An Offshore Company refers to a Corporation, LLC or similar class of entity formed in a country foreign to that of the principals of the organization. It also refers to a company that can only operate outside of its country of formation. This article provides information to help one understand the definition of the term “Offshore Company.” It will also describe how they differ from domestic companies.
What is an Offshore Company?
First of all, we will define the term Offshore. Offshore means located or situated beyond one’s national boundaries. The term Offshore Company has two definitions depending on its perspective. From the standpoint of the principals of the company, it is a company that one has filed outside of the country where its principals reside. The principals include the officers, directors, shareholders, members, partners. From within its country of formation, it is a company that has been formed for the purpose of operating outside of the jurisdiction where it was originally filed.
Why would one form such an entity? It is often to take advantage of laws that are not available in one’s country of residence. Examples of these benefits may be tax savings, asset protection from lawsuits. On the other hand, one may want to take advantage of foreign business opportunities.
An Offshore Company is similar to a domestic one, can open bank accounts, own property, operate a business, enter into written agreements, buy and sell and engage in other forms of commerce as long as it is outside the country of incorporation. Also known as an International Business Company (IBC or Offshore IBC), it generally does not have tax obligations in the country where it was formed. It needs to conduct its business outside of its country of formation.
Offshore Companies can be corporations, that we also call “limited companies,” i.e. Limited Liability Companies (LLCs) or limited partnerships. For example, Belize has entities similar to LLCs called Limited Duration Companies (LDCs). LDCs have 50 lifespans, at which time they can be renewed or re-filed.
Incorporating a company overseas, is one way for business investors to get around certain tax laws in their home countries. If set up right, there is nothing illegal about these Offshore Companies as a way to engage in business. While tax reasons are paramount in deciding to set up Offshore Companies, they could also offer other advantages. Offshore Companies are not an unmixed blessing, however, and also come with some disadvantages.
Some countries try to lure foreign business investors by offering them corporate tax rates that are very low. This way, business investors end up paying out less in tax and holding on to more of the money the business generates. This incentive is also beneficial for the host country since it benefits economically from the presence of the offshore company. Certain Caribbean islands are famous for such tactics.
Another advantage to Offshore Companies is that they help business investors transfer assets so as to protect them. If an investor is concerned that his assets may be seized, he could shield the assets from creditors through the use of an Offshore Company. Then in case there is an adverse legal or business development against him, he can be assured of the safety of his assets.
There are confidentiality laws in the countries that want to attract Offshore Companies to ensure the privacy of business investors. However, this does not give offshore investors carte blanche. They are still liable to follow the law. The host country could disclose identities to aid investigations relating to unlawful activities. If the Offshore Company engages in drug dealing for instance, the host country is not obligated to maintain confidentiality, to the extent the host has any useful information to provide.
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Having an Offshore Company can also help you save money. Offshore Companies typically pay lower taxes than those that are incorporated within their home countries. Paying lower taxes means that you can reinvest the company’s earnings or keep a larger profit without handing a lot of money to the government.
A list of some of the most popular tax haven countries includes: Andorra, the Bahamas, Belize, Bermuda, the British Virgin Islands, the Cayman Islands, the Channel Islands, the Cook Islands, The Island of Jersey, Hong Kong, The Isle of Man, Mauritius, Lichtenstein, Monaco, Panama, St. Kitts, and Nevis.
An Offshore Company cannot carry on a banking business or undertake the business of an insurance or reinsurance company, insurance agent or an insurance broker.
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