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Offshore Company Formation and Registration
What is an offshore company? Offshore companies are used by the vast majority of international business companies and by most international entrepreneurs. If properly disclosed in tax returns, offshore company registration is a legitimate, low tax vehicle for international business companies.
There are three types of offshore company. The first is the traditional tax haven company from island jurisdictions like the BVI or Isle of Man or Seychelles. The second option is offshore company registration in a legally tax exempt trading entity from reputable countries, such as an offshore company in Singapore, a Hong Kong non-resident company, or a UK branch office. The third option for offshore company formation is a low tax trading entity from reputable countries, such as an Irish company or a Cyprus company or a Hungary company.
The future of offshore company incorporation is i) international business companies will be legally operated through entities from reputable, tax exempt jurisdictions like Singapore, Ireland, Hong Kong, New Zealand, Dubai and ii) traditional tax haven companies like a BVI offshore company will be merely used as holding companies.
Offshore company formation can allow international business companies to conduct trading in a more tax efficient manner. For example, offshore company incorporation in Singapore is an excellent vehicle for our Clients to efficiently conduct business throughout Asia.
Setting up offshore banking accounts following offshore company registration enable our Clients' international business companies to receive and settle foreign currencies, eliminating foreign exchange risk while minimizing bank transaction costs. For example a HSBC Hong Kong multi-currency corporate bank account enables our Clients to pay Chinese suppliers with Renminbi.
Offshore company registration can improve cross border sales. For example, a tax exempt Ireland company is a more effective vehicle to sell goods and services within the EU, than its Asian or Middle East parent company. An Irish company will look more attractive to EU customers together with EU VAT registration.
Tax haven jurisdictions neither i) require annual accounting and tax returns nor ii) publish the register of shareholders and directors. For example, an entrepreneur bidding for a large oil and gas contract may appreciate the confidentiality provided by offshore company registration. When offshore company profits are low, entrepreneurs appreciate the absence of annual administrative compliance costs.
It is common to incorporate an offshore company to i) quarantine legal risk ii) to optimize confidentiality iii) to mitigate financial risk and iv) to eliminate reputation risk. For example, a Hong Kong or Singapore company is protected by strong local regulations, based on UK common law. These reputable jurisdictions give strong international business law support, providing comfort to our Clients when signing contracts with international suppliers and customers.
Many of our Clients conduct offshore company registration to i) open a merchant account to receive international customer credit card payments or ii) to open a brokerage account to efficiently trade securities on global stock exchanges. For example, a Hong Kong company and merchant account legally enjoys tax exempt income, while merely suffering a merchant transaction fee of only 2.8%.
Traditional tax haven companies have limited uses because of their growing negative perception. It is no longer cool to operate international business companies through tax haven companies in the BVI or the Isle of Man. A customer's perception of tax avoidance overwhelms the positive business intentions of the offshore company.
International banks view offshore companies as high risk customers. Consequently, it is harder to obtain bank approval. Banks demand increased due diligence from customers who set up an offshore company and there are extra ongoing monitoring of customer transactions.
There are annual accounting and tax obligations for offshore company registration in reputable international trading jurisdictions. For example, an offshore company in Singapore must submit to the local tax authority their annual financial statements and tax return. From a positive perspective, this annual administrative obligation contributes to the transparency of the jurisdiction, thus optimizing the reputable image of an offshore company in Singapore.
Offshore company set up is utilized to legally minimize domestic and international tax. For example, a properly structured non-resident Irish company is legally tax exempt on global income. Consequently, entrepreneurs prefer to conduct EU business through this entity.
It is common to incorporate an offshore company to act as a holding company of a group of subsidiary international business companies. For example, a Singapore company enjoys the benefits of 69 double tax treaties, minimizing country withholding tax on cash flow from global subsidiaries to Singapore parent company.
Businesses incorporate offshore to portray an international or familiar presence to global customers. For example, entrepreneurs conducting business in the Middle East establish a Dubai offshore company to assist with local banking transactions, closing local sales and signing new contracts.
