Setting up an offshore company is an attractive alternative for many entrepreneurs regardless of their current location. Therefore, it may be just the ideal way to protect their assets and still seek profitability when doing business abroad.
In addition to having greater tax benefits, offshore companies are gaining prominence for offering good conditions for growth in the international scenario. This organization modality favors financial planning due to low taxation schemes.
If you want to invest abroad, it is essential to know how offshore companies work. To help you, check out this post for a complete guide to open a company in this type of business and ensure great results!
WHAT IS AN OFFSHORE COMPANY?
The term offshore is an expression that describes a financial entity residing outside your country’s legal boundaries. These are companies incorporated in countries where the partners or owners do not reside and are not nationals.
In other words, you could be currently living in Italy but want to open an LLC in the United States. In that case, you’ll be having an offshore company. That’s nothing to be scared about, right?
Moreover, some of the largest corporations in the world, like Apple, Facebook, Google and Amazon, are doing this exact thing.Their objective is simple: by incorporating offshore companies, a great deal of revenue is retained, which gives these companies the opportunity to direct their money in the best way they think of.
This approach has proven to be an ideal one for any kind of entrepreneur looking to safeguard their earnings from politicians and bureaucrats.
By opening your own offshore corporation, you will be able to increase revenue while obtaining privacy and saving you the paperwork. It is, without a doubt, the most effective way to gain full control over your capital
Generally, offshore companies are opened in countries that offer great tax benefits and favored taxation, the so-called tax havens. The main characteristics of this business model are the reduction of taxes and tax obligations.
Offshore companies have the benefit of friendly taxation regimes and a surprising level of economic freedom when doing business. There are several types of offshore companies and they may vary according to the country.
Offshore companies are located in countries that offer advantageous conditions in relation to taxes, but this is not the only reason that attracts so many enterprises and investors.
In addition to tax issues, countries also provide:
- Strong and valued currency;
- Tax benefits;
- Economic and exchange rate freedom;
- Political and financial stability.
Basically, countries hosting offshore companies have a political and economic system which is considered simple. The main objective is to favor and attract companies to promote the growth of both the country itself and the company.
HOW DOES IT WORK?
Offshore companies are set up with the objective of preserving the secrecy of operations, data on partners and owners, in addition to tax benefits. Thus, entrepreneurs who wish to improve their results without incurring in high tax costs, seek out countries which offer good conditions.
In other words, the main reason why an entrepreneur decides to open an offshore company is the possibility of being profitable, expanding business and having a low tax burden, and even tax exemption in some situations.
It works simply; some countries offer facilitated conditions and great tax systems to attract investors and entrepreneurs. In this way, they can even offer exemptions for some activities, especially in developing countries.
The countries considered to be the most famous tax havens in the world and which have the largest number of offshore companies are:
- British Virgin Islands;
- Cayman Islands;
- Hong Kong;
- United Arab Emirates;
Most countries offer a list containing all countries in the world that are considered tax havens. It is important to note that each country has its own rules, despite having the low tax burden as a common point.
Other thing to take into account is the current situation, or reputation, of a given country. Samoa and Vanuatu, for example, are countries that have slowly become unattractive for investors, opposite to Hong Kong, that is seeing some of its best financial years ever.
Why? Because one country enforces greater due diligence processes and the other ones don’t, even when Samoa and Vanuatu could offer “better” tax benefits.
Ultimately, opening an offshore company in a country with a great reputation will virtually guarantee a larger access to international banking institutions and the benefits attached to them. For that reason, it’s something you definitely have to take into account when picking a particular country for your company.
Also, you should always check the news for current legislative changes. For example, if you are planning to start a cryptocurrency company, countries like Estonia, Malta or Switzerland will offer great financial environments in which you could smoothly operate.
If your desire is to hold intellectual property, there are also countries out there offering their systems for you to move your business around it. From patents to art products, Switzerland, Luxemburg, Dubai, or Cyprus are great opportunities for you to hold to your IP and create value from it with little-to-none tax burdens attached.
HOW MUCH DOES IT COST TO OPEN AN OFFSHORE COMPANY?
The costs to open an offshore company vary and depend directly on the regime adopted by the country. That is, each nation classified as a tax haven will establish the costs according to its own laws.
The amounts of the initial investment and tax obligations also vary according to country and business size. For simpler organizations, the initial cost may be between $5,000 and $10,000, with annual maintenance costs. For larger companies, the amounts are higher.
WHAT ARE THE DIFFERENCES BETWEEN OFFSHORE AND ONSHORE?
Another very common term in the international business world is onshore companies. However, there are clear differences between the onshore and offshore business model.
In principle, onshore companies means institutions that have their activities in the home country, i.e. are under tax obligations governed by domestic policies. They are companies located in countries with well-developed financial jurisdiction, where business takes place specific regimes.
Therefore, unlike offshore companies, onshore companies are required to comply with the laws of the host country, including tax obligations, reporting, accounting and audits.
Basically, onshore companies are located in countries that do not provide tax advantages or the benefit of confidentiality. Just the opposite of what happens with offshore companies.
