Offshore and Overseas Company Formation

Understanding Offshore Business and Offshore Companies

The terms offshore business and offshore company have no precise legal, tax or business meaning and often can be misinterpreted. A basic definition for “offshore” is a distinct entity or operation that is “…registered, located, conducted, or operated in a foreign country”. It is important to understand that within this site, we use these words in the context of structuring an international business or use in tax planning.

Types of Offshore Companies

Our clients use the following types of offshore companies for tax planning and international business structuring purposes:

• Very low or zero tax offshore companies incorporated in jurisdictions often described as tax havens, such as in Panama, Seychelles, Belize or the British Virgin Islands.
• Companies incorporated in jurisdictions which offer both offshore and onshore companies that benefit from favourable tax regulation. An example is Hong Kong. Although not regarded as a tax haven, it has a favourable tax regime which means when correctly structured and administered, the company can be used for international trade without paying Hong Kong tax, provided that profits are not Hong Kong source. This is often referred to as “territorial taxation”.
• The LLC or Limited Liability Company and the LLP, or Limited Liability Partnership
  • These types of offshore companies are used for international business and tax planning because they have the advantage of limited liability combined with the flow-through characteristics of a partnership for tax purposes. Profits are divided among the members in proportion to their respective holdings, which are taxed in their home country.
  • In some situations, if all the offshore company members or partners are non-tax resident in the domicile of the LLC or LLP company and no business is undertaken in that country, neither the LLC or LLP, nor the members or partners will be subject to tax in the company’s domicile. Examples of these “fiscally transparent” companies include US LLCs, UK and Scottish LPs.
• The offshore world is complex and consists not only of tax havens but also of onshore high tax countries actively competing to attract international companies and individuals with advantageous tax planning policies and opportunities.
  • Double tax treaty planning related to dividends, interest and royalty payments
  • International holding companies
  • Countries noted for tax advantageous structures include Cyprus, UK, Portugal, Singapore, Austria, Switzerland, Luxembourg and the Netherlands.

International tax advisors have long been aware of opportunities that exist to optimize taxation with special low tax regimes offered by high tax countries seeking to encourage international business. It should be noted, though, that successful implementation of such company structures depend on many factors including: management and ownership control tests, transfer pricing, percentage participation in company holdings, capital gains tax, among other tax and policy provisions.

Going Offshore: Incentives

Incentives for businesses or individuals to pursue offshore planning and offshore companies:

• Reduce tax burden
• Safeguard assets
• Manage risk
• Maintain confidentiality
• Avoid bureacracy
• Reduce operational costs

Offshore Company Applications:

• Trading
• Investment
• Holding shares or real estate
• Financing
• Consultancy business
• Patent or royalty holding
• Ship management and yacht ownership
• Personal and corporate tax planning

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