An offshore company is generally a company that is not operating a business in the country where it is registered. In this context, ‘offshore’ literally means outside the country as opposed to ‘onshore’, inside the country. Traditionally, tiny islands in exotic locations provide offshore solutions including significant tax incentives and often no taxation at all. Onshore companies, on the other hand, will typically be registered in an economically developed country that does not offer any kind of preferential tax treatment and applies higher tax rates instead.
If you have ever considered opening a company in a zero-tax jurisdiction or tax haven, your decision should be based on more than simply where you pay the least taxes.
It is not difficult to set up a company in a country like the Cayman Islands, the British Virgin Islands, Panama, or Belize, but you should first thoroughly understand the jurisdiction where you want to incorporate. The choice of jurisdiction should mainly be focused on identifying the most favourable conditions for your business development. This takes time and research. An offshore structure is worthless if you do not know what the regulatory requirements are, what the international tax implications might be, or how to open a bank account for it.
For decades, offshore service providers and bankers were able to do their thing with little or no regulation. The days of zero tax, zero accountability, and zero reporting are unfortunately a thing of the past. An increased exchange of information, global tax transparency, and a change in attitude towards paying ‘your fair share of taxes’, make it almost impossible to play ‘hide and seek’ these days. Even if you stay completely off the grid and keep your entire business and wealth offshore, you will likely be confronted at some point with an unexpected enquiry or reporting requirement.
If you prefer not to set up a company in some off-the-radar country or become a perpetual traveller, it may be worth considering a hybrid or onshore solution instead. Having a company in a respected jurisdiction does not necessarily mean that you will have to give away half your earnings to the taxman. The goal would be to find a right balance between paying less taxes and maintaining your operational efficiency. There is no point in eliminating taxes if you cannot receive, transfer or use the money that you have earned. For those who are running an international business with clients and partners around the globe, there are certainly more interesting options available. Have you ever considered establishing your business in Singapore, the US, Ireland, Malta, Cyprus, or Bulgaria? These countries do levy taxes, but at the same adhere to the global standards on tax transparency, provide a consistent regulatory framework, and have a reliable banking system in place. In any case, we recommend looking at all the aspects when working out your international tax strategy.
TAXPATRIA® can advise you on your international business structuring and make sure you are fully compliant when operating an offshore structure.