An offshore company does not pay taxes, provides a high level of confidentiality, and files no reports. All these advantages are available only if the company does not do any business in the country of its domiciliation. A mid-shore company does have to file annual reports and pay some taxes but some serious tax deductions are available to mid-shore companies. In some cases, the tax rates can be close to zero. Registering a business in an offshore or mid-shore jurisdiction is allowed by the legislation of most national states.
Below we talk about tax-advantaged companies and their strong and weak sides. We also dwell on some issues relevant to the process of offshore company registration.
Most popular offshore jurisdictions
Below we list some countries and territories where a great number of business people from all over the globe register offshore companies. The list is far from exhaustive.
The British Virgin Islands. According to some sources, around 40% of all offshore companies are registered in the BVI. Please note that this is not an independent country but a self-governed overseas territory of the United Kingdom.
Panama. The territorial taxation system applied in the country makes it especially attractive for tax optimization purposes. A perfect place to register a company if you would like to do business with partners in North, Central, and/ or South America.
Seychelles. The main advantages of the jurisdiction is a high-speed process of company registration and lax requirements to the application documents. Registering an offshore company in Seychelles can take less than two weeks.
Hong Kong. This is a mid-shore jurisdiction and companies registered in Hong Kong have to do the reporting and pay taxes. However, Hong Kong offers tax incentives to resident companies. A very good place for doing import-export business in the Asia Pacific or taking part in investment projects in the region. Officially, Hong Kong is part of China but it largely lives by its own rules.
Cyprus. One more mid-shore jurisdiction where the corporate income tax is low by European standards. Cyprus is an EU member state and it offers all the advantages that the status entails.
Types of offshore jurisdictions
An ‘offshore jurisdiction’ often means a zero-tax or a low-tax jurisdiction. Many Caribbean countries, for example such as the BVI, Panama, St Kitts and Nevis, etc. are referred to as offshore zones. The same can be said about Seychelles or the Marshall Islands. These countries do not have advanced economies but they are politically stable. Companies registered in these jurisdictions do not have to pay any taxes and for this reason, they do not have to file any financial reports. A company registration fee of a few hundred dollars is due every year.
Low-tax jurisdictions are also often found on islands but some taxes are payable there even though the rates are lower in comparison to most onshore countries. The most popular low-tax (mid-shore) jurisdictions are Cyprus, Hong Kong, and Singapore.
At the same time, there are some offshore zones in Europe too. To be more precise, companies of certain forms of ownership or companies engaged in certain spheres of business can find huge tax benefits in some European countries. Tax incentives are available to foreign companies registered in England, Scotland, Denmark, the Netherlands, Slovakia, the Czech Republic, Hungary, and some other European states.
Advantages and disadvantages of offshore companies
The most important disadvantage that an offshore company has is lack of trust on the part of onshore banks and prospective trade partners. The advantages that you can gain by setting up an offshore business entity are numerous, however. These include the following ones:
- Zero or low taxes;
- A high level of company ownership confidentiality;
- A high speed of company registration;
- An opportunity to open a foreign bank account in almost any currency;
- No annual reporting.
What jurisdiction will suit you?
If your mind’s made up and you know that you want to register an offshore company, you have to ask yourself several important questions to choose the most suitable jurisdiction for your future company. The questions are as follows:
- What kind of business purposes are you going to use your offshore company for? Is it going to be a holding company or a trade company?
- In what countries are your business partners located? Where are you going to trade?
- What is your budget? Depending on the amount of money that you are prepared to spend, your choice of jurisdictions can be wider or narrower.
- Are your partners restricted in their dealing with certain countries?
- Where are you planning to open a corporate bank account: in the country where the company is registered or in another country?
- Do you have long-term or short-term plans for your offshore company?
The answers to these questions will largely determine the jurisdiction that will suit your purposes better than others.
For example, if you would like to engage in long-term business operations, we suggest that you should opt for a reputable jurisdiction that offers fiscal benefits such as Hong Kong, Cyprus, Great Britain, or Singapore. If you are planning to use your offshore company for making a single business deal, you can consider Seychelles or the Marshall Islands, for instance.
The cost of starting an offshore company: what is it made up of?
The total cost of starting an offshore company is made up of five main items:
- Company registration:
- The registration fee, the registered agent’s fee, rent of the company registered address, and company Secretary’s salary;
- The due diligence fee (where applicable);
- The package of apostilled application documents.
- Nominee service:
- Fees to nominee shareholders and directors;
- Powers of Attorney, resolutions, and other documents to be signed by the nominees;
- Agreements, bank forms, and other documents;
- Notarized and apostilled personal documents of the nominees.
- Official documents issued by the Company Registrar (if fees are due):
- Certificate of Good Standing;
- Certificate of Incumbency;
- Certificate of Tax Exemption/ Tax Residency;
- The package of apostilled copies of the corporate documents: the Certificates, the company Charter, Director Appointment resolution, and other documents depending on the particular jurisdiction.
- Apostille and document legalization:
- Apostille on documents or document packages;
- Legalization of documents in the consulate: this is required if the country has not signed the Hague Convention and it does not recognize apostilles.
- Other fees:
- Amendments of corporate documents;
- Company re-domiciliation fee;
- Courier delivery;
- Company liquidation fee and fees for associated legal services;
- Fine for untimely payment of the registration extension fee;
- Restoration of a company struck off the Register.
Specifics of opening a bank account for your offshore company
Opening a bank account for a foreign company has turned from a standard procedure into a highly individualized solution in each particular case. The bank will assess your application for services by the following main criteria:
- Jurisdiction of company registration: banks prefer working with reputable jurisdictions and they are suspicious of offshore jurisdictions.
- Company’s financial history: if your company has no history of operations, it will complicate opening a bank account.
- Company’s counteragents: the bank’s Compliance Department will want to know everything about your business partners and clients including their home countries, spheres of activities, corporate websites, bank account details, and so on.
- Economic substance: the bank administration will often (but not always) want your company to have an office in the jurisdiction where it is registered and company personnel.
Needless to say, the Compliance Department will want to know everything about you personally as the company founder/ owner. You will have to identify yourself and prove the legality of your sources of income. Besides, you will have to inform the bank officer about the destinations and the amounts of your intended transactions.
We have to admit that setting up an offshore company is not as easy today as it used to be. Thus, you have to think twice before launching the company registration process and seek professional assistance in the matter in any case.