The Benefits of Setting up an Offshore Company. How to Set Up an Offshore Company
An offshore company can offer many benefits and advantages to its owner that would otherwise be impossible to attain without it. With the rise of globalization, setting up an offshore company has become ever more advantageous and easier to accomplish. The benefits to gain from an offshore company will always depend on the the jurisdiction of the offshore company and to a certain extent, it will also depend on the laws of the country of residence of the company’s owner. It is therefore necessary that you not only pay attention to the offshore jurisdiction but that you also consider your local laws to make sure that every step you take is in line with the law.
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The Major Reason for an Offshore Company Setup
The major reason people setup offshore companies is to take advantage of international laws. Lots of people falsely assume that offshore companies are all about money laundering and tax evasion, but this can’t be any further from the truth. There are fundamental laws that are necessary in every society, and such laws are always somewhat identical worldwide, like marriage, age of adulthood and criminalization of theft and murder. But when it comes to money and business practices, there is really no internationally accepted standard or code of ethics that a government should follow in the management of its economy and the businesses within it.
Many countries in need of foreign capital and investments have fashioned laws that make their local business climate attractive in one way or the other, especially for well to do foreigners. By becoming properly educated about these different laws, you can then decide to legally take advantage of them by setting up an offshore company of your own. Some of the favorite offshore destinations of the world include Anguilla, Seychelles, Belize, The British Virgin Islands, Cyprus, Denmark, Dominica, Gibraltar, Ireland, Hong Kong, The Netherlands, Nevis, New Zealand, Seychelles, Singapore, Panama, The Marshall Islands, The United States of America and The United Kingdom.
The U.S.A. and the UK are interesting jurisdictions for an offshore company setup, for non-resident individuals who are not really interested in tax havens but rather want to make use of the other benefits of having an offshore firm.
The Benefits of Setting up an Offshore Company
The following are some benefits of setting up an offshore company. This list of benefits should hopefully throw some light on the advantages of running an offshore firm and also possibly answer any questions you may have concerning the issue.
An offshore company can be the perfect vehicle for protecting your wealth. If you have a considerable amount of money then an offshore company can help you to protect it from lawsuits and divorce settlements. Normally in a lawsuit, you are liable as an individual, including your properties, assets and in fact anything that belongs to you that could be turned into cash. Some lawyers even specialize in suing high net-worth individuals and as long as you are worth some good money, someone will always be scheming to sue you. An offshore account that belongs to an offshore company, that belongs to you gives you peace of mind because if you do get sued, then your offshore assets will be completely out of the reach of any greedy lawyer.
Benefit From Low Taxes
Setting up an offshore company can help you to benefit from the low taxation laws of certain jurisdictions, also popularly known as tax havens. The level of taxation normally depends on the jurisdiction. Some offer complete tax-exemptions for non resident companies, others offer very low taxes and some others still offer attractive flat-rate taxes or license fees. Another very attractive offer is the 0% capital gains tax where the interest gained from money market transactions is not taxable. This is usually a big attraction for high net-worth individuals who would like to invest their money in safe avenues while avoiding the payment of tax on their profits. An important factor to consider in this situation is the laws of the country of residence of the beneficiary owner of the shell company, in order to ensure that there are no conflicts of the tax laws between the two jurisdictions.
Help with International Expansion
An offshore company setup can in certain situations be very necessary in order for a business to expand internationally. A local company may encounter many legal and bureaucratic issues that will hamper its international expansion as long as it adheres to the rules and regulations of its home country. But with an offshore company setup in a favorable jurisdiction, international growth of the company can be expedited. This situation is especially true for companies that have already gained heavy growth momentum at home and want to expand internationally. It has also become very common among Internet companies with Google and Apple being very good examples.
Lower Costs of Business Operations
Depending on where you are from, the type of business you are into and where you plan on setting up an offshore company, chances are that you most definitely will have lower costs of operations. If you use a full service offshore company service, there will also be extra services available at a small fee like mail-forwarding and telephone answering services in addition to a registered company address, appointment of directors, payment of government fees and adherence to their other regulations. Depending on the nature of your business, these services may be enough for you but when they’re not, they will at least lower your cost of doing business.
An offshore company setup will help you to defer taxes almost indefinitely or until you sell the offshore company. Given the simplicity of running an offshore company, you could do almost anything you want with it, the only possible problem is your local jurisdiction where you live physically. If you are not required to file reports about your foreign holdings, then no problem. If you are required to file reports or pay taxes on your foreign holdings then you could simply defer the taxes of your shell company for as long as you want, legally.
