Crucial Information for Anyone Forming an Offshore Company
Offshore company formation is easy. You get in touch with a formation agent. Tell them which jurisdiction you want the company incorporated in. Shortly after that, you’ll have an exotic offshore company. So far, so good. In my experience, most of the money that’s spent on offshore company formation is wasted. That’s because people don’t consider the structure that they need before they dive into offshore company formation. To get a structure that will work and stand up to scrutiny, a fair amount of planning and strategizing must be put in. There are many factors to consider.
Here are a few things you should consider before forming an offshore company:
Never Use an Agent Based I Your Own Country for Offshore Company Formation
In some countries, company formation agents are regulated. In the UK, for example, many are regulated by the FCA. That means that all your information ends up with a government agency. It will find its way to the tax authorities in your country. I’m sure everybody reading this will be following the rules in the country that they live in. Even so, you don’t want to become a target for a tax audit. That’s what may happen if you use an agent in your own country for offshore company formation.
The best way to form an offshore company is to seek advice from an organization that doesn’t have to report its dealings about you to anybody. That can only come from outside your own country.
Be Aware of Controlled Foreign Corporation Rules (CFC) in Your Country of Residence
The main reason many offshore company formation strategies don’t work is that CFC rules are not understood. CFC rules in certain countries seek to undermine offshore structures. If you own more than 25% of the company or exercise control over the offshore company the tax authorities will treat the company’s income as personal income. It’s crucial to plan your offshore structure to ensure that it won’t fall foul of CFC rules.
Make Sure That You Can Open a Bank Account for Your Offshore Company
Many people set up companies with company formation agents without considering that they need a bank account. The company is almost useless without a functioning bank account. This should be considered at the earliest possible stage. Make inquiries with the bank you want to open an account with and find out exactly what the process is for opening an account for a company from your jurisdiction of choice. You may find that it’s impossible to open accounts for companies from certain jurisdictions.
If you can’t open a bank account for your offshore company, you have bought little more than an expensive piece of paper.
Choose the Right Jurisdiction
In offshore company formation choosing the right jurisdiction is key to a successful outcome. Jurisdictions are varied and come with different pros and cons. The jurisdiction you choose will depend on your objectives. For example, will the business trade and need payment processing, or will it just be used to hold assets?
Keep Your Name Off All Public Databases
The global trend in recent years is to abolish financial privacy. Every government bureaucrat babbles about transparency. Offshore jurisdictions are not immune to this. Many of the most popular jurisdictions, such as the BVI, now insist on transparency, and all directors and shareholders must be disclosed on a public database. This is not helpful for anybody seeking financial privacy. These jurisdictions should be avoided. Alternatively, a workaround can be found so that your name never appears on any public databases.
Don’t Have Mail Related to Your Offshore Company Sent to Your Home or Office
There’s no point in going to the trouble of setting up a complex and private offshore structure only to have it exposed by mail arriving at your home and office. Everything must be compartmentalized. Keep offshore company matters strictly outside your own country.
Keep Ownership of Your Offshore Company Confidential
Ownership of your offshore company should remain confidential too. You can do this either by having a trust or foundation own the company or by using nominees. If structured correctly, this will also help protect you from CFC rules.
Beware of Annual Fees and Charges for Offshore Company Formation
When dealing with offshore company formation, it’s essential to know about the ongoing running costs. Annual fees can be high in some jurisdictions. There may also be filing requirements such as accounts and annual returns. Ask the right questions so that you’re aware of the ongoing commitment to keep the company active.
Be Clear About the Reasons You Need an Offshore Company
A surprising number of people don’t think through exactly how they will use an offshore company. It’s important to have a plan from the start. In some cases, an offshore company is not what you need. Sometimes a company from an apparent high tax jurisdiction can attract less scrutiny and achieve the same objective.
Never Transfer Money Directly to Your Offshore Company
Back to the theme of confidentiality in offshore company formation. You need to be careful about sending money directly from your onshore bank account to your company’s offshore account. This leaves a trail from you to the company and can undermine attempts to keep your affairs private.
There are many more things to consider when forming an offshore company. I hope the above guide will be a good starting point.