Guide:
Moving your Business Offshore

What is an Offshore Corporation?

Tax havens, offshore corporations, and offshore financial centers have become synonymous and interchanged over the past years. While definitions can vary, they can be simplified to services provided in legal, financial, and corporate industries to non-residents in an offshore environment. Setting up an offshore corporation is simply setting up a corporation in a different jurisdiction other than the home country or the country of the company’s main operations. If a U.S citizen incorporates in the UK or a Canadian citizen opens a bank in Hong Kong, these, by the very definition are considered offshore services, an offshore corporation, and offshore banking respectively.

Across the globe, offshore companies and tax havens offer businesses and individuals the opportunity to take advantage of favorable international corporate laws and capitalize on the abundance of opportunities that come along with building a multi-jurisdictional strategy. Offshore jurisdictions typically offer better corporate and financial laws as opposed to onshore jurisdictions.

While the media campaigns to discredit the offshore industry, emphasizing criminal activities (think money-laundering and tax evasion), the fact remains that the offshore industry offers viable solutions to address the ever-changing needs of global business and banking.Offshore jurisdictions are typically low or no-tax countries. Governments have provided advantageous corporate laws with minimal regulatory interference. They have become powerful legal tools providing privacy, flexible corporate structures, limited liability, and asset protection.

Real-World Example

Apple, the most valuable public company, has been under scrutiny for its use of Irish subsidiaries to significantly reduce their tax liabilities in Europe. The Irish government actively attracts foreign investment through its favorable tax and corporate laws, offering one of the lowest corporate tax rates in Europe. Foreign companies and many well-known multinationals set up corporations in Ireland to take advantage of the tax-friendly country.

In a recent court ruling, the EU declared Apple to pay close to USD 15 billion in back taxes due to the violation of international tax arrangements, however, on an appeal, Apple and Ireland won, and the ruling along with the payment was annulled. Upon hearing the commission’s final decision, the Irish finance ministry stated: “The correct amount of Irish tax was charged in line with normal Irish taxation rules.”


Why Move your Business Offshore?

Governments provide special economic policies offering offshore corporations tax incentives amongst many other benefits to increase foreign investment. Businesses take advantage of this and move their business and income from a high-tax high- regulated model to a low-tax jurisdiction with liberalized economies.

Offshore Circle offers offshore corporation set-ups in renowned offshore locations offering political and stable economies. Offshore corporations can benefit from:


What is the Best Jurisdiction to Move Offshore?

Many offshore jurisdictions can offer very similar benefits, however, many factors must be weighed and taken into consideration when choosing the right jurisdiction for your business including:

  1. What is your place of citizenship, residence, and tax residence?
  2. What is your core business, main function, activities, and operations?
  3. How do you collect money and/or make payments?
  4. What tax treaties or agreements does your home country have with your chosen jurisdiction?
  5. What do you hope to achieve by going offshore?

What is the Process?

1. While many offshore jurisdictions offer similar advantages and benefits, there is no one-jurisdiction-fits all. Our advisors will discuss your needs and goals and ask you the right questions to help determine which jurisdictions are right for your business.

2. The most common offshore structures are IBCs (International Business Corporation) and LLCs (Limited Liability Company). Each option can offer similar benefits however the corporate structure will vary, depending on the chosen jurisdiction.

3. Most offshore corporations require a resident agent. A resident agent is a third party nominated for your corporation who is responsible for the incorporation process as well as acting as liaison (or point of contact) to receive service of process. The resident agent assists clients in maintaining the corporation and adhering to local laws. As this is an ongoing relationship, it is advisable to set up an offshore corporation with a reputable and trusted firm.

4. Each jurisdiction will have its own incorporation process and set of due diligence processes. Requirements typically include fulfilling KYC (Know Your Client) by proving your identity with proof of address and providing the company’s information to properly set it up. Firms will require the name, description of services, internal dynamics and structure, by-laws, share capital, and any financial obligations.

5. Once the required documentation is received, the provider can then start the incorporation process. Each jurisdiction can vary in the timeline, however, the typical timeframe can vary from 2 days to 2 weeks.

6. Clients may require additional services such as corporate bank accounts, virtual offices, secretarial services, etc.

7. Offshore corporations require annual maintenance fees as well as annual resident agent fees. While books and meetings can be held abroad, the resident agent must be updated on any significant changes to the corporation and clients must notify the agent of the location of where the books are held.

While many offshore jurisdictions offer similar advantages and benefits, there is no one-jurisdiction-fits all. Our advisors will discuss your needs and goals and ask you the right questions to help determine which jurisdictions are right for your business.

The most common offshore structures are IBCs (International Business Corporation) and LLCs (Limited Liability Company). Each option can offer similar benefits however the corporate structure will vary, depending on the chosen jurisdiction.

Most offshore corporations require a resident agent. A resident agent is a third party nominated for your corporation who is responsible for the incorporation process as well as acting as liaison (or point of contact) to receive service of process. The resident agent assists clients in maintaining the corporation and adhering to local laws. As this is an ongoing relationship, it is advisable to set up an offshore corporation with a reputable and trusted firm.

Each jurisdiction will have its own incorporation process and set of due diligence processes. Requirements typically include fulfilling KYC (Know Your Client) by proving your identity with proof of address and providing the company’s information to properly set it up. Firms will require the name, description of services, internal dynamics and structure, by-laws, share capital, and any financial obligations.

Once the required documentation is received, the provider can then start the incorporation process. Each jurisdiction can vary in the timeline, however, the typical timeframe can vary from 2 days to 2 weeks.

Clients may require additional services such as corporate bank accounts, virtual offices, secretarial services, etc.

Offshore corporations require annual maintenance fees as well as annual resident agent fees. While books and meetings can be held abroad, the resident agent must be updated on any significant changes to the corporation and clients must notify the agent of the location of where the books are held.


Disadvantages of Setting an Offshore Corporation

CFC
(Controlled Foreign Corporations)

CFCs are rules created by a country to regulate the use of setting up foreign corporations to reduce global tax liabilities. These tax codes will help determine the tax liability in reference to any corporate entities held outside the country. Each country will have its own set of criteria to determine whether the entity is a CFC (typically determined by the ownership structure) and if considered a CFC, the rules will determine what type of income will be taxable (active, passive, or both) under local tax laws.

OECD
(Organization of Economic & Co-operation & Development)

The OECD is an international organization that sets international standards of transparency and exchange of information. The TIEA (Tax Information Exchange Agreements) is an agreement set by the OECD to promote international cooperation in tax matters and allow for reciprocal tax information sharing between member countries.

US Citizens

U.S citizens are taxed on worldwide income and the U.S government imposes strict tax codes upon citizens to ensure tax compliance. Agreements such as FBAR (Foreign Bank Account Report) require citizens to report any foreign bank accounts with a balance of higher than USD 10K. FATCA (Foreign Account Tax Compliance Act) requires citizens to report certain foreign assets to the IRS, depending on the thresholds. Thresholds can vary according to whether the individual is living within the US or abroad or whether they are filing a single or joint tax return. While US citizens can benefit from FEIE (Foreign Earned Income Exclusion) or Housing Exclusion, they are still required to file annual returns.


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