An offshore company literally means a company that is registered abroad, in a country where its responsible manager does not reside. Unlike international subsidiaries, offshore companies are managed entirely from the outside and do not use the host country’s tax system or economy. In concrete terms, an offshore company is a simple ltd, SARL, SA or LLC which is created in an offshore jurisdiction. This establishment can be done without or with the obligation to file accounts, and with very low corporate tax rates that can reach 0%.
Apart from the facilities of installation and incorporation provided by the country of registration, the main interest of an offshore company is tax optimization. The host countries of the offshore companies also guarantee a very high degree of discretion regarding funds, bank accounts and other activities related to the company.
What makes an offshore company special?
Offshore companies differ from other companies by their nature and by the advantages they can provide:
Tax-wise: creating an offshore company does not require a capital base. Moreover, in some jurisdictions such as Hong Kong, the offshore company is exempt from taxes since the reform of the taxation of offshore companies. It is also taxed at a very low rate in Poland and Bulgaria. On the administrative level: the owner of an offshore company benefits from a right of anonymity and discretion concerning his identity.
What are the advantages?
It should be noted that the advantages are not necessarily the same from one tax haven to another. In any case, the offshore setup allows to benefit from a more advantageous tax system. However, to make the right choice, it is essential to find out about the specific advantages of each host country.
Here are some advantages that the offshore company can provide:
No corporate tax; No accounting requirements; Low management fees; Preservation of anonymity; Asset protection; Legal protection; No paid-in capital requirement.
Offshore: is it a legal practice?
The simple fact of hearing the term offshore can frighten many company managers. Indeed, the expression offshore company often refers to money laundering, tax havens, tax evasion, shell companies and the Panama Papers. However, launching an offshore company is quite legal, provided that the rules in force in the host country are respected. However, an offshore company can be qualified as illegal when the funds it has raised are derived from illegal activities or tax fraud.
Offshore companies are furthermore qualified as links of illegal tax evasion and are introduced in layers within social and legal arrangements. The hidden side of the organization can thus allow the laundering of funds that come from organized crime or criminal activities. Prostitution, organ trafficking and drug trafficking are all illegal activities that can generate billions of dollars worldwide.