Things to Consider Before Establishing an Offshore Company
An offshore company is one that is incorporated in an area outside of the area in which it primarily does business. There are many reasons that companies choose to incorporate offshore. They might wish to take advantage of tax incentives offered by the host nation or take advantage of stricter protection under the law. While there are benefits to offshore company formation, there are also drawbacks. Both of the benefits and drawbacks will be discussed below.
Benefits of Establishing an Offshore CompanyTaxation- Jurisdictions tend not to tax companies they deem non-resident entities. Most offshore companies meet these requirements. There may be a nominal fee assessed each year.
Ease of Reporting- With the exception of offshore banking and other financial offshore services, most host jurisdictions require remarkably little in the way of reporting. The amount varies from jurisdiction to jurisdiction, but it will be significantly less than an on-shore company’s requirements.
Strict Protection- Many jurisdictions fiercely protect corporations’ privacy. This extends not only to business done within the host country but into other nations as well. Many jurisdictions insist that the laws of the home jurisdiction apply to any lawsuit brought against the company rather than the laws of the country in which the suit is filed.
Anonymity- The name of the principal owner of a company has greater protection in some jurisdictions than in others. Many jurisdictions view the corporation as a wholly separate legal entity. This allows the principal owner to remain anonymous.
Drawbacks of Establishing an Offshore Company
Hiring and Business Restrictions- An offshore company is normally prohibited from hiring any residents of the presiding jurisdiction or conducting any form of business. This can lead to staffing problems and other more serious issues.
Stricter Requirements- Offshore companies are often viewed with some level of suspicion, and as a result, they are subject to tighter restrictions when it comes to financial matters. Due to the danger of money laundering and other criminal enterprises, offshore investment companies and the like may find it more difficult to open bank accounts and engage in other financial transactions.
Anti Tax-Haven Legislation- Incorporating offshore is often seen as a way to avoid paying taxes. For this reason, some nations make it especially difficult for offshore companies to conduct business within their borders.
Inheritance Issues- Incorporating offshore means that when a shareholder passes on, legal documents often need to be filed in two separate countries.
Incorporating offshore may be the best option for a company, but before committing to this course of action, it is essential to define exactly what a company’s business plan and market will be. This can determine whether incorporating offshore is the right move.