Offshore Corporation | Understand How To Use It To Save Wealth
Offshore corporation: Explanation for ‘company’ and ‘offshore’
Offshore corporation: To understand the definition we should first understand what a ‘company‘ is and what is meant by ‘offshore‘. Then we can easily focus on understanding an offshore company in detail.
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We can define a company as any entity engaging in business, such as a proprietorship, partnership, or corporation.
Offshore is a term that means outside of your own jurisdiction – water is not a necessary part of ‘shore’.
Offshore corporation: Reasons for the use of offshore corporations
What is an offshore company?
- The offshore company refers to a company that is formed in a jurisdiction outside one’s own jurisdiction. It is another way of saying offshore corporation
- An offshore corporation refers to a company that is formed in what is considered to be an offshore jurisdiction relative to the jurisdiction you are located in. An offshore corporation does not necessarily need to be located in a tax haven country. This means an offshore corporation could be formed in a country with a high corporate tax rate. The term could just as easily apply to a company formed in a country with a zero or very low tax basis like Panama which only taxes corporations $300 per year if all their income is offshore derived
- Some countries (particularly in the Caribbean or Seychelles and Mauritius) are popular nations of incorporation since they have little corporate regulation or taxes and only moderate management fees
Professional trustees and nominated officials in the country of incorporation perform routine contacts with the local government. They take no active part in management.
The reasons for the use of offshore corporations are many. They include low or zero taxes, ease of international operations, freedom from state regulation, and placement of funds in accounts out of the country.
The above information hopefully clarifies what is an offshore company. Offshore companies are usually formed in tax haven countries where there is minimum are no taxes. The countries with no taxes are also known as tax havens.
Offshore corporation: Tax havens offshore
With the world becoming small in terms of communications and travel, and with the ubiquitous internet connection, an incorporation offshore is easy, quick and inexpensive.
The countries considered as offshore tax havens are relatively smaller countries with smaller economies who have chosen this route to earn much needed foreign exchange.
They started providing additional services, reduced or zero taxes (tax havens) and did away with complex company law charters to make incorporation easy and hassle free.
Seychelles and Mauritius are but 2 examples out of more than 40 tax havens. The British Virgin Islands (BVI) are perhaps the most famous. But the major economic powers are squeezing the tax havens to disclose information on the beneficiaries.
I think as long as there are people in power who want to save their wealth, there will be tax havens welcoming incorporation offshore. Their barriers to entry may change – such as the recent tightening of the Know Your Client Documentation, but tax havens continue to operate.
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