How Does an Offshore Company Work?

As the name suggests, an offshore business is one that is established outside the country where it is registered. For better or worse, people are now becoming more aware of the world of offshore. In general, an offshore company is the one that is incorporated in a different country from the country of residence of the shareholders, and it is usually meant not to do any economic activities in that particular country.

Offshore companies are also known as –

  • Non-resident companies
  • International Business Companies (IBC), and
  • Exempt companies

Why Set Up an Offshore Company?

Most of the investors prefer offshore company due to the tax advantage that it brings. Some of the benefits of setting up an offshore company are mentioned as under-

  • Offshore company income is exempted from local corporate taxation, provided that the offshore company engages in no local business
  • Offshore company records of shareholders and directors are not publicly accessible. It ensures the confidentiality on the personal details of shareholders and directors
  • High net worth individuals save on professional fees by using offshore companies as Personal Holding Company
  • Offshore companies are regularly utilised to own property and real estate
  • Intellectual property, including patents, trademarks and copyrights, can be owned by, or assigned to, an offshore company upon acquisition of the rights.

Who Should Start an Offshore Company?

An offshore company can work for several people. If you are a businessman, for example, you can establish an offshore company for confidentiality purposes or easiness of administration. An offshore company can also be used to carry out a consultancy business. It can be easier to manage the company, and you will also take benefit of the taxation benefits. One can also set up an offshore firm for inheritance purposes, provided that you pay all the related costs, you might be able to use an offshore company to avoid the inheritance tax laws.

In particular, it is more straightforward and more beneficial for digital nomads and business person who isn’t tied down to any one place. If your business, project or situation is one of the following, you have it easy –

  • E-commerce and internet-based companies
  • International companies
  • Succession and inheritance within companies
  • Investors and traders
  • Owners of mobile assets (like yachts, for example)
  • Beneficiaries of intellectual property
  • Consultants

How to Choose an Offshore Jurisdiction?

There are a lot of things to keep in mind while selecting an offshore jurisdiction. For example,

  • Are there a reliable means of communication?
  • Is that particular offshore jurisdiction reputable?
  • Is it politically and economically stable?
  • How sophisticated are the tax laws?

Best Jurisdictions to Start an Offshore Company?

There are quite a several offshore countries where you can set up your business. Some of the things to be considered before incorporating includes residency situation, your business and banking needs. The most popular offshore jurisdictions are mentioned as under –

  1. Hong Kong – One of the things that make Hong Kong attractive for starting an offshore company is their favourable taxation regime. One can trade internationally without paying any local taxes; the only condition is that one should not have a basis of income from Hong Kong
  2. Cayman Islands – Cayman is a popular place that is known to offer a convenient offshore business environment. The location is especially famous for investments and large fund formations. The Cayman Islands are currently the most significant offshore banking centres.
  3. The Bahamas – In the Bahamas, there are two essential things that one can take advantage of, investor’s confidentiality and taxation. One can set up an offshore company for a variety of purposes which includes tax reduction, estate planning, and asset protection, among others. The companies are also exempt from income tax and can be incorporated with one shareholder.

Conclusion

An offshore business can be beneficial in many ways if set up in the right country. It is essential to pay attention to details when coming up with your selection as not all jurisdictions will allow you to open for bank accounts and you need to ensure you practice proper tax planning for your regional as well as the foreign jurisdictions.

Business Setup Worldwide provides services of setting up an offshore company. Should you decide to start one, contact us, we’d be glad to assist you.

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