9 Things You Just Need To Know About Offshore Company
Today a client was asking me about Offshore Companies – ie what are these companies? How many types are there? Any tax liabilities? How are they being used for?
Let me try to explain here in as layman’s term as possible…
1. An offshore company may be commonly referred to:
* a corporation or other type of legal entity which is incorporated or
* registered in an offshore financial center or ” tax haven”.
2. Classic tax haven countries such as
* Bermuda,
* British Virgin Islands and
* the Cayman Islands
are offshore jurisdictions, and companies incorporated in those jurisdictions are invariably labelled as offshore companies.
3. Thereafter there are certain small intermediate countries or areas such as :
* Hong Kong and
* Singapore ( sometimes referred to as “mid-shore” jurisdictions)
which, whilst having oversized financial centres, are not zero tax regimes.
4. Classifying Offshore companies
* There are countries which operate tax regimes which broadly achieve the same effect: so long as the company’s activities are carried on overseas, and none of the profits are repatriated, the company is not subject to taxation in its home jurisdiction. Where the home jurisdiction is regarded as an offshore jurisdiction, such companies are commonly regarded as offshore companies. Eg. Hong Kong & Uruguay.
* Separately there are offshore jurisdictions which simply do not impose any form of taxation on companies, and so their companies are de facto tax exempt. Historically the best example of these countries were the Cayman Islands & Bermuda although other countries such as the British Virgin Islands have now moved to this model. These could arguably fit into either of the previous two categories, depending on the fiscal point of view involved.
5. All offshore companies tend to enjoy certain core characteristics:
* They are broadly not subject to taxation in their home jurisdiction.
* The corporate regime will be designed to promote business flexibility.
* Regulation of corporate activities will normally be lighter than in a developed country.
6. The absence of taxation or regulation in the home jurisdiction does not of course exempt the relevant company from taxation or regulation abroad. For eg, a company is incorporated in the British Virgin Islands, but can also be listed on the Singapore Stock Exchange, where it is subject both the Singapore taxation and to financial regulation, by the Singapore Stock Exchange.
7. Another common characteristic of offshore companies is the limited amount of information available to the public.
* This varies from jurisdiction to jurisdiction. At one end of the scale, in the Cayman Islands & Delaware, there is virtually no publicly available information.
* But at the other end of the scale, in Hong Kong companies file annual returns with particulars of directors, shareholders and annual accounts.
* However, even in jurisdictions where there is relatively little information available to the public as of right, most jurisdictions have laws which permit law enforcement authorities (either locally or from overseas) to have access to relevant information, and in some cases, private individuals.
8. In relation to flexible corporate law, most offshore jurisdictions have removed or watered down rules relating to maintenance of capital or restrictions on payment of dividends.
* A number of jurisdictions have enacted special corporate provisions to try and attract business through offering corporate mechanisms that allow complex business transactions or reorganisations to occur more smoothly.
9. Uses of offshore companies
* Offshore companies are used for a variety of commercial & private purposes, some legitimate and economically beneficial, whilst others may be harmful or even criminal.
* Allegations are frequently made in the press about offshore companies being used for money laundering, tax evasion, fraud, and other forms of white collar crime.
* Offshore companies are also used in a wide variety of commercial transactions from generic holding companies, to joint ventures and listing vehicles.
* Offshore companies are also used widely in connection with private wealth for tax mitigation and privacy.
* The use of offshore companies, particularly in tax planning, has become controversial in recent years, and a number of high-profile companies have ceased using offshore entities in their group structure as a result of public campaigns for such companies to pay their “fair share” of Government taxes.
* Other commonly cited legitimate uses of offshore companies include uses as joint ventures, financing SPVs, stock market listing vehicles, holding companies and asset holding structures, and trading vehicles.
Hope above helps.
If anyone wishes to incorporate an Offshore company in the Cayman Islands, feel free to contact us at :
(M) +65 90880669