Compounding of Tax Deferred Profits
Setting up an offshore company enables you to reinvest your tax deferred profits over and over again, effectively compounding it in the long run. Assuming you decide to defer taxes for twenty years, reinvesting the profits every year, at the end of twenty years, you should have built yourself a tidy sum of money. It is important to note here that this possibility might not work with certain types of businesses.
Ease of annual reporting
Compared to most onshore or major judiciary systems, the reporting requirements for offshore structures are quite limited and very easy to handle. The information required from offshore companies is comparatively minimal and some jurisdictions will even just demand a flat license fee and that’s your business report for the year. Setting up an offshore company makes good business sense in this regard because you will not be experiencing the normal stress that is associated with running a business in major (onshore) jurisdictions.
Multiple Income Streams
Starting up an offshore company will give you more financial stability. Markets are volatile and economies rise and fall. Nobody knows for sure how well any economy will fare in the future, man can only speculate. With a company in a different jurisdiction, which is subject to different laws and market forces, you will secure yourself against any possible economic catastrophes since you have access to at least two economies. If anything happens in one, like rapid inflation or political instability, then you can still depend on the other. Many families have lost their fortunes through political unrest and wars. Many of these companies were of a nature that could have benefited from an offshore sister company, enabling the owner to not loose out completely in times of trouble.
An offshore company offers higher levels of anonymity for the company owners. Many offshore jurisdictions do not publish the details of company owners and many do not even require the publication of financial information from the company owners. In many onshore jurisdictions, gaining access to the details of any company is quite easy but it is the opposite with most offshore jurisdictions. This has made it possible for an individual to own an offshore trust which owns part or all of another offshore company making it sometimes very difficult to determine the true owner of an offshore company. This situation is further compounded by the fact that many offshore jurisdictions will only publish information about a company’s owner only in the event of a terrorist investigation, money laundering or other serious criminal investigations.
VAT Savings for Services
With an offshore company, you could actually save on Value Added Tax depending on your type of business. If you own an offshore firm and you buy services from other businesses that are non-physical, those businesses actually have to deduct VAT from their prices because the service is effectively being exported.
Types of Offshore Structures and Their Advantages
Aside from simply setting up an offshore company, there are different tried and tested structures with which many knowledgeable individuals have successfully operated offshore accounts that often were in reality, big international businesses.
The International Investment Company
An offshore investment company is the perfect vehicle for investing in different countries tax efficiently. Setting up an offshore company for this reason will allow the investor to freely move cash in and out of different countries legally while managing the local investments there. This is because as an investment, the offshore company is allowed to recoup its investment completely and tax is only payable on the interest that has been generated from the capital investment. Also, some jurisdictions even offer 0% capital gains tax making this a perfect business type for savvy investor with a free cash flow and international interests.
An offshore trading structure can offer many benefits to an import and export company. By moving to an offshore jurisdiction, the trading firm can accept orders normally but has the opportunity to ship them direct from the manufacturer’s warehouse. This way, the offshore company involves itself as little as possible with the physical goods, but it gets to keep the profit.
And if the jurisdiction offers good tax benefits, the import and export company stands to make more profit than normal as a result of the tax savings.
An offshore company setup can be used to create a holding company which has subsidiaries in many different countries. The benefit to be obtained in this way is that the subsidiaries can obtain tax deductions on interest paid. This is notwithstanding that the interest paid on the capital investment came from, and is going back to, the parent company. And if the offshore jurisdiction offers 0% corporate or capital gains tax, then this is a very effective way of building up funds in the tax haven, which can later be invested in a different subsidiary.
High Income Professional Service Providers
High income creative professionals who provide non-physical services have the possibility of contracting an offshore firm to receive and process payments on their behalf. The profits earned by this offshore firm are then not subject to onshore taxation and can be reinvested in other profit generating avenues. Another important aspect of this arrangement is that the professional’s payout can be tax-optimized and the possibilities of this optimization are limited only by the imagination.
Probate & Privacy
High net-worth individuals who happen to have properties or other tangible assets in many different countries may better decide to hold them through a personal holding company. In this situation, a probate would, upon his passing, be applied for in the jurisdiction of his company rather than individually in every country where he holds assets. This in turn saves legal fees for everyone involved and also offers a higher level of privacy. This structure is attractive to high net-worth individuals who love to keep a low profile and avoid all the noise.
With an offshore property ownership company, you can avoid inheritance tax because the property is not in your name. Sale of the property is also easier because you can just transfer shares in the company, there can therefore be no need for capital gains tax if you so wish.
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