Offshore company formation brings about a plethora of benefits for businesses, which includes tax advantages, asset protection and international business opportunities. Globalization has tremendously eased the process of setting up offshore companies. Therefore, with each country offering different advantages, it is crucial to select a country which best meets your long term goals and business needs.
What is an offshore company?
An offshore company is a company incorporated in a jurisdiction outside of the country where the beneficial owner of the company is. Simply put, an offshore company is incorporated overseas in a foreign jurisdiction. Offshore companies are often called International Business Companies or IBCs.
Offshore companies are corporate entities that trades, holds assets and conduct business activities outside the jurisdiction the company is incorporated. As offshore companies are owned and exist as non-resident entities, financial transactions of offshore companies are made outside of the jurisdiction the company is incorporated in and hence they are not liable to local taxation.
Moreover, offshore companies are also separate legal entities from their owners or directors. By separating the company from the owners, the owners are not liable for the company’s debts or liabilities. As debts and financial liabilities incurred by the company become separate from the owners of the company, assets of the owners and directors of the company are well protected.
Some of the popular jurisdictions for offshore company formation include Belize, Cayman Islands and Singapore.
Reasons to set up offshore company
More often than not, setting up offshore companies allow businesses to take advantage of the flexible company regulations which cannot be found in their home country. While there are numerous reasons to set up offshore businesses, the distinct characteristics of offshore businesses include asset protection, privacy and tax reduction.
Among the numerous efforts made by governments to attract foreign companies to set up offshore businesses, it includes corporate laws that simplify regulations to lower the bureaucratic red tape and offering special taxation status to non-resident companies. Depending on tax obligations of different jurisdictions, companies may not be liable for domestic taxation or they do not need to pay taxes on capital gains and worldwide income.
For those looking to lower their tax burden in tax havens, offshore companies are generally exempt from taxes or pay a minimal amount of tax in the country of incorporation. As a result of such efforts, many businesses choose to set up offshore businesses so that they can move from a jurisdiction with high taxes and regulations and to a jurisdiction where they can take advantage of local corporate laws and liberal regulations.
- Privacy and confidentiality
Another reason foreign companies use offshore companies is that it offers them a high level of privacy and confidentiality. Offshore companies allow individuals and businesses to separate their assets from liabilities. As offshore companies are separate entities, you can carry out financial and business transactions through the name of your business instead of your name, thereby offering privacy to business owners.
Moreover, company registers in certain offshore financial centres do not disclose details of the company on public records, thereby providing confidentiality for directors and shareholders. This is beneficial for individuals or companies that wish to keep their identity private and remain anonymous. Another way to ensure confidentiality is the use of nominee directors, shareholders and secretaries.
- Asset protection
Additionally, asset protection provides another reason for setting up offshore companies. It is imperative that you protect your assets against your financial enemies. Allowing your offshore corporation to possess your investments, bank accounts or trusts makes tracking them down a challenging task.
Numerous companies wish to spread their assets in different parts of the world due to greater political stability in some countries. With the separation of the company assets from you as an individual, it allows you to protect your assets from anyone who wishes to seize your assets, such as creditors, private parties and attorneys.
- Greater flexibility
Business owners can benefit from flexible company laws for offshore company incorporation which are offered by numerous jurisdictions. In general, offshore companies provide flexibility in terms of the company’s structure, the amount of capital, number of officers, directors, shareholders and location of the meeting.
- Simple corporate regulations
In an effort to attract foreign investors and businesses, offshore jurisdictions have created simplified corporate regulations and reduced the amount of bureaucratic red tape. This includes the absence of auditing and financial reporting requirements, as well as secretaries and the need to hold company meetings. With the reduction of such obligations, this allows companies to operate smoothly without much hassle.
Best countries to set up offshore companies
Before you set up an offshore company, it is imperative to choose the best place to form your company which can best suit your personal and business needs. With each country’s unique financial environment, they offer particular advantages for different businesses. Here are some of the top countries for offshore company set up:
Singapore is one of the best places to conduct business, having ranked 2nd according to The World Bank’s Ease of Doing Business Report 2020. Having established a strong reputation of a business and financial hub, Singapore has also been recognized as a gateway to Southeast Asia. With a world-class financial financial system and strong business and financial regulations, investors are well assured that they are offered great investment protection for their assets.
With an advantageous taxation system, Singapore has a competitive corporate tax rate of 17% and it is also one of the lowest in the world. The Singaporean government does not levy taxes on capital gains or dividends distributed to shareholders.
- Cayman Islands
Over the years, the Cayman Islands has established a strong reputation as a tax haven. There is no implementation of direct taxation in the form of income tax, capital gains tax and wealth tax. This is a significant cost consideration as this means that businesses are subjected to minimal tax burden, which leaves foreigners more profits for them to reinvest into their business. Coupled with a politically and economically stable environment and strong regulatory framework for their offshore banking services, this has made Cayman Islands as one of the world’s most recognizable offshore banking destinations.
International Business Company (IBC) is the most commonly used and advantageous type of business structure for foreigners in Belize. Belize IBC has a straightforward and fast incorporation process which can be completed within 24 hours. Moreover, the Belize IBC is fully exempt from paying any form of tax in Belize. A country with stability, it provides confidentiality and privacy in terms of account related information and records of directors and shareholders.