Offshore Company Formation
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We at Offshore Affairs provide Offshore Company Formation services in most tax havens or tax friendly jurisdictions in all continents in the world. We count with partnerships and a broad network that allow us to provide a one-stop shop for our clients needs.
Each jurisdiction is different, with its own laws and legal instruments, tax treaties, tax system, level of protection, confidentiality and privacy, formation and maintenance costs, yearly compliance requirements, etc.
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Counseling on where to form company
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International structuring.
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Offshore Company Formation.
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Registered Agent and Address.
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Ongoing yearly maintenance assistance.
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Tax Returns.
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Nominee Director Services.
What is an offshore company?
An offshore company is a legal entity formed in different jurisdiction from the one where you reside, or a non resident company from a tax code perspective. These companies can have different forms, such as Limited Liability Company (LLC), International Business Company (IBC), Limited Liability Partnership (LLP), Limited Partnerships (LP) Corporations, Limited Companies (LTD), etc.
These entities used for several purposes such as tax elusion, asset protection, diversification of investments, access to foreign investments, and for illegal purposes such as money laundering, tax evasion, terrorism financing, etc.
Some of these entities are tax exempt but are restricted to not having business activity in the country of formation, or transactions with residents (with some exceptions such as lawyers, tax preparers, registered agents and offices, and alike). Other entities are allowed to transact with resident and to have business activities in the country of formation, but doing so would trigger tax liability or even lose the tax exempt status.
What is a tax haven?
A Tax Haven could be a country where a tax is significantly lower than your primary country of tax residency, or a country which in addition refuses to provide information about the ownership or beneficiaries of a company, which are called non-cooperative jurisdictions and are often black or grey by the OECD, European Union, etc, but a Country can a tax haven and not be black listed. The biggest tax havens in the world are not islands in the Caribbeans.
For example, if you form a Limited Partnership in Canada and you don’t have Canada Sourced income and are not a tax resident there, you will not pay corporate nor personal income tax in Canada, so we can consider it a tax haven. Same goes for the UK LLP.
Are offshore companies legal?
Owning an offshore company and offshore bank account is totally legal, nonetheless it can be used for legal or illegal purposes.
An Offshore company can be used for several legal purposes such as tax avoidance, wealth management, asset protection, diversification of investments, access to foreign investments, and for illegal purposes such as money laundering, tax evasion, terrorism financing, etc.
Owning an Offshore Company is totally legal, it is like owning a gun. A gun may be used for legal purposes such as Self-Defense, or for illegal purposes like robbery or illegitimate killing - so what is illegal is how you use it.
How are offshore companies taxed?
Taxation will depend on each jurisdiction code, but in general these might be tax transparent entities (pass through) and there I no tax paid at the company level, and if the company did not engage in business activities, the pass-through income to the owned is not sourced from the country of formation, and hence not subject to income tax.
In general, "Offshore Companies"are tax exempt from all types of tax withholding tax, income or corporate tax, VAT, GST, or any other type of sales tax, payments to non-residents, dividends, interests, royalties, etc., but other jurisdiction might exempt some of just, or just provide a lower or significantly lower tax rate than your jurisdiction of tax residency.
What do you need to open an offshore company?
The documents required will depend on each jurisdiction AML/KYC requirements, but in general you would need:
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Proof of Identity (Passport copy, national ID card)
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Utility Bill dated no less than 3 months. (translated to the jurisdiction's official language)
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Professional or Banking Reference Letter.
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Fill out company formation forms for the service provider or lawyer to complete incorporation.
Most of the time, proof of identity and utility bill need to be certified copies.
What are the yearly maintenance requirements of an offshore company?
This varies from country to country, and from entity type to entity type. In general, companies in "pure tax havens" are only required to pay an annual flat fee (+/- $1,000) and to renew the registered agent and address service, and there is no need to file tax returns, audits, bookkeeping, etc.
Other jurisdictions are only required to file information returns (Foreign Owned US DE), while others require tax returns and extra forms to claim tax exemptions for foreign owned income (Hong Kong companies for example).
