Offshore Companies: Advantages and Risks

Why do business people from different parts of the world register companies in offshore jurisdictions? An offshore zone is a country that offers tax benefits for foreign investors. A company that registers in an offshore jurisdiction and that opens a bank account there saves a lot of money on taxes while bringing some profits to the jurisdiction anyway. All offshore zones offer tax incentives only to those companies that conduct business operations in other countries.

Instead of paying taxes, offshore-registered companies pay annual company registration fees at fixed rates. They pay a local legal firm that represents the company in the country – it acts as a registered agent, provides a legal address, and performs the functions of an administrator. Offshore jurisdictions are interested in attracting foreign capital. Foreign companies registered there also often involve local accountants, open accounts with local banks, use the local social infrastructure, rent office space, create jobs for local people, and so on. Thus, it is a two-way road.

Even with all the expenses mentioned above, an offshore company saves much more on taxes. In addition, the offshore company ownership information is highly confidential. Other advantages of registering an offshore company include relaxed reporting requirements, no or very little red tape in the process of company formation, favorable currency regulations, and availability of various asset protection mechanisms. Offshore banks are reliable and some of them offer beneficial service conditions. If you would like to register an offshore company, International Wealth’s team can help you do that.

Offshore Companies Advantages and Risks

Types of offshore companies

Most often, foreign entrepreneurs register IBCs or LLCs in offshore jurisdictions even though some other forms of company ownership are available there. With only a few exceptions, all offshore company owners have limited liabilities. An offshore company can be engaged in any type of business activities even though some of them require licenses (such as banking and insurance service, for example). An offshore company can set up a bank account anywhere – in the country where it is registered or outside.

Nominee services and confidentiality protection in offshore jurisdictions

In some offshore countries, the names of company directors and shareholders are accessible for the public. If this fact bothers you and you want to remain incognito, you can hire a nominee director or a nominee shareholder. Not all offshore jurisdictions allow nominee services but some of them do.

To keep your confidentiality at a high level, you should also choose the business areas that do not require submitting financial reports. If you would like to open an offshore bank, for example, you can do so but your personal information can hardly remain confidential in this case because you will need to apply for a banking license. The information about banking license holders is publicly accessible everywhere.

Please also note that the international community is actively fighting money laundering. For this reason, many offshore jurisdictions have been forced to exchange banking information of their residents with the authorities of their home countries. Please inquire with a specialist if the banks in the offshore zone that you are considering exchange financial information with your home country.

The matter is that the OECD, IMF, FATF, and other international organizations apply pressure to offshore zones. They compile black lists of ‘uncooperative countries’ making life for these countries very difficult. A company registered in a blacklisted jurisdiction can hardly engage in any international business operations at all. Thus, offshore countries have to look for a compromise: they want to remain attractive for foreign investors and they want to keep away from the black lists. Most offshore jurisdictions are off such lists at the moment.

Developments in the offshore industry

An offshore company cannot carry out business operations in the country where it is registered. Otherwise, it will lose all the tax benefits. For this reason, the authorities of offshore jurisdictions do not put forward any hard requirements. The company has to have one or two (or more) shareholders, a director, a bank account, and company By-laws. That’s it.

As we have noted above, offshore jurisdictions are interested in attracting foreign investors because they bring money with them. Thus, offshore zones compete for the attention of international entrepreneurs. They soften the rules that are already quite soft. Companies that do no business in the country can have economic substance there such as an office, for example. Some offshore jurisdictions enlarge the lists of forms of company ownership available to foreign nationals. Having a company registered in an offshore jurisdiction can significantly extend your business horizons.

Risks associated with offshore companies

Any investment involves a certain level of risk and an investment in an offshore company is not an exception. If you are incorporating an offshore company into your overall business structure, you have to assess all the risks and possible uncertainties that this move might entail. It is very important to compare the conditions offered in different offshore jurisdictions.

You have to be careful when choosing the legal firm to act as your company administrator in an offshore jurisdiction. You had better find out about its experience in managing other offshore companies. You probably have to talk to their owners too.

If you are planning to use nominee services, you also have to find reliable people to act as your nominee shareholders or company directors. When handling this task, it is especially important to draw up agreements that would give nominees no opportunity to let you down. In addition, you have to find out about the judicial system in the jurisdiction where your company is registered. We hope that your offshore company is never going to be involved in a court case but if it does, you should know what to expect from judges in the offshore jurisdiction of your company domiciliation.

Besides, you have to find out how offshore-registered companies are treated in your home country. Do you have to inform the authorities when registering an offshore company? Does your home country have an automatic exchange of information agreement with the offshore country that you are considering? What are the CFC regulations in your home country? These are important questions to answer.

Instead of registering a new offshore company, you can buy a shelf company in some jurisdictions. The process is going to be faster in this case but it might be risky. First, you have to make sure that the company that you are buying does not have any outstanding debts. You don’t want to pay back somebody else’s debts, do you? Second, fraudsters can try to sell a shelf company to several buyers at a time. This does not happen very often but you have to carefully inspect the corporate documents anyway and inquire about the company status with the local Business Register.

Finally, your heirs might run the risk of never inheriting the assets written in the name of your offshore company. The company ownership information is highly confidential and it remains confidential when the company owner dies. This fact could potentially cause problems.

With competent professional assistance, you can greatly benefit from registering an offshore company and avoid all the risks involved in the process.

Leave a Comment