What is an offshore company?
Deoffshorization and transparency of cash flows in an international format have led to the fact that today many practical businessmen have begun to show interest in offshore enterprises. They see them as a rather interesting tool that can be used profitably in their own interests. An offshore company, first of all, should be considered as an instrument of the market, which means that a businessman should know what it is created for, only in this way he will be able to use it efficiently for his business.
The activity of such firms is accompanied by some illusions, many of them have been fixed for them since then, when offshore CIS businessmen saw a panacea for all ills. Alas, these times are over.
Offshore companies — what is it? A modern organization of this type is a reliable and attractive tool that will not allow negligent, rude and irresponsible attitude towards itself.
Businessmen are interested in it because it exempts them from paying corporate tax or pays it at a low rate. In addition, they will not have to pay local taxes. Most jurisdictions do not require foreign companies to pass audits and submit financial statements.
Another nuance of this activity is that offshore companies cannot engage in commercial activities on the territory of the state where they are registered. They are often prohibited from owning local real estate or holding profits in local banks.
Why do you need an offshore company?
Offshore companies are usually registered to engage in foreign trade activities, create international partnerships, conclude international agreements, protect property rights and assets, and expand the field of activity.
Let’s say you regularly carry out export-import operations, and your manufacturer is located in China, and goods are purchased in Russia and the United States. In this situation, it is better to register a business in Hong Kong, this solution will save you from exorbitant taxes, and you will also get simplified access to the Chinese mainland.
If we draw an analogy, the work of offshore enterprises is similar to the operation of a transformer in an electric booth. However, in the case of offshore companies, the “buzz” brings less losses. Thanks to them, official relations between different legal and economic systems are established. They give an impetus not only to foreign economic activity, but also to scientific and technological progress.
Often, an offshore company is opened to transfer ownership rights. This solution allows you to protect your assets from attacks by raiders. What does it mean? When the real owner of a candle factory in the Moscow region is out of reach of a Makarov pistol, and is also protected by English law, it will not be easy to take the business away from him. If you also withdraw an asset abroad from an unstable and unpredictable country, the risk of losses will decrease significantly.
If you find it inconvenient to work only in your own country? You can register a company in an offshore zone and then you will have the opportunity to offer your services, for example, in the USA or Malaysia. An offshore company will help with opening a bank account for non-residents, provide a high level of confidentiality, and also allow you to obtain the status of a resident.
Thus, such a company is needed in order to:
- optimize and reduce taxation on profits that were earned outside of an offshore company;
- get rid of double taxation in the implementation of international activities.
The benefits don’t end with the tax benefits. As we have already mentioned, this form of doing business provides a high level of privacy.
Many countries guarantee complete anonymity to entrepreneurs, which in turn makes them inaccessible to government agencies.
The registration procedure is quite simple. This form of business does not require fabulous funds to maintain its activity. In addition, most countries do not require reporting, thus allowing the owner to conduct business as comfortably as possible and reduce organizational costs.
Very often, an offshore company is used to increase the profitability of export-import operations. In this case, he acts as an intermediary who will save the business owner from paying taxes, since the income is received in another country. Savings in this case have a legal basis – cash flows during such operations are not included in the scope of interests of the tax service.
Of course, each offshore company has its own characteristics, in particular, they can be more or less prestigious. Therefore, the choice should be approached based on the goals pursued.
Offshore organizations and their types
All jurisdictions used in tax planning programs can be divided into several groups.
1) Countries with no taxation, which are also known as classic offshore companies. These are usually small states that have a low level of economic development, but they are also politically stable. There is no corporate tax in these jurisdictions at all. You don’t need to submit reports or conduct an audit. The only obligation of foreign investors is to pay an annual fixed fee to the treasury. These countries do not maintain a public register of business founders and directors, which ensures high confidentiality of property rights. Most often, these jurisdictions are blacklisted by offshore companies. These companies are mainly used for export operations, capital gains, investments, and money transfers. An example of this jurisdiction is the Seychelles and the British Virgin Islands and Nevis.
2) States with low tax rates. These countries have low taxes for absolutely all companies. Thanks to this, the economy is stimulated and foreign capital is attracted. In fact, these jurisdictions are not offshore, since companies registered in them report and pay taxes. These companies are used to trade with countries that do not “work” with classic offshore companies. Examples of such zones are Ireland and Cyprus.