What is Asset Protection?
Asset protection is putting your assets in a legal vehicle (Company or Trust) out of creditors’ reach.
You can protect your assets by carrying your business ventures through a company (this can be a local or offshore company), this strategy allows you to carry your business without putting at risk your personal assets or your other companies assets; or you could transfer your personal assets to an asset holding company incorporated in your country of personal tax residency, but this strategy still leaves a gap for personal creditors to go after your interest or shares in that asset holding company, but incorporating this asset holding company in a tax haven will make it mostly impossible for creditors to find out the ownership of the asset holding company since one of tax havens main services besides tax enhancement is secrecy, and some jurisdictions make it nearly impossible, if not very expensive, to enforce foreign judgements.
Make sure and do your asset protection before a lawsuit arises, or before bankruptcy is around the corner because most jurisdictions' bankruptcy laws have provisions against fraudulent conveyances dated some months or even years before bankruptcy, to related parties, i.e related companies or relatives.
What is a Trust?
Put simple, a trust is when you transfer certain assets to a Trust, which is administered by a trustee in your benefit or in benefit of who you appoint as the beneficiary. While the Trustee administers such assets, the assets legally do not belong to you, nor to the administrator, nor to the beneficiary, they belong to the Trust. A Trust could be of several types, but the most common are those of administration, wealth management, and warranty. The Trust provides an additional layer to your offshore structure to keep private the ownership of your assets.
The Trust provides asset protection as it separates the assets of the Settlor/Grantor and are administered towards the Beneficiary benefits.
The Grantor sets the rules and how the assets will be administered, and the Trust could sometimes be revoked or irrevocable, depending on the Trust rules.
A Trust provides total privacy as when the trust is created, no one can know who is/are the settlor(s) and/or the beneficiary(ies) since the Trust Deed is an internal document that only the involved parties have knowledge of.
A classical offshore trust structure is the Trust would own one or several companies (LLCs, Corporations, etc.), and those companies are to hold assets (bank accounts, cars, aircrafts, yacht, or any other asset), and the Settlor, or whoever the Settlor wishes, may be appointed as the manager (CEO) of said companies and the CEO would have a General Power of Administration, providing the Settlor full control and administration over the Trust Assets.
Some jurisdictions allow the figure of the “Protector” where you can have more control over the actions of the Trustee.
Jurisdictions
Tax Havens in the Caribbeans
Cayman Islands
Nevis
Tax Havens in America
Tax Havens in Europe
Tax Havens in Asia
Tax Havens in Africa
Tax Havens in Oceania
Worldwide VS Territorial Tax System
A big factor to take in consideration before choosing your jurisdiction of incorporation is whether your country of residency has a worldwide or territorial tax system.
Worldwide Tax System: A country with a worldwide tax system will tax you on the income generated therein, and the income generated in another territory. For example, You (personally or your Company) are a tax resident in Country A. Since country A has a Worldwide Tax System, you will pay taxes (or Country A will try to tax you) on profits generated in Country A, and in Countries from B to Z, even if the income was generated through a company formed in another country with no relation to or presence in Country A, except in those jurisdictions that Country A has a Tax Treaty with.
In these types of countries, it is a little bit more difficult to avoid taxes as, for example, if you are a US citizen, you have lived in Thailand for several years, and are employed and work in Thailand, you will be required to still pay income on your wages received in Thailand (after certain threshold is met). I am not trying to say that there are not tax planning strategies to reduce your tax base, but you get the idea.
Territorial Tax System: Generally, jurisdictions with a Territorial Tax System only levy tax on those profits generated in that jurisdiction. Each jurisdiction has its rule to determine if a profit has been generated therein. Just as an example, and in general, if the services or products are not provided within the territory of incorporation, the services income will not be taxed, even if the services are provided through a company incorporated there.
In the case of citizens, they will not pay tax on income generated abroad.
