While many people are familiar with the word offshore, few know about onshore jurisdictions or onshore companies, even among business professionals. The concepts are rarely mentioned in the news or paid attention to by the media, which is why the term onshore is often ignored. However, it’s crucial for entrepreneurs who are doing business or planning to do business in foreign countries to understand specialized terms.
What is onshore?
The word onshore comes from English and means within the shore area. It is used to describe places where there are no special tax benefits, and information about owners is available to the public. In the past, it included countries that implemented international agreements for sharing financial and tax-related data. Nowadays, even traditional offshore places like Nevis follow international rules and share information.
This way, an onshore company is a legal business that doesn’t benefit from a preferential tax-exempt status in a jurisdiction fully meeting FATF and OECD requirements. Usually, this place is where the owner and/or beneficiary of the company permanently resides.
Company established onshore: meaning and characteristics
Here are the traits that standard onshore companies typically possess:
- They keep proper financial records and follow auditing rules in the country where they are registered.
- They pay taxes as provided for under regular laws without any special treatment.
- They can take advantage of double tax treaties.
- They operate as fully functioning legal businesses.
FREE EXPERT CONSULTATION
on economic citizenship programs,
how to choose a jurisdiction
and get a foreign passport.
on economic citizenship programs, how to choose a jurisdiction and get a foreign passport.
What are the uses of an onshore company?
An onshore company has many purposes in business, just like an offshore company. Here are its main uses:
- Creating a real business that is not involved in offshore schemes.
- Taking advantage of tax benefits that double tax treaties provide.
- Improving the reputation and credibility of the business.
- Verifying the legality and source of the company’s income.
Standard onshore jurisdictions mean countries that are not included in any gray or black lists by international financial organizations and governments. Some examples include Germany, Switzerland, Lithuania, and Georgia.
On the other hand, an onshore jurisdiction can also denote the country where you live as a resident, without any special advantages.
However, it’s important to understand that even states like Switzerland, Germany, and the United States can function like offshore jurisdictions if you are a non-resident and use certain benefits therein.
What is offshore?
Offshore jurisdictions are areas that are known for their low taxes or even no taxes at all. They keep lists of company beneficiaries and directors, and these lists are closed from the public. These jurisdictions have easy-to-follow or no requirements for financial reporting. There, company registration doesn’t cost much. Offshore jurisdictions don’t have any strict substance requirements.
In the past, offshore jurisdictions didn’t share tax information with anyone. However, since 2013, with global efforts to reduce offshore financial activities on the rise, traditional offshore jurisdictions had to accept the new rules. Nowadays, both offshore and onshore jurisdictions share financial and tax information. In some cases, onshore jurisdictions like the United States may come with less transparency than offshore ones.
In a modern interpretation, the term offshore can be used for any foreign location that offers excellent conditions to foreign investors, such as lower taxes, simpler paperwork, incentives, and more.
Offshore company hallmarks
Below, you will find the hallmarks of offshore companies:
- They pay low or no taxes on revenue earned from exports.
- They don’t have to submit tax reports.
- The information about the company’s beneficiaries is kept private and not accessible to the public.
- The costs of registering and managing the company are affordable.
- They pay annual company renewal fees to the offshore jurisdiction’s budget.
In some cases, offshore jurisdictions are classified based on whether they are on international organizations’ and countries’ gray or black lists. However, changes in the global economy and regulations have had a big impact on this. Being on a blacklist creates difficulties, so jurisdictions aim to be on a gray or, ideally, a white list for smoother operations.
It’s important to understand that offshore entities can greatly reduce taxes, especially for high-earning companies. However, smaller businesses do not benefit as much due to higher operational costs.
Because of this, almost every country has its own list of offshore jurisdictions to tax profits within their borders and discourage money from leaving the country. These barriers make it harder to transfer money to accounts in offshore jurisdictions, and offshore companies face challenges when trying to open bank accounts abroad.
Why do people establish offshore companies?
Offshore companies serve various purposes. You can set up one to reduce taxes, improve the way your business operates, expand into global markets, and enhance the privacy of your personal data. Such companies facilitate global business interactions, reduce administrative burdens, and mitigate potential social and political risks.
Onshore and offshore companies: comparison table
To better understand the differences between onshore and offshore companies, we recommend looking at the table below. It lists the key features that set these 2 concepts apart:
|Taxes||standard taxes||low or no taxes|
|Reporting||You are required to provide detailed financial reports, and there may be a need for an audit review||Financial records are kept, but in most cases, you are not required to submit them to anyone|
|Financial information exchange||Financial information is shared as provided for under the corresponding international agreements and treaties||Financial information is shared as provided for under the corresponding international agreements and treaties|
|Public registers||Lists of company founders are publicly available||Information about company directors and founders is not publicly available|
|Nominee director||No nominee directors are used||Professional directors may be used|
Both onshore and offshore companies are important in international business. However, it can be difficult to set them up correctly without expert help since each jurisdiction has its own rules and factors to consider when starting a company.
These factors include the country where the company is registered, the citizenship of its owners, the type of your business, and whether licenses are needed. To avoid unnecessary costs and focus on what’s important, the International Wealth team will assist you in registering your onshore or offshore company. We have expertise in both company setup and bank account opening.
Feel free to contact International Wealth consultants at email@example.com or use our online chat. We’re here to help you choose the best jurisdiction that will match your business needs to a tee.