An offshore company is merely a company that has been incorporated in a country other than ones place of residence, citizenship or domicile. Countries interested in attracting global business and expanding their economies compete for international business by implementing competitive tax regimes and guaranteeing privacy levels. Offshore companies play an integral role in the global economy providing confidential, tax efficient means of international investing and conducting global business.
Typical uses of offshore companies:
Trading Company
Investment Holding
Royalties/Patents/Copyright Holding Companies
Professional Services Company (PSC)
Asset Protection
Inheritance Tax Avoidance/Probate
Privacy
Accessing Tax Treaties
Overseas Property Holding
Ship management and yacht owning
Personal and corporate tax planning
Trading Company
An offshore company may accept orders directly from a purchaser and instruct the manufacturer or other seller to deliver the goods directly to the customer. The resulting profit may be accumulated offshore by the third party offshore company. This generally is useful when the manufacturer (seller), purchaser, and businessman orchestrating the transaction are all located in different countries. The supplier invoices the third party offshore company who then re-invoices the purchaser at the sale price retaining the profit.
Investment Holding
Offshore companies are often used to hold shares in other companies, international real estate, equities, bonds, commodities or for the trading of forex, options, or any other type of investment. Funds may be accumulated and reinvested throughout the world with the offshore corporation providing maximum anonymity and tax savings. The investments may be taxed in the jurisdictions where they are located; however, some countries offer tax free bonds and allow interest and investments in the form of bank deposits to be accumulated in gross over several years. Additionally, many countries do not tax capital gains on investments. Lastly, a properly structured investment company in an offshore jurisdiction having a tax treaty with the desired investment country may allow for a lower tax rate on dividends, interest and royalties generated from these investments.
Royalties/Patents/Copyright Holding Companies
The purchase or assignment of the right to use a patent, trademark, copyright or other “know how” to offshore companies often allows the royalties to be paid to the offshore company at a lower tax rate than could otherwise be enjoyed. These royalties are often subject to tax withholding at the source country; however these taxes may be lowered through offshore company formation in a second country. This type of offshore corporation is often established utilizing a tax resident entity that is able to access double taxation avoidance treaties such as the Seychelles CSL.
Professional Services Companies (PSC)
Expatriates working abroad often utilize personal services offshore companies to minimize tax burdens in their home countries. The contracting company may pay a salary direct to the expatriate capped at a certain sum as to minimize the tax burden with the remainder being paid to the PSC; or alternatively they may pay the full amount into the PSC with the expatriate taking a lesser salary allowing the offshore company to accumulate and invest the remaining funds.
Asset Protection
An offshore company is often used as part of an asset protection structure involving an offshore trust, offshore foundation or two or more offshore companies domiciled in separate jurisdictions. The intention is to make it difficult for prospective adversaries to locate assets and consequently win judgments against these assets. These structures typically employ at least two separate entities domiciled in separate jurisdictions with nominee services including both nominee directors and nominee shareholders.
Inheritance Tax Protection/Probate
A high net-worth individual with international assets and looking to ease matters of probate for his/her heirs may benefit from the establishment of an offshore personal holding company. Where international assets such as real estate or other offshore investments are owned by an offshore company, the assets may be shielded from inheritance taxes and higher taxation rates in the home country of the offshore corporation owner. Probate can become an expensive nightmare requiring matters to be settled in each country where the assets are held. An offshore company domiciled in a third country can mitigate this problem and provide a clear and simple transfer to the intended heir of all international assets by specifying a transfer of shares upon the passing of the shareholder.
Privacy
Many high net-worth individuals merely want to shield their assets from the public. The late John D. Rockefeller Sr. once stated “I don’t want to own anything, but I want to control everything.” Indeed this is good advice; especially considering the increasingly litigious society we face today. None of the jurisdictions offered by Australia-Offshore require the filing of the names of directors, shareholders or beneficial owners. A higher level of privacy may be achieved through the use of an offshore company. We can also offer additional guidance concerning how to arrange ones affairs to achieve maximum privacy.
Accessing Tax Treaties
Certain offshore companies may achieve tax resident status allowing for offshore investing in other countries with a lower withholding rate than could be achieved in their home country. The Seychelles Special License Company (CSL) is one such offshore company being utilized to access the growing list of tax treaties signed by Seychelles, chief amongst which includes China. Cyprus and New Zealand also offer many options to reduce taxes through their network of Double Taxation Avoidance treaties.
Overseas Property Holding
Many of the costs associated with purchasing overseas property can be minimized through the use of an offshore company. Real estate, such as vacation villas, may be purchased through an offshore corporation and the shares sold to the next owner allowing for a quick and easy transfer and avoidance of many taxes associated with the sale of property.