ARE OFFSHORE COMPANIES LEGAL?
It is important to emphasize that offshore companies are legal activities, although it is common to see news about irregularities committed by malicious people, who practice money laundering, concealment of assets and other infractions.
There are no irregularities in establishing a company in a country that offers tax advantages or even tax exemption. Therefore, it is a totally legal activity, but it requires attention to avoid problems with the law of the country where the company will be incorporated and with the country of origin of the owner or partner.
WHAT REQUIREMENTS ARE NEEDED TO OPEN AN OFFSHORE COMPANY?
To have greater security and foundation in decisions, it is essential to have a careful planning, considering all the variables of the country. This means that it is necessary to evaluate the country’s political, financial and fiscal scenario.
Although countries considered tax havens usually have a stable economy, tax benefits can vary. Therefore, the entrepreneur or investor needs to identify the location that will be most advantageous for the business.
In this context, it is necessary to describe the objectives and meet the legal requirements before opening an offshore company. It is also essential to carefully analyze the reality and aspects of the chosen country.
For a correct choice, evaluate factors such as:
- Feasibility of issuing shares;
- Minimum capital amount;
- Protection of business confidentiality and privacy;
- Minimum number of directors required;
- Limits of partners’ liability;
- Exchange freedom, with no restrictions on buying and selling;
- Zero or reduced income tax legislation;
- Banking legislation allowing hard currency deposits.
It is important to assess the existence of other legislation that may involve the business, as well as whether it is permitted to have managers or directors resident in other countries. Some countries have specific laws that need to be known in advance.
Furthermore, to set up an offshore company without any unforeseen problems, setbacks or surprises, it is essential to have the professional support of a registered agent. This professional will take care of the opening of the company and since he/she already knows all the necessary procedures and documents, everything will be easier and safer.
Therefore, in order to open an offshore company, it is necessary to choose the country and hire a specialized agent to take care of the documentation and the whole opening process. Thus, the type of company is defined and everything will be regularized.
WHAT ARE THE ADVANTAGES OF HAVING AN OFFSHORE COMPANY?
Opening an offshore company provides advantages that go beyond the traditional tax benefits. It is a business modality that opens several growth opportunities, favoring several aspects.
Furthermore, the offshore company enables the entrepreneur to maintain international relations which favor profitability, eliminating business boundaries. It is an opportunity to plan efficiently and set bolder objectives.
Check out the main advantages of opening an offshore company!
- Unparalleled tax reduction
Taxation is one of the main threats to any business. However, for offshore companies, tax planning reduces taxes and promotes positive results for the business. It is a way of favoring the company by increasing profitability so as to maintain jobs and the continuity of activities.
Many countries considered as tax haven provide relevant tax advantages, up to the possibility of tax exemption. This is one of the main attractions to invest in an offshore company.
You have to understand that each country is a piece of a worldwide tax market, one in which they all compete to offer businessmen the best environment possible. You can, and definitely should, exploit these advantages offer to maximize your profits.
If you are willing to follow all guidelines and regulations properly, and if managed by the correct team of experts, you’ll be decreasing your tax burden in an unseen measure.
- Increased asset protection
Asset protection is a legal advantage of offshore companies as they preserve the assets of the person or company by means of internal laws. The purpose of this protection is not to evade the revenue or favor fraudsters, but to avoid risks to personal assets through limited liability.
From angry ex-wives to vengeful ex-working partners, opening an offshore company will safeguard your assets as no other financial vehicle could.
That goes without mentioning how having a company in a great country can protect you from all kinds of issues related to political and financial stability.
Forget about inflationary cycles and governmental coups destroying your capital. If you pick the right country, the risk is minimal.
However, you must remember that the offshore insurance is something that you need before the litigation, not after. It’s always better to have it and don’t need it, than need it and don’t have it.
- Facility to have international credits
Offshore companies are also used to manage the entrepreneur’s investment portfolio, increasing growth possibilities. In addition to this factor, it makes it easier to obtain credit from international financial institutions.
Having easy access to credit is important for any business. It is a financial contribution to meet needs or subsidize investments to grow even more, which is a very welcomed advantage.
- Possibility to expand the business
Many countries require a lot of processes and overall enforce a great deal of bureaucracy for the formation of companies, in addition to the high tax burden. This results in higher costs and slow processes, aspects that contribute to the decision to invest abroad.
Offshore companies stand out as interesting alternatives that offer real conditions to expand business. Thus, the entrepreneur eliminates barriers that hinder growth, allowing him to reach a higher level of wealth.
- Freedom of exchange
For entrepreneurs who use stable currencies such as the dollar and the euro, offshore companies allow them to make deposits and investments in different currencies. This is an important point to have greater exchange freedom and use strategies to take advantage of the appreciation of a currency.
- Greater stability
Countries classified as tax havens generally have a stable political and financial situation. That is, they are economies with few fluctuations and are less susceptible to political influences.
In other words, it means that periods of crisis are rare and less intense if compared to many countries. This is an important advantage for any entrepreneur, as it provides greater peace of mind and greatly facilitates management by reducing risks and losses.
