Offshore Companies are non-resident businesses that are established, registered or incorporated in foreign jurisdictions where they will conduct an insubstantial or zero volume of business. The majority of offshore companies are formed for tax planning purposes.
Generally offshore companies have three features:
- They should be registered as a company within the jurisdiction of incorporation.
- The company or individuals who form the company (the incorporators) normally live outside of the country of incorporation.
- Finally, the company will normally be restricted to only transacting exclusively outside of the jurisdiction of incorporation.
- Asset Protection- This includes safeguarding assets from impending foreign legal actions.
- Reduced Tax Liability- Shifting the tax burden from a high tax jurisdiction to a low tax jurisdiction with careful corporate structuring will minimise a companies’ tax liability.
- Business Expansion- Companies looking to create a worldwide customer base will often relocate their business to an overseas jurisdiction for logistics.
- Privacy- Offshore companies have limited filing requirements and frequently make use of nominee directors and shareholders to disguise the ultimate beneficial owner’s true identity from third party inquisitors.
Offshore companies are used for a myriad of purposes, although frequently associated with international tax planning, wealth management and asset protection. Our offshore consultants are able to create offshore companies in almost any jurisdictions, worldwide, tailored to the client’s individual needs.
For specific guidance with the formation formalities for each separate jurisdiction, please consult one of the specialist formation consultants at Offshore Universe.
In nearly all cases using a directly owned offshore company will not be a viable option to avoid all taxes. Most high-tax jurisdictions have deemed residence provisions, which catch offshore companies if their central management and control is in the jurisdiction where the incorporators are based.
Despite, the above assuming that you can arrange the structuring of the company correctly the potential advantage can be astronomical.
In the context of the United Kingdom, an appropriately established offshore company, will be:
- Exempt from all tax on capital gains (providing the assets are not used for the purposes of UK trade or the company is selling certain UK residential property in excess of £500,000.00.
- All tax on foreign profits.
In order to establish tax-free trading, the proposed offshore company will need to be structured in such a way to ensure that is managed and controlled overseas.
what type of offshore company?
There are numerous offshore company structures available, all of which vary depending upon the jurisdiction of incorporation. The five basic types of company are:
Private Limited Company (PLC)
A private limited company is the most popular offshore structure. An offshore private limited company, offers limited liability to the members, shareholders or subscribers of the company therefore their liability is limited to what they have either invested or guaranteed to the company.
The majority of small businesses elect the onshore private limited company structure because it protects the owners against trading losses and business debts. The company will be responsible for its own losses and debts and the shareholders personal assets will be protected from creditors. The disadvantage is that the business is regarded as a separate legal entity and therefore all business profits are subject to the local corporate taxes; in the United States the national rate is 35% and in the United Kingdom the national rate is 20%.
The happy medium can be found through incorporating a private limited company offshore, as the members, shareholders and subscribers of the offshore company still have limited liability and the business can reap the rewards of reducing its overall corporate tax liability.
International Business Company (IBC)
This is the generic name given to an offshore company however it is difficult to identify a common feature for an IBC other than the fact they are commercial offshore vehicles used to: (i) to avoid foreign taxes; (ii) hide assets or (iii) trade overseas i.e. establish a global trade network.
IBCs are generally incorporated entities with their own separate legal personality therefore they can be used for virtually any reason including: holding overseas, property, shares, bonds, bank accounts and other tangible and intangible assets.
Unlike companies in high-tax jurisdictions, all the IBCs we offer to our clients have little to no disclosure requirements with hardly any form filing therefore there will be no obligations on the directors to file annual accounts, returns and/or hold an annual general meeting.
Bearer Shares Company
Certain jurisdictions such as the British Virgin Islands and Panama will still permit companies to be formed with bearer shares.
Unlike normal companies, a company that uses bearer shares does not list the owner of the shares on the share certificates therefore when the owner/ member wants to transfer ownership they just have to handover physical control of the certificates. This means that the person in possession of the certificates is the legal owner of the company.
The great benefit to using bearer shares is the fact that it adds a layer of privacy to the structure of the company, as it is difficult for third parties to discover who owns a particular company were bearer shares are used.
Limited Liability Company (LLC)
An LLC stands somewhere between a partnership and a UK company, having the partnership characteristics where the members are entitled to the profits as they arise and owning an interest comparable to that of a partnership interest and the corporate characteristics of carrying out a business without liability on the members and there being some separation between the managing members and other members falling short of the distinction between members and directors. The UK courts have determined that it is closer to a partnership than a company.
Much like a company or a limited liability partnership (LLP) the LLC structure also benefits from limited liability therefore personal assets are kept separate from the business assets.
It differs from an LLP because the minimum number of people required to form an LLC is one and much unlike a UK company, the LLC structure is very flexible, in particular the filing / record keeping requirements are minimal therefore there are limited occasions to keep minutes or formal resolutions.
société à responsabilité limitée (SARL)
The Sarl is a private limited liability corporate entity that exists in a number of zero and low tax jurisdictions including: Switzerland, Luxembourg, Monaco and Macao. The Sarl’s structure is geared towards commerce therefore it frequently suits trading companies.
In the majority of jurisdictions offering the Sarl, the national legislation requires a minimum capital which must be fully subscribed and fully paid up at the time of incorporation. In Luxembourg the minimum paid up capital is EUR 12,394.68.
Additionally, the company must be managed by one or more managers who need not be the unitholders (similar to shareholders) of the company. A Sarl must not have more than 40 unitholders and the units cannot be represented by negotiable shares, they can only be transferred to non-members with the approval of the other unitholders, representing at least three quarters of the issued share capital.
The Sarl structure is perfect for average sized companies and many businesses across the world use the the Sarl as a subsidiary company as part of a larger corporate structure.
Why Offshore Universe?
Offshore Universe’s main business is setting up and managing offshore companies, trusts, foundations and other corporate structures specifically tailored to meet the personal and/ or business needs of our clients. Typically these requirements would include tax planning, asset protection, foreign property ownership and enabling cross-border business.
Our Offshore Consultants, unlike other offshore company service providers all either practising lawyers or former lawyers therefore they are all capable of providing legal and/or tax related advice on any issue 24 hours a day 7 days a week.