3) Countries that have a territorial tax system. In these jurisdictions, the amount of taxation directly depends on the place where the income was generated. For example, income that was received outside the place of registration is not subject to taxation or is taxed on preferential terms. The right to benefits can only be confirmed by submitting financial statements and passing an audit. This group is represented by: Singapore, Panama.
4) High-tax countries with special benefits. In these jurisdictions, taxation does not depend on the source of income. Submission of accounting statements is mandatory. Tax rates are high, but some legal entities are subject to tax breaks in the form of corporate tax exemptions. This applies to companies such as LLC, LP, LLP and specialized organizations. Let’s look at the characteristics of each company separately.
An LLC is a form of business organization, and in many countries they are exempt from paying corporate tax. The structure of such companies is not the same as that of joint-stock companies. Tax legislation implies that participants immediately receive income, according to the share in the authorized capital. Then the founders include the received income from the company in their own total income and pay personal income tax. In order for this to actually happen, the condition must be met, the organization’s participants must be non-residents of the country of registration, and the company must not operate on its territory. Only in this case, there will be no taxes in the country of registration.
LPS and LLPs are also tax-exempt in most countries. The received income becomes personal income of the company’s partners, even when there is no real payment. In other words, a partnership is a tax-transparent legal entity. The obligation to file a tax return and pay taxes only affects partners. If they are non-residents of the country of registration, then accordingly this obligation will not arise at the place of registration.
Specialized firms are mainly used by high-tax countries to attract foreign capital. The bottom line is that these jurisdictions offer preferential taxation to companies that are engaged in some special types of international activities. These are usually holdings, organizations that manage copyrights, leasing companies, and shipping companies.
Offshore companies and their costs
Today, many businessmen are concerned about the question “how much does an offshore company cost”. There are several myths here, which we will discuss in more detail.
Myth # 1-you can buy an offshore company cheap. This statement is far from reality, since the miser bears multiple losses. In the global network, you can find a lot of ads like “I will open an offshore company in a couple of hours and almost for nothing for just 200 greenbacks”. The problem is that such prices are no longer available even on the underdeveloped islands. Think for yourself how it is possible for a taxi driver on one of the tropical islands to earn more than a receptionist.
If you take a more thorough approach to these ads, it will become quite clear how the price was formed. It can be:
- direct fraud, when funds fall into the hands of fraudsters, while they do not register anything;
- partial deception, only the cost for a part of the service is announced.An offshore company with a half set of documents is not suitable for owning assets, and it is also impossible to open a bank account with it.An offshore company with a cost of $ 300-500 is quite real, but it should be noted that only the cost of the registration fee is announced, in addition to it, you will need to pay for the registrar’s services.Many government agencies do not directly accept applications from foreigners.Also, the price does not include services of registration and sending of documentation, verification of documents and investor’s trustworthiness, work of a consultant, annual office maintenance, etc.If the individualized content of the organization’s charter is added to the price, the administrator’s hours or the legal specialist’s fee will be added to the price.The prices stated in the advertisement usually do not include the issue and transfer of certificates that are required to open an account.
Therefore, you should be wary of cheap options. At a minimum, you can come across hard-core and talented marketers, and at most-outright fraud. Take a look at the current prices and draw your own conclusions, such a service can not cost 5 kopecks. When choosing an offshore company, keep in mind that registration and maintenance in the classic version is cheaper than in a prestigious midshore such as Hong Kong or Singapore, where the mandatory condition is to submit reports and pass an audit. At the same time, the more prestigious an offshore company is, the wider the list of banks will open its doors to you.
If you want to save money and choose a classic offshore company, you will have to keep accounting records, since it can be requested by banks in the second and third year of the company’s operation.
As a rule, banks pay more attention to the activity of websites of classic offshore companies than to the Internet resources of companies that are registered, for example, in Hong Kong, Australia, etc. Therefore, if you plan to run an active business and you need a corporate account for it, carefully weigh everything and think about it, it is advisable to get professional advice. Perhaps the best option for your business is to open a company in midshore or onshore.