The several advantages of offshore operations and activities make this business modality interesting to take advantage of international offers and good conditions to restructure the company. However, it is essential to consider the disadvantages in order to have more clarity about decisions.
WHAT DOES OFFSHORE COMPANIES LOOK LIKE FOR INVESTORS?
Many investors seek offshore companies to make their investments and thus diversify their investment portfolio. Adopting an extraterritorial regime to make investments is a legal practice.
Offshore organizations often have no structure in place, depending on the segment. This happens in order for the beneficiaries to make investments in assets abroad or to manage investments.
As offshore companies offer secrecy, privacy and even reduced income tax, it is ideal for high income investors to control their portfolio. It is also possible to carry out asset succession in a simpler, more economical and faster way, reducing taxes and the bureaucracies of other countries.
ARE TAX REGISTRATIONS REQUIRED FOR OFFSHORE COMPANIES?
Most of the countries hosting offshore companies do not require the submission of the companies’ tax records.
The confidentiality of information on offshore companies, partners, owners and investors is one of the main advantages offered by countries. However, it is only necessary to be aware of your current legislation in relation to tax obligations.
As it is a complex matter, especially for entrepreneurs who are starting their international career, it is essential to have professional support to understand and meet all tax obligations.
ARE OFFSHORE COMPANIES SUITABLE FOR ALL TYPE OF BUSINESSES?
Any intelligent entrepreneur is probably one of two things: either already an owner of an offshore company, or in the way of creating one. This is because is the greatest way to defend both their assets and their shareholders in a way that is entirely legal.
However, it is safe to say that not every business fits this approach. Of course, if we consider the current state of global markets, most of them do fit. Digital corporations, worldwide-based businesses, forex trading companies, intellectual property holders. All of these types of businesses are more than suited to be accompanied by offshore operations that would ultimately maximize their range, revenue, and sustainability.
Still, you should always be aware that each type of business will be followed by certain types of regulations, as this is the key to a successful set up. The specific financial vehicle to pick, whether a subsidiary+parent formula or a hybrid approach, will depend exactly on what is your current line of business.
On top of that, each country is different. Even when you might think on going with the one that offers the best tax regime available, it might be smart to weigh in other factors such as political stability. These precautionary measures will likely guarantee the success of your financial planning.
IS IT WORTH IT TO OPEN AN OFFSHORE COMPANY ABROAD?
Knowing if it is worth investing and opening an offshore company is a common doubt for many people who wish to start or expand a business. It is important to point out that everything depends on the situation and goals.
Regardless of everything, it is indispensable to have a specific planning, to research a lot about the desired destination, to have a well-structured business plan and to count on professional support.
Although it is a very attractive business model, because it offers tax benefits, protection and succession planning, it is important to consider all factors. This way, you will have more clarity to make decisions.
Generally, offshore companies are recommended for investors or entrepreneurs with a high turnover of their investment portfolio. In this situation, it is advantageous to offer a reduced tax burden and asset protection.
Another factor that also weighs is the cost of it: the higher the investor’s equity, the longer the terms and the dilution of these costs, which is an interesting attraction for entrepreneurs with significant capital.
By considering all the advantages, possibilities and opportunities offered by offshore businesses, it is possible to determine that it may be an advantageous option. Even when evaluating the experience of other entrepreneurs, the offshore model really is an alternative that should be considered.
In other words, it is worth starting a conversation with specialized professionals to assess the feasibility of this business model. As well as identifying all the risks and factors that may interfere in a positive and negative way.
If you are looking for those experimented professionals, you can rest assured and just trust our team at Centurion Capital. Our experts will be more than thrilled to guide you towards a well-thought financial planning that will likely guarantee great revenue and sustainability over time.
Another thing to take notice of is to always be aware of so-called “service providers”, especially those found in websites. Even the slightest of signals of scam can save you from making a huge error and compromising your whole future.
Most of the low-cost services found online are ready to keep your money just by promising unattainable profits. You have to understand that this business is no magic; you have to follow rules, laws, and guidelines. There are no shortcuts, and these guys are lying if they tell you they’ve found one.
At Centurion Capital we talk only with facts not only because we have a team of dedicated experts constantly researching about these issues, but because we ourselves have done this in the past. Therefore, you have at hand the best combination of knowledge and experience. Why miss such a chance?
Contact us and you’ll get the best objective-oriented counseling available. Hesitate no more and start creating the wealth you deserve!
Warning: The content of this article does not constitute legal or tax advice. It is provided for general informational purposes only and not for the purpose of offering any warranty or guarantee. As laws change frequently, personalized professional advice is absolutely necessary.
Article written by: Fabrice Barra is a cosmopolitan entrepreneur, lawyer, fiduciary and author, one of the world’s leading experts on offshore strategies, corporate haven, international investments and global mindset lifestyles. He is the personal trusted advisor of well-known entrepreneurs, UHNWI, Forbes Global 2000 companies, professional sportsmen, aristocrats, celebrities, investors, people with a net wealth of 7- to 8- or more figures, and he has access to a network of influential people around the world.