The services listed below are not required by the laws governing offshore business. However, they do contribute significantly to the efficiency of offshore business operations. Optional fees cover services of a nominee director and nominee shareholder, nominee account signatory, the mail and document processing services, secretarial, legal, and fiduciary management services.
Notification of payment or invoice will be issued approximately 1-2 months before the payment deadline.
Sanctions for the Offshore Renewal Non-Payment or Delay
It is important to pay the annual fees on time to comply with the formal requirements. If the required annual fees are not paid on time, the penalty will be charged automatically. Each offshore jurisdiction sets its own rules and penalties for late payment. The delay or failure to pay annual fees and submit annual applications will result in an offshore company’s removal from the Trade Registrar of the jurisdiction.
If the Government fee is not paid, the offshore company loses its good standing.
In case of the failure to pay the renewal fees, an offshore company that continues business activities or its relationship with the bank is considered a breacher of the ethical and legal principles of international business. In such cases, the company’s top managers and beneficiaries may face litigation and incur financial and reputational losses.
An offshore company may be (within a certain period) reinstated in the Trade Registrar after it has paid the Reinstatement Fees.
An experienced bona fide Registered Agent monitors the annual Government Fees and other relevant matters to ensure that the status of good standing of the offshore entity is retained.
The InternationalWealth experts make sure that all documents are up-to-date and accurately filed. They offer the best possible solutions in each specific situation, compile and submit documents required for annual updates, inform about the most important changes in the legislation, and are always ready to help in various matters.
Our partners in offshore jurisdictions take over to conduct the fiduciary offshore management, prepare and submit the accounting reports, communicate with bank representatives, and perform other business management responsibilities throughout the year.
InternationalWealth experts are committed to our clients’ business because our success depends on yours.
Should We Audit Offshore Accounts Annually?
It depends on the legal status of the offshore entity. As a rule, an offshore company does not need to audit accounts, but the audit of accounts may be required in some countries where the offshore company does its business. For example, a company in the Marshall Islands is not required to audit accounts, but if there is an office in Hong Kong, the tax office will ask to submit the audited accounts (or management reports) for tax assessment.
What is a Certificate of a Good Standing?
Certificate of a Good Standing (CGS) is the Certificate of a good reputation issued as an official document by the Trade Registrar.
The CGS is the proof that a particular company exists legally, has complied with all administrative requirements regarding its registration in the official register, has paid all state duties, has paid the taxes due under the Income and Entrepreneurship Tax Act, and thus is entitled to extend its activities, enjoy a good reputation in relation with the Trade Registrar.
By its format and content, the Certificate of a Good Standing is usually similar to the original IBC Certificate of Registration.
The Certificate of a Good Standing is used to officially confirm the annual renewal, i.e. the legal extension of the offshore company. The Certificate confirms that the status of an independent legal entity has not been canceled and has not become invalid for a particular offshore entity, that the company has not merged with another company, has not applied for dissolution, and has not been closed down.
Most banks, as a rule, regularly request the recently issued Certificates of a Good Standing from offshore clients that hold accounts with them. Therefore, it should be ordered at each annual renewal of the offshore. The requirement is a standard procedure if the IBC is over a year old. Any party (e.g. a potential business partner) has the right to request the CGS to ensure that an offshore is legally established.
The Certificate of a Good Standing can be requested and obtained from the Trade Registrar not only for the annual renewal purposes. It is a standard service provided by the Registered Agent. Since the CGS is essentially a snapshot of the legal situation at a particular point in time, there is no point in ordering a CGS in advance without a special need.
If the offshore business is not maintained properly and does not pay renewal fees, it loses its good reputation and is eventually removed from the Registrar. For such offshore entities, the Certificate of a Good Standing will not be issued until all due and overdue payments are paid and the corporate status is renewed. The renewal of a poorly performing offshore is possible, but it is expensive and time-consuming.
Some beneficial owners of offshore companies usually request Certificates of a Good Standing not for the annual renewal of offshore companies but to check if their Registered Agent has done a good job of maintaining the positive legal reputation. This is a sound management practice, and we highly recommend it.
What is a Certificate of Incumbency?
A Certificate of Incumbency is a document that states the date of the offshore entity’s incorporation and its current structure. It indicated the country of registration, the Registered Office address, some data of its managers and shareholders.
One of the appendices to the Certificate of Incumbency includes detailed information about the top managers, which is often required as part of the application portfolio for opening a bank account.
The Certificate of Incumbency is a standard requirement set by financial institutions around the world. In most cases, we advise new clients to order this Certificate as they may need to open bank accounts within the first 6 months of registration. For the Certificate of Incumbency to be accepted by financial institutions, it must be no older than 6 months.
The Certificate of Incumbency contains the following information:
- Date of the offshore entity’s incorporation
- Registration number
- Evidence of a good legal reputation
- Legal address of the office where the documents are stored
- Current top managers
- Date of appointment of the top managers
- Current shareholders
- Number of shares
- Authorized share capital
- Confirmation that no closing measures have been taken
- Absence of litigation and threats.
InternationalWealth’s Requirements for the Annual Offshore Renewal.
As required by our Compliance Department, the following steps need to be taken by offshore companies applying for the annual renewals:
1. The Acknowledgement form needs to be completed and signed by the beneficiary of the company.
2. The Professional Letter on behalf of an offshore company needs to be compiled, the founder can sign it.
3. The Bank reference letter to confirm the relationship with the bank needs to be submitted, the document must be no older than 3 months (the letter should specify the date of opening the account).
4. CV / Summary.
5. Certified proof of the address (utility bill, cell phone, bank statement)
6. Updated KYC.
7. Bank statement (as the proof of the origin of funds), the document should not be older than 3 months (with the highest balance on the balance if possible).
How Does the Annual Renewal of an Offshore Company Work?
During the first year, starting from the date of incorporation of the company, clients receive offshore management services involving customer relationship managers. There is also communication with the bank representatives. After the first year, the extension services are provided taking into account individual needs. The amount of renewal fees depends on the scope of work performed annually and the existing fees in the relevant jurisdiction.
Why Does an Offshore Bank Need a Certificate of a Good Standing?
The Certificate of a Good Standing is a document issued by the Trade Registrar in certain countries as evidence of the current legal status of the offshore company. The certificate confirms that the business is active and developing. In practice, the bank requests the Certificate of a Good Standing annually as the confirmation that the company is still mentioned in the Registrar. The business partner may also wish to see the Certificate.
Why Does an Offshore Company Need a Certificate of Incumbency?
The Certificate of Incumbency is a document issued by the Registered Agent. It includes the details of the status and structure of an offshore company. The certificate can be included in the list of documents to be submitted to the bank for account opening and can be requested by partners as evidence of the company structure.