- When most people think of an offshore company
they think of shady dealings and suitcases of cash
being deposited in the Cayman islands.
This is because Hollywood and the media in general
have portrayed going offshore in this way
to sell news articles and papers.
Off rule a newspaper headline reading
individual legally opens businesses
in overseas jurisdiction,
doesn't exactly grab your attention.
But the truth is that's all opening
an offshore company really involves.
In this video we will cover a refresher
on what exactly is an offshore company.
Is it legal to go offshore?
Three key reasons for an offshore company,
and finally some different types of offshore entities.
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Contrary to popular belief operating via an offshore company
is perfectly legal.
You would just need to stay up to date
with reporting requirements and disclosure requirements
in your particular jurisdiction.
Above all, you must ensure that you understand
your legal requirements with regards to an offshore company,
wherever it's based.
Of course, governments won't advertise
the fact that you can technically shop around
for the most attractive jurisdiction to base your company.
And in particular governments who impose high rates
of corporate tax and stringent reporting requirements,
as they are likely to lose a lot of business
and the associated tax revenue
that those businesses generate.
Although the process is completely legal,
it's not something we would advise to undertake
without first seeking advice
from an experienced tax professional.
If you start to fall foul
of some of the reporting requirements
the legal issues and penalties can really start to rack up.
Those looking to evade tax altogether
should think very carefully as any activity
with a view to evading tax altogether
is illegal no matter where in the world it is done.
If you're interested in learning more
about the differences between tax avoidance and tax evasion,
head over to our video on this debate
in the link below in the description box.
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Below are three common reasons
why you may want to incorporate a company offshore.
Number one is undoubtedly taxation.
Of course, paying less tax is one of the main reasons
a business may want to operate through an offshore company,
and it's probably the first reason that springs to mind
for most people, including yourself.
Company profits are usually taxed in the tax jurisdiction
that the company is registered.
So a company formed in Ireland, but trading in the UK,
may be able to calculate it's tax liability
using Irish tax rates.
As things currently stand the corporate tax rate
in Ireland is 12 and a half percent
as opposed to 19% in the UK.
So you can see why this may be appealing.
When choosing where to incorporate offshore
it's not just the lowest rate of tax
you should be considering,
in the past there have been plenty of tax havens
where companies were able to enjoy rates as low as 0%
and have very little in the way
of reporting requirements as well.
Unfortunately, over time these once popular locations
have become less and less attractive for UK business owners.
Those low rates of tax still exists usually in exchange
for paying an annual fee locally,
but most reputable banks around the world
are now very reluctant to open accounts
for companies incorporated in such known tax havens
primarily due to their lack of due diligence
in the company formation process,
and the potential negative reputation
that may come from working with them.
It's probably best to settle for a good happy medium
rather than just seeking out jurisdiction
that offers a lowest possible rate of tax
which usually comes with a certain stigma attached.
There is a balance to be found between low taxes
and strong international reputation too.
Singapore for example, at 17%,
has a lower corporate tax than many other countries
but certainly not the absolute lowest,
but its advantage is that it maintains
a strong international reputation.
Number two is asset protection.
By setting up an offshore company
you are able to add an additional layer
of protection to your business assets.
This is particularly true and important for businesses
who trade in countries where litigation is common.
The United States is one country that springs to mind
as it's very common and very easy to take legal action
against a business or an individual in this country.
Where a business is operating via an offshore company,
this helps to put some distance
between would be claimants and business assets.
Someone wanting to make a claim
against the company registered in Singapore, for example,
would need to do so in Singapore.
This would involve more effort, increased time
and cost plus increased uncertainty for the claimant.
Ask yourself how likely are you to take legal action
against a company based in a foreign country.
Although this does not insulate the business
of legal issues entirely
and an argument could be made that the business
is opening itself up to legal disputes
in other jurisdictions by incorporating offshore,
providing careful consideration
is made when selecting a location for your offshore company
and local compliance is maintained,
then the benefits should outweigh the risks.
And number three is investing in overseas assets.
An offshore company can also open up new opportunities
for you and your business.
Many countries around the world
won't allow foreign nationals or foreign companies
to purchase certain assets such as land and property.
A company registered within the country
will usually be able to purchase these types of assets.
This could be an important consideration
when deciding where to base your offshore company.
If there is a particular market you are trying to enter
or establish your business in,
then forming a company there may give you easier access.
If the purchase of overseas assets
is a primary goal of your offshore company,
it is important to really do your due diligence
in your target jurisdiction.
Your business may you need to operate
under a specific type of entity.
The company may need a local resident to be named
as a director in order to purchase certain assets.
These are all criteria that should be considered
at the planning stage
and discussed with a professional advisor,
to ensure you achieve the optimum structure
and avoid pitfalls and problems later on down the line.
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An IBC which is short for international business company
is a name typically given to an offshore company
that has been formed outside of the United Kingdom.
As with UK companies IBCs can be used
for practically any purpose,
including holding overseas property and shares,
bank accounts and other assets.
An LLC known as a limited liability corporation
are available in a number of jurisdictions.
In the United States of America an LLC in particular,
the Delaware LLC,
or perhaps the most popular vehicles,
the LLC is similar to the UK LLP
although there are some important differences.
If you want to find out more about a UK LLP
then we have done an informative video on this
which you can access by clicking on the card above.
Essentially an LLC is a cross between a UK type LLP
and a limited company.
Unlike an LLP an LLC is taxed as a separate entity
in many jurisdictions,
and would therefore be subject to corporation tax
on its profits.
If you were to own an interest in an LLC
you would be known as a member as opposed to a shareholder.
LLC structures are known to be very flexible,
and in particular documentary requirements
are aligned with the requirements to keep minutes
or have records of formal resolutions.
It also benefits from limited liability
thus ensuring that your personal assets
are kept separate from your business assets.
The minimum number of people needed to form an LLC
is only one with a few exceptions.
If you did incorporate with just one member,
this would be similar to a one-person limited company
here in the UK,
albeit with lower disclosure and documentary requirements.
There is also the standard private limited company
similar to the one you incorporate here in the UK.
There are also trusts, foundations
and protected cell companies to name a few more.
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I hope this video helped you capture three good reasons
as to why you may want an offshore company,
and taking you one step closer to knowing your numbers.
As always let us know in the comments
your thoughts on today's video,
or if there are any other topics
you'd like us to cover in the future.
Finally be sure to like and subscribe
as this really does help us to get our content out there.
This is Tony Dhanjal for the Accounting & Tax Academy,
thanks for tuning.
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