The legal right of taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law provides, cannot be doubted.
USA Supreme Court Judge
Here is the Top-14 of the most FAQ on offshore - a unique financial
instrument for your business.
1. What is offshore?
The word “offshore” has no precise legal dictionary definition, it simply means “situated or operating in a foreign country or at some distance from the shore” and reflects the fact that most low tax jurisdictions are islands. Incorporating offshore offers efficient tools for international tax planning based on low or zero tax regimes provided for non-residents by the legislation of some countries.
2. Where can I form an offshore company?
Currently more than 60 countries offer tax exemption for offshore companies and non-resident companies, which includes Panama, Gibraltar, the BVI, the Bahamas, Seychelles, Belize, low tax Switzerland, Liechtenstein and many others.
3. What is the best place to incorporate?
Choice of a country for incorporating your company depends on the proposed scheme you would like to utilize. Each offshore territory has its own characteristics and many so called offshore areas are in fact land locked. Basically all countries fall into two groups: the first group – countries with low tax regimes; and the second group – countries with zero tax regimes for offshore companies (normally in this case the company pays a fixed annual license fee of no more than USD 300-400 in its country of incorporation).
The first group includes a number of European countries known as “tax shelters” - Switzerland, Luxembourg, Liechtenstein, Republic of Ireland, Malta, Cyprus and so on. The second group is made up of the Central American countries being popular offshore centres: Panama, the Bahamas, the British Virgin Islands, Belize, Turks and Caicos Islands, Cayman Islands etc. Incorporation and maintenance of the companies in European countries is more expensive than similar services offered in the countries belonging to the second group. Therefore the question “what is the best place to incorporate” comes down to the following two questions: “Is image of the country of incorporation important to me?” and “How much am I ready to pay for it?”
4. How does an offshore company work?
According to the international law any company is a separate legal entity governed by the legislation of its country of incorporation. For example, a Panamanian company shall be subject to taxes only in Panama. However, if the owners of the company are non-residents and the company does not trade in Panama, it will be treated as an “offshore” company and can be officially exempted from taxation. Hereby, while this company is not liable to taxation in its country of incorporation, it will be taxed in the country where it carries on its business.
5. Who can be owners and directors of an offshore company?
Any individual or body corporate not resident in the country of incorporation can own the offshore company. The minimum number of owners (or shareholders) can vary from country to country. The same applies to the directors of offshore companies, though it should be noted that in some countries bodies corporate cannot be appointed directors of the company.
6. What documents are required for incorporation?
It depends. A few years ago no documents whatsoever were required for incorporation in most offshore areas, irrespective of whether the prospective owners or directors of the company were legal entities or not. Now the situation in the world is different. There is a noticeable and ongoing trend to follow the “Know Your Customer” (KYC) principle operating in most jurisdictions. Formation agents and secretarial companies servicing your offshore company have their own understanding of this principle and set forth their own due diligence rules. Thus the requirements to disclose certain information or provide certain documents might vary from country to country and from agent to agent. Sometimes you will have to disclose the details of directors and shareholders, sometimes provide a copy of the beneficial owner’s passport, reveal the source of your income and provide description of your business activities accompanied by the reference letters from your partners, sometimes the requirements are less severe. Please read relevant information on our Jurisdictions page.
7. Are there any limitations with respect to the share capital?
Should it be paid-up in full?
Apart from a number of European countries, most offshore jurisdictions make no special provisions for the share capital and payment thereof at the time of incorporation.
8. What will be the company’s registered office address?
The law firm or formation agent offering incorporation services shall provide a registered office for your company in the country of its incorporation.
9. How shall I maintain accounting records?
Books of account are normally maintained in the manner provided for by the laws of the country of incorporation. Regular offshore companies are not required to file accounts with state authorities and thus can keep accounting records in any manner chosen, save for a number of countries where offshore companies are required to file annual auditor’s reports.
If necessary, the law firm or formation agent offering incorporation services for you will also provide a qualified accountant or auditor services in the country of incorporation.
10. Where can the company open a bank account?
Your company is free to open as many accounts with any bank in the world as you wish.
11. How about confidentiality?
In majority of the offshore jurisdictions details of the owners and directors are protected by the relevant laws on confidentiality sometimes providing for criminal prosecution for an unauthorised disclosure of the company’s owners or other information.
12. How long does it take to incorporate a company?
The time needed for the registration procedure depends on the country where you choose to incorporate. Normally, it is from one week to a month. In case you buy a “ready-made” company, the corporate documents might become available to you within one hour.
13. How much does it cost to incorporate a company?
Registration fees in most offshore countries do not exceed USD 1000 (inclusive of incorporation and stamp duties and professional legal fees of drafting and registering corporate documents). Provision of the registered office and registered agent may cost from USD 550 to USD 900 per year.
14. Why go offshore?
Tax mitigation is a great but not the sole advantage of the offshore business.
Other common benefits secured through the use of offshore structures include:
- International trading (utilization of the “triangular” scheme);
- Confidentiality of real estate purchase and land ownership;
- Assets protection by using trusts;
- Inheritance tax planning;
- Intellectual property ownership, including royalties;
- VAT planning;
- Banking privacy;
- Registration of vessels – provides advantages for dealing abroad;
- Captive insurance using own offshore insurance and reinsurance companies;
- International group treasure management through offshore finance companies;
- Reduction in operating expenses;
- Investments diversification.
It should be noted however that tax authorities of high tax countries do not disregard the schemes used by their residents for the purpose of reducing or avoiding taxes through offshore vehicles. Each country has its own methods developed to deal with such things as transfer pricing, treaty shopping or tax evasion. For more information on this issue please contact our lawyers.