Some companies for many reasons look to incorporate their business outside of the jurisdiction of their primary trading location. They can do this by forming an offshore trading company. This has many advantages for any business leader and probably the most well known and understood reason for doing this is for tax purposes.
Tax Havens
There are many so called ‘tax havens’ dotted about throughout the world with a good majority being located in the Caribbean, and on tiny islands in the Pacific and Indian oceans. Some of these tax havens have little or no taxation policies in place. Countries such as the British Virgin Islands, Dominica, Anguilla and Nevis have zero estate tax, capital gains tax, inheritance tax or withholding tax. Companies who choose to base their business here will pay no local taxes on any income earned here. However, companies must pay an annual licensing fee, which in reality is a small price to pay, especially when many companies are being hit with large tax bills in their own countries of origin. The only proviso is that offshore companies should engage in no local business.
Other Reasons
As well as the tax benefits, there are also other advantages of setting up an offshore company and some of these are as follows:
Confidentiality- Often investors don’t want it known that they are involved in a certain business venture and as a result when a company is transferred or formed offshore, the records of the directors and shareholders are not accessible to the public as they would be in their country of origin. This means that anonymity is guaranteed to all companies trading offshore.
Protection of Wealth- Wealthy individuals will use offshore companies as personal holdings to save on professional fees. This is a totally legal and above board practice that can greatly benefit those who can afford to do so.
Company Holdings can be Transferred- Stocks, holdings, and bonds can all be transferred offshore along with the company and as a result any financials involved can also earn tax free interest.
Simplicity- Many so called ‘tax havens’ want to encourage business in their country and as a result make setting up an offshore company a relatively simple and cost effective affair. There are also lesser reporting requirements than that of their ‘onshore’ counterparts. In addition, company de-registrations are also simple to complete and inexpensive.
An offshore company formation gives businesses the opportunity to engage with international customers and expand their trading horizons at a relatively low cost, and this is what makes offshore company formation so appealing to many. Aside from the tax advantages, if you can afford to do so, it could make excellent business sense.