Myth # 2 concerns cheap offshore services. Many people believe that the cost of annual support for a company costs a mere penny, but in reality this is not the case. The cost of an offshore company is not only the payment of state duty in the amount of 300-500 dollars. Currently, if you do not pay for the annual maintenance, you may be sued.
In order for an offshore company to bring benefits, namely, to have the right to preferential taxation, it is necessary that it really exists. Classic offshore companies enter into agreements for the exchange of tax information. As a rule, double taxation does not appear in classic offshore companies, since some types of mandatory payments are not available in them.
What does this look like in practice? It is enough to recall Cyprus, where fictitious firms that had a bank account and a mailbox no longer work. Tax authorities check counterparties and foreign partners to make sure that the withdrawal of profit is legal. This means that an offshore company must have a real office, staff who will be assigned official duties, and a director who manages the company’s activities. All this, of course, is not free. For all this mechanism to work, you need an amount that exceeds $ 1,000 at times.
A modern offshore company should be considered as an increasingly expensive tool. It certainly brings benefits, but to use it, you will first need to invest. Moreover, these amounts are far from those voiced by quack booklets on the World Wide Web.
For starters, at least create an offshore website and corporate email for your company, which you will submit to a banking institution in order to open a non-resident account for the company in the offshore zone. Otherwise, you will not only waste money on a non-functioning offshore company, but you will also be prosecuted, because government agencies will consider that you are engaged in money laundering, evading mandatory payments to the budget and participating in international “terrorism”.
We draw conclusions. An offshore company can not cost 2 hundred dollars, and this applies not only to registration, but also to maintenance. The final cost of an offshore company is affected by the place of registration, the legal form of the company, all possible additional options and an individual approach. The choice of an offshore company should be made based on your goals, not its price. Keep in mind that the annual and actual support of the offshore lies on the shoulders of the beneficiary.
How long does it take to register an offshore company?
The duration of this procedure may vary slightly, as it depends on three factors::
- collecting and submitting documents of co-founders, directors, and other participants of the future organization.All costs must be borne by the client;
- direct registration of an offshore company, which actually lasts no more than two days.This time does not include apostille of documents and delivery;
- further preparation of documentation.Certified copies must be sent to the bank institution to open an account.The client needs to make sure that the bank has received all the necessary official documents and that the account registration was successful.
If you have collected all the documents correctly, then registration of an offshore company will not take much time. Often clients fit in two weeks. Here you should also take into account the legislation of the state where the company is opened. In the classic version, offshore companies use documents that have passed apostille and are notarized for registration. The application is considered within one to two weeks. The duration of registration of an offshore company depends on how much the client is interested in this process and on his personal presence during this procedure. European and Asian centers work almost according to the same scheme.
You can go through this procedure quite quickly, but you should not expect that registration can take a maximum of two days. Even if all your documents are available and you have opened a bank account, no one will register the opening of a new company in an offshore company as quickly as you would like.
Unrealistically short time periods can only be promised on advertising banners and they serve only to attract customers. If you want to significantly reduce time spent, then the best option is to buy a ready-made company. In this situation, all you need to do is re-register.
What should I pay attention to and how not to delay registration?
First of all, you should understand that well – prepared and collected documentation is only part of the success of this event. If the package of documents does not contain an extract or any certificate, and there are errors in the translation, then be prepared for refusal. However, there is also good news, which is that to open an offshore company, the client does not need to collect a huge list of documents.
As for opening a bank account, the situation is different. It should be understood that not all banking institutions are ready to cooperate with offshore organizations. Before choosing an offshore company, you need to take into account the jurisdiction of the bank account. Every month, the number of banking organizations working with offshore companies is decreasing. However, there are new organizations that have the appropriate license and are ready to provide banking services to classic offshore companies. You should make sure that they are reliable before you sign the contract.
The choice of an offshore company should be taken seriously and it is advisable to use the help of a real professional. Make sure in advance where you can open a bank account. There are cases when the client prefers the “cheapest” offshore, but can not find the bank in which to open an account. This approach can be a waste of time and money for you. Not to mention the fact that you will be bitterly disappointed at the very beginning of starting a business.
