In a simplistic manner, an offshore business’s meaning indicates nothing more than a company that is established in another country. Let’s say you are living in Singapore and you incorporate an International Business Company (IBCs) in Belize to do business, so that is an offshore business.
So, how do offshore companies work? One key feature concerning an offshore business is that you need to know these companies would be prohibited from conducting any economic activities within the incorporated jurisdictions.
Notwithstanding, law amendments in each offshore country can bring different bonuses and barriers to an offshore business registered in that particular jurisdiction. In some cases, you may also find out an offshore jurisdiction in which your offshore business can be allowed to do business inside the territory, but is required to suffer local tax along with many compliance obligations.
Sometimes people can feel confused due to the misconception about the offshore business – which is said to be a tool for tax evasion or hiding money from the government. It, however, is not such case. Offshore companies are legal since they are governed by the jurisdiction regulations where they are incorporated or registered.
In addition, not only does an offshore business take advantage of a favorable tax regime offered by most offshore jurisdictions, but also there are more possibilities when it comes to incorporating an offshore company.
And here are some advantages of going offshore:
1. Tax benefits
This seems to be the top reason why people opt for offshore business. By forming an offshore company, foreign investors can be entitled to gain a deduction of tax burden. In other words, they are often tax-exempt or just pay a modest rate of tax by virtue of the business-friendly taxation laws of certain jurisdictions.
Take Hong Kong as a typical example, the territorial taxation system in this country allows profits which derive from trading activities outside its territory to be not subject to suffer profits tax.
2. Asset protection
Beside offshore business tax advantages, another appealing factor that makes people seek offshore is wealth protection. Jurisdictions with a strong reputation and stability in both politics and economy are the most favorite place to incorporate an offshore business.
Obviously, the act of moving your assets to offshore corporations and legal business structures abroad helps to create a stronger protection layer for your wealth from unexpected liabilities.
Some offshore centers which offer favorable laws regarding financial privacy such as the BVI, Belize, Seychelles et cetera have been widely preferred in the world as deemed best destinations to go for asset protection.
3. Minimal maintenance requirements
Not only do offshore companies offer simplicity during the setting-up process, but they also are offered more flexible regulations after the incorporation stage.
There are fewer requirements in terms of annual reports and financial accounts with the Companies Registrar (providing that they do not carry out business activities inside the jurisdiction whey they register). In addition, most offshore companies tend to be easier to maintain in comparison with onshore companies.
It should be worth mentioning that the level of information in which the registrar of companies at each offshore jurisdiction requires could be not the same.
Our advice is that once you have come to the first step for offshore company formation which is to choose a suitable jurisdiction (a guideline of full steps on how to set up an offshore business will be discussed in the last part), do examine whether you can fulfill that jurisdiction’s requirements after registration.
4. A high degree of confidentiality
Typically, most offshore countries do not disclose the company directors, beneficial owners, shareholders to the public, thus you can feel secure that all information would be kept confidential. However, it is a must to register and maintain these profiles and data with the Company Registrar.
Because of many potential benefits, offshore business setup is the widely-used solution for tax planning strategies of many small and medium-sized enterprises.
An offshore company can be used for different purposes. Particularly, ease of administration with an offshore company is preferred by most e-commerce players. Internet traders can also use offshore corporate structures to keep its domain name in existence as well as control the internet sites.
For other business sectors, you can also explore the usefulness of having an incorporated company in overseas jurisdictions. Counselling business and international business prefer offshore structures by dint of its corporate flexibility and tons of tax benefits available.
In another scenario, entrepreneurs in relation to holding businesses are more likely to go offshore to obtain better confidentiality or minimize certain types of tax (capital gains tax exemption for example). Such businesses are very typical examples of how an offshore business can be used for.