Employing global employees or consultants through an offshore company provides flexibility to international entrepreneurs. Our Clients' ability to efficiently and effectively complete customer engagements is enhanced when labour costs are minimized and labour mobility is optimized.
Offshore incorporation can be a strategy used by individuals who live in politically unstable countries to hold family wealth to avoid expropriation or exchange control restrictions in the country in which they live (e.g., forming an offshore company in Hong Kong).
To minimize regulatory and administrative burdens. For example, entrepreneurs engage in offshore company incorporation to participate in risky investments, such as derivatives trading. Usually, it is extremely difficult to directly engage in offshore investment and trading due to cumbersome financial markets regulation. A New Zealand financial services provider company is a popular choice with our Clients.
Capital gains and inheritance tax can be legitimately minimized when international assets are owned by an offshore company. For example a Luxembourg SPF company can own international securities, real estate and private equity. The offshore company shareholding can be transferred or sold to third parties without triggering local tax liabilities.
Entrepreneurs use offshore company incorporation to open international multi-currency corporate offshore bank accounts. Frequently, our Clients' suppliers and customers request local bank accounts to settle payments, eliminating forex risk, minimizing bank charges. An example of such a solution is a HSBC Hong Kong multi-currency corporate bank account.
An offshore company can own global assets, trademarks, patents and receive royalties. This entity minimizes global tax while optimizing confidentiality. A Marshall Islands offshore company is a flexible, functional solution. Or a Luxembourg IP holding company suffers a mere 6% annual tax on global income.
Using a legitimate offshore tax planning strategy, a person working overseas is able to limit his tax burden by receiving, into the country in which he is working, a fixed level of remuneration and accumulate the balance in an offshore entity (e.g., using an offshore company in Dubai).
Yachts or ships may also be owned by an offshore company and registered in an offshore jurisdiction, which can prove a cheaper and more tax-efficient method of ownership (e.g., using a Marshall Islands company).
Offshore jurisdictions are frequently used to set up joint venture companies because i) both parties need a neutral jurisdiction and/or ii) because both parties need a jurisdiction with strong contract law (e.g., Singapore).
While the requirements for an offshore business can vary between different jurisdictions, the procedures to set up such a company typically evolve as follows:
The initial planning stages for setting up an offshore company involve matching the advantages of jurisdictions to the desired objectives for the business in order to choose the most appropriate jurisdiction for the company. There are different reasons for choosing the location for an offshore business however our firm has found the top 5 jurisdictions to be Singapore, Hong Kong, Dubai, Ireland and New Zealand.
Prior to setting up the offshore company, Healy Consultants collects the required due diligence from our client. There is also agreement made on company name and corporate structure, including shareholders and directors.
Healy Consultants e-mails our client a detailed project plan, which outlines a roadmap for the company setup process. This minimises unwanted surprises for our client during the setup of their offshore business.
Healy Consultants proceeds to legally incorporate the company with the agreed corporate structure.
To support their offshore business setup Healy Consultants assists our client to: i) open a corporate bank account, ii) obtain trade and corporate finance, iii) register a business address for invoicing purposes, iv) locate business premises and v) help with developing a corporate website.
After the offshore company is set up, Healy Consultants emails an Engagement Feedback Survey to our client.
A traditional tax haven jurisdiction comprises the following characteristics i) zero company and personal tax ii) lack of transparency re shareholder and directors and iii) no requirement for a local presence. These tax haven companies include but not limited to a Cyprus offshore company, BVI companies, Belize, Seychelles, Caymans, and Isle of Man companies.
It is no longer fashionable to conduct international business companies through these entities. The stigma associated with tax haven companies is growing. Consequently, the use of these companies is limited to being a holding company of international shares and offshore asset protection.
For tax haven companies, it is becoming more difficult to open international corporate offshore bank accounts and brokerage accounts. Banking and financial institutions class tax haven companies as high risk customers.