Banking institutions impose higher requirements on individual clients than when opening an account through registration agents. For example, if you plan to get a bank account, having only a driver’s license in your hands or “by acquaintance”, then this is a direct violation of the law. In this case, clients must provide a complete list of documents, as well as fill out the necessary questionnaire. The questions should not surprise you, even if they ask you if you have tattoos on your body. Questions of a banking organization may be very personal, but these are the requirements and must be met.
The question “how long does it take to register an offshore company” cannot be answered unambiguously, since in most cases the duration depends not on the registration of a new company, but on the provision of banking services. Once an account is opened, you can continue the registration process. Experienced clients immediately apply to several banking institutions. There are many reasons why a single company can have multiple foreign accounts.
How do I register an offshore company remotely?
Since an offshore company is an organization that is registered in a country that provides special benefits for entrepreneurs, businessmen should be happy that offshore centers provide them with the opportunity to register remotely. Countries such as Singapore, Hong Kong, and Belize do not require the applicant’s personal presence. Using modern technologies, anyone can submit documents while in their own country and get a business permit. Most registrars will be surprised if you personally come to the opening of the company. However, there are cases when the client wants to verify the reliability of the registrar and visits the branch. This often happens when the applicant has really large assets.
In other cases, entrepreneurs prefer remote registration of an offshore company. The registrar is required to quickly and efficiently prepare the documents sent to him by the client. It depends on the experience and skills of the specialist whether the state authorities will grant permission to carry out business activities.
However, in this activity, the final decision on the organization of offshore companies is made by the registrar. If the applicant tries to hide any documents or refuses to provide them, the registrar has the right to reject his application. To avoid such situations, experienced registrars and intermediaries immediately ask customers for the entire package of documents, and after a thorough check, they issue a receipt for payment for their services. Applicants should understand that opening an offshore company is not a joke, so this case should be taken as seriously as possible. And for everything to go well, you need to use the services of qualified specialists who will answer your questions and help you collect papers.
How to save your commercial budget using an offshore company?
Have you ever wondered why offshore services have become so popular? Currently, more and more clients are applying to foreign company registration centers.
An offshore company is a company that allows you to save your money and maintain complete privacy. First, let’s find out how you can save your budget. The zone provides entrepreneurs with a virtually zero tax rate. Let’s compare the following figures: for example, in Russia the corporate income tax is 20 percent, while in Nevis the tax rate is zero. Thus, by registering a company in another corner of the Earth, hiring at least one employee, you can easily engage in entrepreneurial activity. Of course, doing business on the islands is a bit difficult. It is much easier to register a company in Panama.
It should be understood that doing business is not the only reason for opening offshore companies. In some cases, an offshore company is a way to preserve earned assets. Previously, such organizations were created on remote islands, business activities were carried out exclusively on paper, and then money was transferred to a bank account. As a supplement, they were designed with various schemes that created savings and the appearance of legality.
Now the rules have become much tougher. It is prohibited by law to transfer profits to an offshore company and at the same time evade taxes at the place of receipt of income. International agreements are valid only if your organization operates legally.
Classic offshore is an opportunity to develop and optimize your business. If you plan to conduct a legal activity and your company has all the features of a regular “organization”, then you can save money in the following situations::
- reduction of the tax rate based on the double taxation agreement;
- minimization of tax, in some offshore zones entrepreneurs are offered this option;
- no taxes on capital gains, inheritance, etc.;
- save on paperwork.It is necessary to keep regular reports, but the process is so easy that it saves resources and time;
- an international offshore organization may reserve the right to choose where and how to conduct business.Therefore, every businessman can find new and most effective solutions that will allow him to extract higher profits and optimize the business.
Offshore company privacy What is it?
Another important reason why offshore work has become in high demand is the confidentiality of information about the owner. Most offshore companies securely stored data about the company’s owners and did not show it to anyone.
Of course, this thorough investigation could not fail to attract people who were trying to get rid of their competitors, prevent the appearance of hype in the media, and even more so not become a victim of criminals. The latter, together with tax evaders, became the reason that offshore companies were practically “gutted”. Currently, you will not find offshore centers and midshores that would so reliably monitor the privacy of customers. Today, many of them cooperate with Interpol and other States, providing the necessary information.
Data exchange takes place at different speeds and efficiencies. However, classic offshore companies do not welcome the automatic exchange of information. Over time, it will be much faster and easier to get the necessary information about working with offshore companies, since the government of developed countries must make sure that all companies have paid taxes in full.
