What is meant by offshore company?
What is meant by offshore company?
KGN specializes in Offshore Company Formation and opening bank accounts.
Offshore basically means located abroad or in business can refer to conducting business transactions beyond the borders of a particular jurisdiction or country. Offshore activities are those carried out in another sovereign country that has a separate legal structure and government which is different from that of your home country. Globalization has made it possible to incorporate offshore business activities into the normal operating routine of an enterprise.
An offshore company is a business that is incorporated with the sole purpose of having its operations in a country different from where it is registered/where it directors reside/ where the main stakeholders and beneficiaries reside. An offshore company can also refer to a division of a corporate group that engages foreign manufacturers or foreign business services as part of its mode of operation. Although there are many misconceptions about offshore companies with many thinking that offshore companies are affiliated with illegal trading activities, this is often a false illusion. In fact some of the biggest companies in the world such as Google and apple are legally involved in some semblance of offshore operations. Offshore operations are legal as long as a business adheres to regulations of the new jurisdiction. The offshore company operates on the basis that it can act independently without stringent stifling control measures.
How an Offshore Company Can Be Used?
An offshore company can come in handy in the following situations;
1) If you are a startup running on a shoe string budget and therefore need to cutoff budgetary demands. By setting up an offshore company a business will reduce tax obligation, lower registration costs and reduce operating costs.
2) An offshore company is necessary for the growth of your business if you want to conceal the financial information or want to conceal the details of company directors and shareholders.
3) Another necessity of an offshore company is when you have the intention of going global or you have a large foreign consumer base. When most of your customers are not based within your parent company then it is a sound business idea to register in the foreign country where they are based. This will help you build credible business ties and establish reliable business relationships in countries where you have vested interests.
4) If your enterprise is an online business then it is best that you set it up as an offshore company. An online business is a virtual set up that is not subject to geographical location. Therefore, there is no logical reason to be limited to a single geographical location that is disadvantageous to the growth of your business. Consider making your online business an offshore company so that you can build streams of income from foreign countries. Income streams from foreign countries are particularly necessary when your home country suffers rampant inflation. An income stream from a strong overseas currency keeps your online business relatively stable.
5) If your home country is politically unstable or the government has too many restrictions on the type of business you are dealing with. There are still many countries that do not fully support some industries. In such a case it is necessary to register your business in a country that supports all your business operation. This gives an entrepreneur an easy time running a business by reducing government interruption. If your parent country is politically unstable then it is only logical that your consider going offshore to protect your business interests.
6) Setting up an offshore company comes in handy if your business is venturing into new markets that have increased territorial taxation. By registering an affiliate of your business in such a foreign territory, you will be able to cut down on territorial taxation costs and other territorial business regulations which countries use to protect local entrepreneurships. By being registered in the foreign destination that you are attempting to venture into, you are in essence showing a government your seriousness as an investor. This will ensure you are accorded with fair treatment.
Benefits of Registering an Offshore Company
Offshore companies have become a viable business solution for many entrepreneurs due to the following benefits:
This is primarily the reason why many entrepreneurs favor offshore companies. By registering a company in a foreign country you can significantly reduces tax obligations. This is because most countries treat foreign companies to tax exemptions and in some cases charge foreign companies extremely low taxes to encourage and motivate foreign investors. This is a relief especially to start ups that are bootstrapped and cannot afford the high tax obligations in their home countries. However, to ensure that an offshore companies stays on the right side of the law it is imperative to hire an experienced financial analyst. The financial analyst conclusively establishes that there is no conflict concerning tax obligations between the country of operations and the country of registration.
Unlike in countries such as the United States or the United Kingdom where the public can easily access financial information and details of stakeholders and beneficiaries of a company, there are foreign countries where such information is kept confidential. Many offshore financial jurisdictions keep this kind of information private under all circumstances apart from in cases where the company is involved in criminal activities such as fraud and terrorism. This anonymity can come in handy when striking deals with competitors or operating in a market that does not favor a particular individual or group that is a shareholder.
Reduced administration obligations
Most offshore jurisdictions have minimal obligatory duties for directors and managers of companies as compared to onshore jurisdictions. Some of the requirements that onshore jurisdictions have on administrators that offshore jurisdictions do not have include filing annual accounting reports. Instead of the administrative obligations, most offshore companies charge offshore companies an annual license fee which is significant as compared to all the administrative obligations if a company was operating in an onshore jurisdiction.
Protection of a company’s assets
This comes in handy especially if a company is global and has international interests. An international company uses an offshore company to preserve company assets such as real estate property and intellectual property. By preserving assets in offshore jurisdictions such assets are not liable to high tax obligations. If your business is onshore and undergoing a lawsuit. There is a high probability that a subsequent document will be filed to freeze up all your company’s assets such as company bank accounts and all property affiliated to your business. On the other hand when your business is offshore, it is impossible for legal litigation to freeze and seize company assets. This is extremely helpful especially to United States entrepreneurs because studies approximate that a whopping 96% of global lawsuits are filed in the US. An offshore company protects its assets by only limiting locally available funds to what is needed to fund the necessary needs of a company. This essentially puts the company in control of its own assets without external interference.
Offshore companies are relatively cheaper to setup and incur lower maintenance costs
The legal processes involved in offshore company formation are easy straightforward and inexpensive. Additionally, maintenance is also cheaper as the local authorities in most offshore jurisdictions only require an annual license fee. Despite stringent measures that are currently in place to prevent money laundering and prevent terrorism funding, setting up and running an offshore company remains a relatively easy endeavor as compared to an onshore corporation.
Offshore companies require significantly lower capital compared to onshore companies
Depending on your offshore jurisdiction of choice, the capital is quite and sometimes there is no obligatory capital requirement required upon registration. This makes offshore companies an invaluable business solution for startups operating on a shoe string budget.
Offshore companies help establish international business ties
Thanks to globalization the business world is now borderless. By setting up an offshore company a corporation can establish productive business ties and develop credible business relations with foreign countries. Foreign countries are prospective clients for the products of a company. A corporation can innovatively use its offshore company as a channel to venture into a new market. The foreign government and the local residents are more likely to trust a business that is registered within its jurisdiction.
The convenience of offshore banking facilities
The most significant issue that most entrepreneurs battle with is the safety of offshore baking. The US has stringent banking laws, therefore banking in the United States is secure and most local companies feel secure banking internally. However, this might apparently not be the case. Based on an exhaustive study carried out by the globally renowned Global Finance Magazine, only three regional US banks are among the fifty safest banks on the world. Surprisingly these three banks ranked 50, 45 and 30. According to this credible and reliable source the safest banks in the world are in Australia, Canada, Netherlands, Switzerland and Luxembourg which are popular offshore destinations. It is therefore extremely crucial that when choosing an offshore destination a business should ensure the banking system is safe and reliable.
All the negative misconstrued ideas that the business world has about offshore companies is because scrupulous businesses take advantage of the benefits that offshore companies enjoy. This does not negate the fact that offshore companies are a viable business solution for any business if all legal procedures are strictly adhered to. Setting up your business as an offshore company has many advantages but also has a few limitations as clearly outlined above. Therefore, before going offshore, it is imperative to carry out a comprehensive and detailed assessment of the suitability of your particular business to the offshore environment. Additionally, it is also crucial to analyze the potential offshore destinations and select a destination that is a perfect fit for your particular interests. Offshore company incorporation can guarantee business growth and success if done well.
KGN | Offshore Tax Haven