This article answers the most frequently asked questions about offshore companies and their formation. To understand why they are considered the best business solution in many situations of uncertainty and change, let us study the definition, the legal status, some vivid examples of benefits, the reasons and procedures for their incorporation, and other key aspects of registration of businesses in zero-tax and low-tax countries.
The habitual use of the word ‘offshore’ evokes mostly associations with the remote location – somewhere miles away from the mainland, on a shelf, in deep water, in the middle of nowhere. As our world is getting smaller, the terms ‘offshore jurisdictions’, ‘offshore companies’ do not mean any longer overseas entities.
What is “offshore”?
Most often today this adjective is used in combination with ‘Financial Centre’ (OFC), ‘tax haven’, or ‘jurisdiction’. Sadly enough for many people they mean places where one can hide money from the tax authorities via the formation of companies or their branches on their territories.
Let us put it straightforwardly: this prejudice has long been false.
Almost all zero-tax or low-tax countries, to avoid sanctions and global isolation, diligently comply with the requirements of international financial organizations to share financial reports and submit to Registers information on beneficiaries and CEOs.
On the other hand, they do differ from ‘midshores’ and ‘onshores’ by offering a more business-friendly environment luring owners to legally register entities in OFCs and enjoy all the relevant benefits.
The status of an offshore state implies the following main incentives for offshore companies formation (i.e. business entities registered in such countries):
- zero tax rate on any income from worldwide sources,
- no requirements to keep financial records and conduct annual audits,
- confidentiality of information on beneficiaries and managers (unless this privacy is compromised by the statutes of UBO registers subject to international treaties).
Is it legal to register an offshore company?
Today, almost all states (even the smallest ones) strive to comply with the requirements of international financial organizations to evade their sanctions of any kind. By meeting the established criteria and carefully complying with the legislation on combating the financing of terrorism and money laundering, low-tax jurisdictions avoid tax abuse accusations from the world powers and their international alliances.
Therefore, registration of companies in tax havens around the world is legal and is not a violation.
At the same time, many countries do not or have not yet fully fulfilled the taken obligations. The FATF, the EU, the OECD maintain the graylists and blacklists of tax havens required to improve transparency. Registration in such countries can prompt negative consequences for a business and its owners.
There are also lists of countries with ‘preferential tax regimes’ compiled by the authorities of the CIS countries, Ukraine and Georgia. This does not mean that you cannot register a firm in the listed states, but certain operations and issues will be more challenging.
What is the purpose of setting up an offshore company?
Such companies are effective tools for achieving the following objectives:
- to protect one’s business from raider attacks;
- to accumulate funds for major investment projects;
- to raise investment capital on international stock exchanges;
- to manage tangible and intangible assets;
- to reduce the cost of starting a business;
- to optimize taxes;
- to get access to upgraded and new banking services;
- to develop business in a more business-friendly environment;
- to conduct international business;
- other objectives.
Company incorporation in an OFC is in no way suitable for hiding income, as international financial laws observed by such states promote and enforce transparency.
What are the benefits of going offshore in business?
Companies incorporated in tax havens open access to the following opportunities:
- to significantly save resources in the initial stages of the business;
- to reduce the cost of business administration;
- to diversify cash flows;
- to gain access to cheaper and more accessible sources of funding;
- to ensure a high level of business confidentiality.
You can learn more about benefits offered by OFC around the world from our experts. Please send your question, ask for a free consultation, and order set-up services by writing to the e-address given at the top of this page.
Is there a global rating of jurisdictions?
A comprehensive comparative analysis has not been performed so far in the world. However, very interesting research results published by the Tax Justice Network team are worth your attention. They have recently launched two projects ranking states based on how much financial secrecy they supply to the world. The outcomes are going to be updated once every two years:
- Corporate Tax Haven Index – comparing tax havens popular with multinational corporations;
- Financial Secrecy Index – comparing jurisdictions by private financial wealth secrecy levels.
It would not be fair to recommend either of the above-mentioned rankings as a point of reference because the research is based on several parameters omitting many other important factors. Therefore, they can be used only for your general information.