Currently, closed registers of beneficiaries are being introduced in the offshore sector. The BVI exchanges information with the UK, as well as with the country that sent the request. Nevis continues to resist and keep personal information about the company’s founders. As for the United States of America, it has become the largest offshore company in the world, as it does not provide information to anyone.
However, even privacy advocates need to understand that if they do not meet the new requirements, they will be removed from this activity.
What is an offshore company? If you still believe that offshore companies will help hide your data from the tax authorities, then you are deeply mistaken. Even though the legacy systems are still working, a few months of work and they can be hacked. Even if you now begin to form a special structure for asset ownership, no one will guarantee confidentiality. It is too expensive to develop individual solutions for each client, and many of them will become obsolete very quickly. The database of rules and laws is constantly being improved. Offshore jobs are either a privilege for the super-rich who don’t want to pay taxes on their personal income, or a tool to preserve transparent assets that have been taxed.
As for the protection of information from third parties, classic offshore companies do an excellent job with this task. However, if the case concerns the tax authorities, then under certain circumstances the necessary information will be obtained by your state.
What is an offshore company and how is it controlled?
If you briefly answer this question, you can say this: “every day the control becomes tougher.” At the same time, the main impact is not borne by the firms and owners themselves, but by their bank accounts. The tax authorities want to track down where the money was sent from and where. This way, they can understand how you do business and whether you should pay taxes.
In the last few years, a number of changes have been adopted that have affected the offshore space. The authorities of many countries have come to the conclusion that doing business through offshore companies is “evil”, as the beneficiaries try to evade taxes and hide huge incomes.
If you have opened a company abroad, you must report to the relevant authorities in your home country. For example, in Russia, if the profit in an offshore organization exceeds $ 144 thousand, the owner must pay taxes. US law requires all banking institutions to provide information about all open accounts of their citizens around the world. If the bank refuses this service, it faces tough sanctions. A single Standard has also been developed that allows the exchange of tax information. Tax authorities in many countries receive information about bank accounts automatically.
What is offshore? Despite the fact that this term means “outside the country”, the activities of companies will in any case be regulated by both local and international laws. We believe that the situation may worsen in the future. However, the most competent and successful of us will be able to adapt.
Why do the authorities struggle with offshore companies?
An offshore organization is a way to reduce tax payments. Complex structures can significantly save money. After 2008, the crisis began in the countries and first of all it was connected with tax collection. The state needed a lot of money, while fees remained at the same level, and sometimes fell. The authorities have used various tricks to increase revenues to the state treasury. Offshore companies have become an additional source of income. Almost all countries began to create programs that allowed them to legalize their capital, and then people had to pay fines for tax evasion.
If you plan to register a company in an offshore company, then you need to prepare for this event. Managing an offshore company is not an easy task, so it is advisable that your staff includes experienced specialists whose field is international taxation, working with foreign companies and accounts.
An offshore zone has always been and will always be beneficial for entrepreneurs, but this activity is not approved by the state.
How to avoid difficulties when opening an offshore company?
To get all the advantages of a company registered abroad, an entrepreneur must follow certain rules. If you don’t comply with them, you can lose not only your money, but also your time, reputation, and in some situations, your freedom. Below is a list of recommendations:
- it is necessary to carry out activities only in accordance with the law.Keep an eye out for changes in legislation.If this area is difficult for you, then it is better to use the help of a qualified specialist;
- it should be understood that offshore companies are a tool that can be used for both good and harm.If you do not disdain the latter, then the punishment comes quite quickly.This tool will not help you solve all the problems that come your way, but it allows you to save your assets;
- an organization registered in an offshore company needs its reputation and bank account to transfer funds.First of all, you need to choose a bank whose jurisdiction is suitable for your type of business;
- working offshore, you should not relax.You need to constantly analyze information and verify it.Otherwise, you can quickly find yourself outside the law, and you will be “hung” with fines and a subpoena will be brought to court.
We do not want to frighten you with difficulties in this area, but only warn you about their presence. Many people still think that offshore companies allow you to evade taxes and save your capital. In practice, the situation is different. As a result, entrepreneurs will only be disappointed. If you are ready, you will be able to see the benefits that this “product”provides.