Customers, suppliers and Governments are becoming more uncomfortable conducting business with traditional tax haven companies. There is and will continue to be too much negative press about using these types of companies.
Within 10 years, we believe some traditional offshore tax havens will contain public registers of shareholders and directors. This change will enhance the transparency of tax haven companies and hence their image and reputation. In summary, traditional tax haven companies in their current form are not long term solutions. Cooperation between governments (e.g. UK, US, EU) and tax havens (e.g. Isle of Man, Guernsey, Jersey, Switzerland) is leading to more jurisdictions implementing the international standards of transparency and exchange of financial related information.
Tax exempt jurisdictions enjoying a positive international trading image include Singapore, Hong Kong, Ireland, Dubai, New Zealand, USA and Luxembourg.
The optimum legally tax exempt offshore company is one from a reputable trading jurisdiction (e.g. USA LLC). A country that boasts robust corporate and contract law (e.g. Singapore Ltd). A jurisdiction that helps customers and suppliers feel more comfortable (e.g. Hong Kong Ltd). A corporate entity welcomed by international banks (e.g. New Zealand Ltd). A jurisdiction positively perceived by third parties (e.g. Ireland Ltd). An offshore company welcomed in new markets (e.g. Dubai LLC).
When doing business with China, our Clients are most comfortable with a tax exempt Hong Kong trading company. To be legally tax exempt, the entity needs to be properly structured and fulfill some Government criteria.
Many of our Clients conducting global financial services prefer to trade through a New Zealand company or a Luxembourg company. The entity will be legally tax exempt and can secure a financial services license with minimum effort.
When choosing a global holding company, our Clients are most comfortable with a tax exempt Singapore company together with i) its extensive network of double tax treaties and ii) its membership with the global trademark and patent organization. To be legally tax exempt, the entity needs to be properly structured and fulfill some Government criteria.
When doing business in Europe, our Clients are most comfortable with a tax exempt Ireland trading company. To be legally tax exempt, the entity needs to be properly structured and fulfill some Government criteria.
A Dubai offshore company is an excellent vehicle to use when doing business in the Middle East and Africa. It is a legally tax exempt jurisdiction that is welcomed by banks, customers and suppliers.
A UK branch company is an excellent corporate vehicle to conduct business in the UK and not suffer UK tax.
Refer to the table below to view a list of global countries that are recognized as low tax trading jurisdictions for offshore company formation. It is important to some entrepreneurs and global companies to pay some tax.
Following offshore company incorporation, Healy Consultants assists our Clients to open offshore corporate bank accounts with HSBC and SCB Singapore, Hong Kong, London, Sydney and Dubai. Such international banks typically provide a broader range of offshore company services such as Internet banking facilities and telephone customer service. The following table shows details of suggested options for setting up offshore bank accounts.
Fees vary depending on the jurisdiction chosen. Typically, offshore company formation engagement costs will range from US$6,000 to US$10,000 depending on the international business company structure chosen during offshore company incorporation and the range of professional offshore company services required by your Firm.
Healy Consultants provides a comprehensive range of offshore company services to support the offshore company formation that, in turn, contribute to achieving our clients business objectives. Important offshore company services include:
Tailored solutions for offshore trust companies, shelf companies, offshore holding companies and other foreign investments.
Following offshore company registration, Healy Consultants assists with setting up a merchant offshore account to support retail operations. Clients regularly request assistance with merchant offshore accounts that allow them to accept purchases via their business website to provide convenience but maintain security.
After offshore company incorporation, Healy Consultants can set upinternational brokerage accounts to allow clients to effectively trade securities on global stock exchanges through an offshore company.
Supply of a virtual office that provides a business address for invoicing purposes, telephone answering, fax and email message forwarding services.