For more balanced judgments and specific data, you are welcome to refer to our experts.
If you are planning to register a foreign trust, corporation, branch, or another structure, please ask for advice from our team of experienced professionals specialized in international business and law.
How easy is it to register an offshore company?
Before applying for the registration of your firm in a particular jurisdiction, you should decide what it will be used for. The purpose can be to optimize tax payments, to perform international transactions, to attract investment or raise funds, to protect assets, etc. We recommend not to make a rash decision on your own. There is every reason for conducting a thorough study weighing the strengths and weaknesses of the jurisdiction(s) and its corporate legislation. These tasks will take a lot of time and yet will not guarantee the best solution. Our experts have been working in this field for over 20 years and have extensive experience in selecting jurisdictions and offshore companies formation. They will help you quickly and efficiently select the country by your parameters so that you could start a business that will meet all the specified requirements as much as possible.
How much financial privacy can be guaranteed in offshore jurisdictions?
One of the most popular reasons for opening an offshore company is to enhance one’s assets protection. Most classic low-tax jurisdictions provide a high level of confidentiality and security of data submitted to the Ultimate Beneficial Owners Registers, and many of them allow the use of nominee service. However, you should be aware of the following facts:
- The detailed information about beneficiaries and top managers is also filed in the registered agents’ databases, and (in some cases) it can be disclosed by court order;
- In some OFCs, it is very difficult to sue a local company for any breach of agreement; for example, to take a company to the court in Nevis, a plaintiff/claimant needs to first provide a bond of $100,000.
Awareness of the above-mentioned specifics and differences of privacy protection across jurisdictions allows beneficiaries to plan their company structure, business strategies, and safety measures accordingly.
How many persons are required to set up an offshore entity?
To open a firm in a zero- or low-tax jurisdiction only 1 individual or legal entity is enough. It is quite often that the founder holds several positions. In particular, the owner can act as the Director and a Secretary. Only when the entity is initiated as a partnership, at least 2 persons are required.
Who manages offshore business?
It can be managed by the founder/founders or by hired managers. It may also be run jointly by hired managers and founders. The choice of the highest authority depends on the form of the business entity. It can be the Partners’ Meeting or the General Meeting of Shareholders. However, to simplify the arrangements, most low-tax states allow such meetings to be held anywhere, even remotely.
How much is an offshore company?
Many factors influence the total price of a shelf company or the cost of a new entity establishment in a low-tax territory. In particular, the total amount depends on the structure type, the number of founders, the filing fees, the business profile, the prices of relevant services, and other aspects. You can always refer to our experts for valid detailed information about the cost of incorporation across the world.
Can I buy a ready-made offshore entity?
Buying an off-the-shelf business may offer you several immediate advantages. The most important benefits are the following ones:
- the purchase saves time;
- the ready-made company (especially if it is in operation) allows you to kick-start business operations.
However, such advantages may be unavailable in some cases (when the firm is sold without a bank account, and in some other situations). To avoid critical mistakes and disappointments, you should consult professional experts and foresee possible complications.
What is a typical timeline of offshore incorporation?
Most OFCs provide the opportunity to open a company in just a few days. However, some extra time is needed to compile and prepare the portfolio of all application documents.
Where is the best place to register an offshore company?
There are many states where there are no taxes on worldwide income. Therefore, when choosing a country or territory to set up a company, you should compare them by several parameters. Your list of criteria should include, for example, the following aspects (and countries that we recommend as points of reference):
- the reputable international standing, easy access to the international arena (Scotland, England);
- a high level of data protection (Nevis);
- easy registration, low administrative costs (the Marshall Islands);
- no annual reporting or auditing requirements (Belize);
- the developed financial sector (Great Britain, Switzerland);
- cryptocurrency and blockchain activities (mostly in Asia), the maturity of the FinTech sector (the United States).
Our experts are ready to help you in choosing the right tax residence for your business, as well as with the registration and turnkey formation of an offshore company.
You can contact us at the e-address given at the top of this page.