Offshore Company Q & A 2022

What is an Offshore Company?

An offshore company is a legal entity incorporated in an overseas jurisdiction. The term offshore refers to countries and jurisdictions that do not levy taxes on corporate profits.

An offshore company is a separate entity to the individual shareholders and directors. It protects directors and shareholders from liabilities accrued by the company.

Do I really need an offshore company?

The main uses for offshore companies are to protect assets, to avoid tax and to maintain privacy. Whether you need an offshore company or not depends on your objectives for the company.

All offshore companies will provide more privacy than their onshore counterparts. Whether they are effective for reducing tax depends on the structure.
It can depend on the residency of the directors. Offshore companies can be effective at protecting assets. But the right structure is crucial.

First, you should analyse the risks and threats you face. Then decide where to incorporate your offshore company for asset protection purposes.

Which Jurisdiction Should I Choose?

This depends on what your goal is for your offshore company. Every jurisdiction can be tax-free. But you have to be careful not to fall foul of your home country’s controlled foreign corporation rules.

Some jurisdictions offer better asset protection than others. The timing of the transfer of assets to an offshore company can be a crucial consideration. In some jurisdictions, asset transfers are impossible to reverse. But only after a certain time has passed. This can be 2 or 3 years.

Can I Open a bank account for my offshore company?

A bank account can be crucial to the operation of your offshore company. With increased regulation worldwide it’s becoming more and more difficult. A personal visit is often necessary to open the best offshore bank accounts.

Especially in jurisdictions like Hong Kong and Singapore. How accounts are set up to protect your privacy is crucial.

Your personal residency is important. If the bank is part of CRS they will report your balances to your home tax authority. This is true, even for corporate accounts.
All US citizens are subject to FATCA regardless of their residency.

How do you use an Offshore Company?

There are many different uses for an offshore company.

Multinational companies use offshore companies to hold intellectual property rights. They then charge their onshore subsidiaries high fees to use those rights.
This reduces their profits in high tax jurisdictions.

Transfer pricing is another way to use offshore companies.

Let’s say you want to buy goods from China to sell in the UK. You could set up a Hong Kong company to buy the goods from China. The Hong Kong company would then charge a higher price to the UK company. In this way, most of the profits can be locked in tax-free in the Hong Kong company.

Another major use of offshore companies is for those working in industries that face the threat of frequent legal action.

This can be the case in most industries nowadays but particularly true in the medical profession. Assets can be transferred to an offshore company which is separate to the individual. The assets held in the offshore company are therefore protected from any lawsuits against the individual.

Offshore companies are completely legal. It’s important, though, to make sure that you set up your offshore structure to comply with all laws in the jurisdiction where you live. Expert advice can be crucial to achieving this.

Can I really trade tax free with an offshore company while living in a high tax country?

It depends on which country you are resident. If you’re a resident of a high-tax country you must organise your affairs meticulously. But, yes, it’s possible to live in a high tax country and have an interest in an offshore company that’s trading on a tax-free basis.

Will the tax authorities in my home country know about my offshore company?

There is no international register that publishes information about the ownership of offshore companies.

If privacy is important to you you should incorporate in a jurisdiction that doesn’t make the names of shareholders and directors available to the public.
Alternatively, you can use nominee directors and shareholders to keep your details private.

Does an offshore company have to file accounts?

This depends on the jurisdiction. If you’re using a Hong Kong company it’ll have to file accounts. The offshore world is trying to become more transparent. Other jurisdictions are likely to introduce accounts filing requirements. Most jurisdictions still have no mandatory accounts filing requirements.

What are the annual running costs of offshore companies?

Annual running costs are something that you should consider. You should know this before you incorporate an offshore company. Annual costs range from$1,000 – $2,000 per year, depending on the jurisdiction.

Can my creditors get a court order against my offshore company?

Some jurisdictions recognise foreign judgments. The British Virgin Islands will rubber-stamp any foreign judgment against companies incorporated there.

Other jurisdictions such as The Cook Islands and Nevis make it difficult for creditors to sue. A creditor would have to start litigation from scratch in the jurisdiction. They’d have to post a significant bond there before proceeding. This will discourage all but the most determined litigants.

Should I use nominee directors for my offshore company?

Nominee directors can be a useful privacy tool. There are often reasons that your involvement in an offshore company be kept secret. If you want to avoid appearing on any register of directors, then nominee directors can take your place.

It’s important to ensure that you have full power of attorney from the nominees. You also need undated, signed resignation letters so that you maintain complete control.

What are Controlled Foreign Corporation Rules?

Controlled Foreign Corporation or CFC Rules aim to prevent taxpayers in high tax countries from using offshore companies to divert income to low tax jurisdictions.
Anyone who controls more than 25% of an offshore company, while living in a high tax country must plan their offshore strategy to avoid CFC rules.

Can my offshore company trade in my home country?

Yes, your offshore company can trade anywhere in the world. You will have to consider CFC rules in your home country and any other local regulations.
Detailed planning must be done to ensure that you’re using a company from the right jurisdiction.

It’s important to ensure that you’re using it in the right manner. You might want to consider options such as using directors based overseas. It’s also worth making sure the registered owner of the company is based in a tax haven.

Does my offshore company have to register for VAT?

If you’re in a country where there is a value-added tax your offshore company will have to register for it as a local company does.