Updated: Feb 20
What are the offshore companies and are these legal?
Source for this article: article "offshore company: how a foreign corporation can reduce taxes", Nomadcapitalist.com
In this post we will exam the nature of the offshore companies with their pros and cons.
Offshore companies. How a foreign company can increase your corporate revenues?
“ Are you tired of a high tax rate eating away at your hard-earned business and investment income? An offshore company could be the perfect solution!”
What is your income tax rate this year? Is it 35%? 40%? 50%?
An offshore company is one that you incorporate or register in another country, i.e., outside where its principle investors live. It is also an offshore company if you register it outside where its main operations and offices are. In other words, if its investors and headquarters are in Country A, but you registered it in Country B. That being said, to establish an offshore company is not illegal or immoral, it only means to constitute a company abroad.
Apple, Google, Microsoft, Starbucks–These businesses use offshore corporations to save a lot of money and grow their businesses on their own terms. Saving money with low tax rates means more money to reinvest in their companies
Your company doesn’t have to make billions of dollars in order for you to apply the same principles to your business and get the same low tax rates. There are legitimate strategies that international business owners and investors can use to reduce taxes and grow their business.
The most important part of these strategies is they’re 100% legal. You just need the right advice (and a little bit of money).
OFFSHORE COMPANIES AND CORPORATE TAX
When people register a company in a tax haven, they aim to pay less tax.
A tax haven is a country, territory, or part of a country that offers extremely favorable tax rates. In fact, some of them have a zero tax rate.
Examples of tax havens include the Principality of Monaco, British Virgin Islands, Bermuda, Gibraltar, and the Cayman Islands.
Small intermediate countries such as Singapore and Hong Kong are also popular places to register an offshore company.
Source CNN business channel.
There are also some advanced economies with large markets and significantly lower corporate tax rates than their competitors. In the United Kingdom, for example, corporate tax is only 21%, compared to 38% in the United States or 50% in Italy.
For the past ten years, American companies have tried to acquire British firms because of the tax benefits. After buying a British company, they move their headquarters to the UK.
"The benefits of an offshore corporation can include protecting assets from impending litigation, shifting the tax burden imposed upon the company, and protecting the company from political unrest and economic instability within the country of the owners."
PROTECTING ASSETS FROM IMPENDING LITIGATION
Frivolous lawsuits, ex-spouses, ex-business partners–money leeches are everywhere, and you never know when they’ll come gunning for your assets. Setting up an offshore company can provide increased protection for your assets against the crazy people who want to sue you for them.
Think of profit taxation as an expense that can be reduced. The global tax market is the legal, lawful system you can use to reduce taxes. Every nation has different policies and budget requirements. That means you can find much lower tax rates offshore than what you currently pay in the western country you call home.
Let’s be clear here: legally reducing your taxes through an offshore corporation is not the same as trying to evade taxes altogether.
TYPE OF BUSINESSES FOR STARTING AN OFFSHORE COMPANY
Business owners create offshore corporations to protect their hard work, protect their shareholders and maximize the potential profits of their business.
Offshore companies won’t work for every person and every business.
There are plenty of businesses that would be well-served to go offshore, including e-commerce or web based businesses, international businesses, consultants and coaches, stock and forex traders, international investors, and those holding intellectual property rights. If you have a location independent business, going offshore could be the biggest no-brainer out there.
"Online businesses are an excellent fit for an offshore corporation because they can operate anywhere. With an offshore company, you can process payments in one country, host your website in another, keep accounting records in a third, and pay low tax in a fourth."
WHAT TYPE OF OFFSHORE COMPANY SHOULD YOU SET UP?
Low taxes, secure business assets, and insulation against unrest at home–starting an offshore corporation is probably sounding pretty good right about now.
Maybe a Limited Company in Hong Kong is the right move for your offshore corporation–foreign profits aren’t taxed and local Hong Kong profits are only taxed at 16.5%.
A private limited company in the UK or Australia might make sense for you, or even an offshore PLC in Singapore (it won’t get you to 0%, but it will reduce taxes). If you are eligible you can also establish your corporation in Montecarlo and pay 0% taxes. Each type of offshore company and each jurisdiction have their own unique strengths and appropriate uses.
Offshore structures, such as companies and bank accounts, remain the best entities for protecting assets, maintaining your privacy, increasing your cash flow (from the amount of tax saved per year) and seizing international business opportunities.