Mixed or Hybrid Tax System: Some countries have a mixed tax system, where for example natural persons are not taxed on their worldwide income but companies are.
Tax Residency
Being a tax resident of a certain country means you will be treated as such pursuant to that jurisdiction tax code. Being a tax resident does not mean you are a resident for immigration purposes as you can be a tax resident but not legally a resident of that jurisdiction.
Being a tax resident does not necessarily mean that you will be taxed, as companies incorporated in tax havens may be exempt from corporate tax and may profit from a double taxation avoidance treaty.
Companies
In general, for companies, tax residency is determined by country of incorporation, and/or country of management (where annual meetings are held and where decisions are taken).
Sometimes, depending on the jurisdictions tax code, you could be a tax resident in two or more jurisdictions at the same time, even if you live in one country, that is the case if country A considers tax resident a company by country of incorporation, and country B considers a company tax resident by way of place of management.
You can also be a tax resident in another jurisdiction if you have a permanent establishment (PE) there, or have representatives who sign contracts on your behalf there, etc. The exact details, and the ways to legally circumvent being a tax resident, will be found in that jurisdiction tax code or tax treaties.
Individuals
From the individual point of view, you can be a tax resident in a country by virtue of your nationality (in general, for those citizens in countries with a worldwide tax system), or by virtue of the time you have spent in a certain territory. In general, you are a tax resident in a jurisdiction if you spend 180 days in a calendar year therein.
Depending on your nationality and/or tax residency, if you want to change your tax residency you would have to give up your nationality (and acquire another citizenship), or you would have to perform an “exit tax procedure” where you would have to pay any capital gains accrued by the time you change your tax residency and cut all your ties to that country (you would have to not have any tie to that country such as no bank account, home, membership, etc)..
What is Treaty Shopping?
In summary, treaty shopping is incorporating in order to benefit from its tax treaties. Most tax treaties are drafted using the OECD or EU model.
Company Incorporation in most countries gives you the right to opt for the Residency Certificate which is the requirement to profit from such treaty
Tax Avoidance is Legal, Tax Evasion is Illegal!
Tax Avoidance
Tax avoidance is using legal methods to reduce your tax bill by using legal profit shifting strategies, claiming expenses and reductions, deductions, claiming tax treaty benefits, or any other type of legal tax planning.
Tax Evasion
Tax evasion is using illegal means to not pay taxes
You could commit tax evasion if you:
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Don’t declare and hide your total income even though your country of residency/citizenship requires you so.
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File wrong or false tax statements.
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Use illegal tax schemes.
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Try to smuggle through customs any type of valuable property over the permitted threshold.
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Etc.
Profit Shifting
Profit shifting, or base erosion, consists of reducing your taxable net profit by way of increasing your expenses or moving your profits to another company/jurisdiction. Please note what some countries have implemented some legal guidelines to prevent base erosion.
Some ways of profit shifting are by way or royalty payment or by way of loans:
1. Intellectual Property (royalty).
Intellectual Property, specifically royalties, is the most used method to shift profit from one jurisdiction to another since it is hard for tax authorities to put a price on your intellectual property, different from loans because some countries have implemented regulations to limit the loan interest between companies for tax purposes.
In general, the Company incorporated in a low tax jurisdiction owns the Intellectual Property and grants a Use License to the trading company in the high tax jurisdiction. The Company in the high tax jurisdiction will send its profits to the Offshore company as an expense.
If you obtain 1,000,000 USD in net profits in Country A, you will be taxed at a rate of 30% for income tax (because income tax generally is a progressive tax) on that 1M. To reduce this tax bill, you send this profit to the Offshore Company where it will not pay taxes, but Country A may require you to withhold from that Offshore Company an amount on that Royalty payment, which is generally around 15%.
2. Loans.
Loans are used by multinationals (a company owning a company in another jurisdiction) to transfer profits by way of interest payments because such interest in registered as an expense in the objective base erosion company)
Hybryd loans are used to avoid paying taxes from the receipt of interests.