A January 2009 U.S. Government Accountability Office (GAO) report said that the GAO had determined that 83 of the 100 largest U.S. publicly traded corporations and 63 of the 100 largest contractors for the U.S. federal government were maintaining subsidiaries in countries generally considered havens for avoiding taxes.
A 2012 study by the Tax Justice Network gave an indication of the amount of money that is sheltered by wealthy individuals in tax havens. Conservatively, it estimated that a fortune of $21 trillion is stashed away in off-shore accounts. Tax Justice Network, an anti-tax haven pressure group, suggests that global tax revenue lost to tax havens exceeds US$255 billion per year.
In 2010, Google confirmed it uses techniques called the "Double Irish" and "Dutch Sandwich" to reduce its corporate income tax to 2.4%, by funneling its corporate income through Ireland and from there to a shell in the Netherlands where it can be transferred to Bermuda, which has no corporate income tax. The search engine is using Ireland as a conduit for revenues that end up being costed to another country where its intellectual property (the brand and technology such as Google's algorithms) is registered. In Google's case this country is Bermuda. In the year 2009, the internet giant made a gross profit of €5.5bn, but reported an operating profit of €45m after "administrative expenses" of €5.467bn were stripped out. Administrative expenses largely refer to royalties (or a licence fee) Google pays it Bermuda HQ for the right to operate. Google has uncovered a highly efficient tax structure across six territories that meant Google paid just 2.4% tax on operations outside the US.
The Foreign Account Tax Compliance Act (FATCA) was initially introduced to target those who evade paying U.S. taxes by hiding assets in undisclosed foreign bank accounts. Starting January 1, 2014, FATCA will require foreign financial institutions (FFI) to provide annual reports to the Internal Revenue Service (IRS) on the name and address of each U.S. client, as well as the largest account balance in the year and total debits and credits of any account owned by a U.S. person. If an institution does not comply, the U.S. will impose a 30% withholding tax on all its transactions concerning U.S. securities, including the proceeds of sale of securities. FATCA requires foreign financial institutions (FFI) of broad scope - banks, stock brokers, hedge funds, pension funds, insurance companies, trusts - to report directly to the IRS all clients who are U.S. Persons. An unintended but serious problem with FATCA is that compliance is so expensive for non-US banks that they are refusing to serve American investors. Concerns have also been expressed that, because FATCA operates by imposing withholding taxes on US investments, this will drive foreign financial institutions (particularly hedge funds) away from investing in the US and thereby reduce liquidity and capital inflows into the US.
Nearly half of all public corporations in the United States are incorporated in Delaware. In 2011, exactly 133,297 corporations were set up here. More than 50 percent of the major corporations in the world are present in Delaware through offshore company formation, because it provides the anonymity that most offshore corporation jurisdictions do not offer. Delaware's tax laws are a bonanza for the state. At a time when many states are being squeezed by a difficult economy, Delaware collected roughly $860 million in taxes and fees from its absentee corporate residents in 2011.
It is estimated that over 90% of the companies listed on Hong Kong's Hang Seng are incorporated in offshore jurisdictions. 35% of companies listed on AIM during 2006 were from offshore financial services centres.
The OECD (Organization for Economic Co-Operation and Development), a multi-governmental organization based in Europe, is pursuing its own campaign against "tax havens". In March, 2009, virtually all of the formerly "secret" tax haven jurisdictions, including Switzerland, Liechtenstein and Monaco, agreed to the exchange of offshore banking information with foreign governments, including the US. This ends decades and in some cases centuries of offshore banking secrecy.
In the USA, failure to report an international offshore banking account or foreign income constitutes criminal activity and will give rise to i) exchange of offshore banking information with the IRS ii) civil and criminal fines and iii) even jail.
An International Business Company, or IBC, is a commonly used term that is inter-changeable with the terms offshore company, or offshore corporation. Some jurisdictions label this type of corporate structure international business companies (IBC), however, this is an offshore business entity with the same key characteristics including i) low, or no, corporate tax and ii) restrictions on operating their business in the jurisdiction where the company is registered.