Offshore Formation | 3 Easy Steps To Form Your Company
Offshore formation: Choosing the right jurisdiction, planning the correct structure, Know Your Client (KYC) documents
What is an offshore corporation?
Offshore formation and banking have been talked about topic for almost a decade now. Although many things have changed since the three basic requirements to form an offshore financial entity have remained unchanged.
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Offshore formation with a bank account has become a tried and tested method to protect wealth and income streams from heavy taxation and also for offering the confidentiality of the owners. You need to follow three simple steps to accomplish the formation of offshore structures.
What are the 3 steps to offshore formation?
1. Choosing the right jurisdiction, or country, and choosing the right professional Corporate Service Provider (CSP) agent
2. Planning the right structure
3. Preparing the documentation to submit for incorporation and opening of a bank account in the name of your offshore company
More than 250,000 companies have been formed in major offshore jurisdictions in the world mostly in global locations such as in the United Arab Emirates (UAE), British Virgin Islands (BVI), Panama, Hong Kong, Seychelles, and Mauritius.
Step 1. Choosing the right jurisdiction and agent for your offshore formation
There are more than 50 offshore jurisdictions established for you to choose from which incorporate various forms of offshore companies, trusts, and private foundations.
They vary in costs, procedures, regulated activities, and the degree of confidentiality.
The popular jurisdictions are:
- Ras Al Khaimah
- Cayman Islands
Some jurisdictions have tax information-sharing agreements that you may not like. You must check this out. You must also check local tax rates applicable to the offshore structured entities.
You will need to engage the services of an informed, trusted CSP agent who is authorized to register companies in your chosen jurisdiction and knows the laws.
Is your purpose information of an offshore company to protect your assets or to run your business and make money?
Answers to these questions will clarify your exposure to individual tax liability if any. You will be further benefited by the advice of the CSP agent who will take charge of your job and complete all formalities and help you report to the authorities.
A good CSP agent will confirm if starting an offshore can be supported in the proposed jurisdiction and the implications of tax terms and confidentiality as well as the safety of your assets.
Step 2. Deciding the right structure for your offshore formation
This is perhaps the most important step. Basically there are three types of structure:
- An offshore company: This can be an Offshore IBC (International Business Corporation) or an Offshore Limited Liability Company or Partnership
- An offshore trust
- An offshore foundation
An offshore company as an IBC company is the most common form because almost all jurisdictions accept it. However, an IBC has certain advantages and disadvantages when compared with an offshore LLC.
An IBC operates just like any other corporate entity with shareholders and Directors and passes resolutions like other firms.
Hence, you can have a layer of confidentiality by taking advantage of nominee services. Being most common an IBC is accepted in transaction processes and legal agreements. It is also relatively cheaper to form.
However, an offshore LLC or LLP is more like a cross between a limited company and partnership. It enjoys the benefit of taxation by having income taxed only once as the income of the partners. Yet the liability conditions of the company are not that of the partners.
Also, the tax rates are lower in an LLP or LLC if at all they apply to your company. In case of a legal dispute the court can order an IBC share certificates to be attached but that cannot happen in the case of an LLP.
However, LLC or LLP offshore does not afford the same level of confidentiality as IBC.
You must choose the structure of your offshore formation with this in mind. Choose the share capital and managing the activity carefully after due consideration of its intended use. Now you are ready for step three.
Step 3. Completing the documentation for your offshore formation and bank account
What documents will you need?
The documents are invariably the same no matter who is filing them. You, the shareholders and directors must provide their KYC (Know Your Client) papers that prove their identity as real persons. They are:
- A government-issued passport which must be authentic for obvious reasons
- Proof of your street address which can be a public utility bill, a credit card bill, a bank statement, or a tax return that has been mailed to your home address. This must be recent, less than 2-3 months old and an original
- A reference letter from your banker saying that you have a bank account in good standing. This can also be substituted by a reference letter from a Legal Firm or a Chartered Accounting firm in some cases
- A CV of all directors and shareholders is required sometimes
- Occasionally, a brief note on the business: Customers, trade suppliers and business activity that will be conducted in the offshore formation
- In addition, some offshore jurisdictions ask for a form to be filled out hat requires details about the source of funds, kind of business transactions and assets that will be held by the company
What services will an agent provide?
The agent will file the documents along with the fees and form your company. And ensure legal compliance for the jurisdiction.
You will receive the Certificate of incorporation & Memorandum of Association and the share certificates at the time your offshore company is complete.
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