From Wikipedia, the free encyclopedia Offshore company
Offshore company
The term offshore company is somewhat ambiguous. It • - except for regulated businesses, such as banks or
may refer to either: other financial institutions, some jurisdictions make
1. A company which is incorporated outside the it relatively simple to set up and maintain companies
jurisdiction of its primary operations regardless of especially with reference to lesser reporting
whether that jurisdiction is an offshore financial requirements than so-called onshore jurisdictions -
centre (sometimes known as a non-resident the level of information required by the registrar of
company) i.e. a Canadian company may be ’offshore’ companies varies from jurisdiction to jurisdiction.
for the purposes of a USA citizen ; or,[1] • - some jurisdictions have stricter provisions for
2. Any company (resident or otherwise) incorporated allowing a court to pierce the corporate veil, and in
in an offshore financial centre, i.e. offshore many cases corporate governance rules require the
jurisdictions laws of the jurisdiction where the corporation is
Typically the requirements for company registration un- chartered - rather than where it is sued - to apply.
der the relevant provision for non-resident status (as in For example Gibraltar makes it illegal for the trustee
the former of the two options above) will be pursuant of an Asset Protection Trust to surrender its assets to
to some or all of the following criteria in a strict legal a creditor of the settlor and in Switzerland it is
sense according to Offshore Company Law:Theory, Regula- illegal to disclose banking information.
tions& Operation(By Zhang Shiwei, China Law Press, 2004): • - some jurisdictions impose much higher fees to
• Must be incorporated under Offshore Company Laws incorporate than other jurisdictions. They may also
and regulations of offshore jurisdictions impose much higher maintenance fees on a
• Must be incorporated by non-residents of offshore corporation’s yearly renewal of its charter. This will
jurisdictions vary from service provider to service provider and
• Must not trade within the offshore jurisdictions; will be significantly based on the cost of local
and/or, disbursements.
• Must meet nominal tax expenses levied by the • - by carrying out transactions in the name of a
offshore jurisdictions. private company, the name of the underlying
principal may be kept out of documentation, since
Management and control the company is a separate legal entity. Having said
that, current anti-money-laundering regulations
It is worth mentioning at this juncture that taxation of often require banks and other professionals to look
a company somewhere other than its place of incorpora- through structures. This will always be the case for
tion is not by any means an exclusively offshore concept. any reputable bank but it does not render ineffective
By way of example consider a UK incorporated company the use of corporate structures, rather it ensures
which traded exclusively in France. If the board of direc- they remain legally compliant.
tors of this company were based in France there would • - Some offshore jurisdictions tend not to impose
be no doubt that the company would be subject to French "thin capitalisation" rules on companies (except for
tax. regulated entities such as banks and insurance
Consider also a US citizen running a Bahamas compa- companies), allowing them to be formed with a
ny from the US, there is no doubt that the activities of purely nominal equity investment.
that company are subject to taxation in the US. • - offshore companies are usually not prohibited from
The same principle extends to regulations also. providing "financial assistance" for the acquisition of
their own shares, which avoids the needs for
Benefits "whitewash" procedures in certain financial
transactions.
Offshore companies have the following features which • - In many cases, i.e. where a self employed
may be beneficial: consultant provides services to a number of
• - In most jurisdictions authorities will not seek to tax jurisdictions and travels frequently, it is a matter of
companies which they treat as non-resident, save choice where he chooses to incorporate. In this case
perhaps for a nominal fee -$350 BVI, £320 Isle of Man the fact that companies in an offshore financial
etc. centre are considerably cheaper than buying or
1
From Wikipedia, the free encyclopedia Offshore company
renting premises, arranging to engage accountants, jurisdictions can offer privacy if they do not require off-
receptionists, IT providers etc. would be.[2] shore companies to publish accounting records, and the
name and details of their shareholders.
Practical uses of offshore com- • 7.
To file first position liens against assets and property
panies closing the door to predatory litigation before it begins.
To segregate high-risk investments from other more se-
Offshore companies are beneficial for many purposes in-
cure holdings. To protect retirement funds from possible
cluding at least some of the following: [3]
bankruptcy. To provide for the transfer of assets for the
• 1.
next generation in an efficient and discreet fashion.
Professionals, consultants, artists and many self-em-
Nominee directors and officers can allow you to conduct
ployed individuals decide to incorporate a business rep-
business transactions for your benefit while you remain
resenting their services to gain substantial advantages by
anonymous. To access your funds with corporate debit or
working as employees or external consultants of offshore
credit cards thereby maintaining absolute confidentiali-
companies of which they may be the sole shareholders
ty.
and, if they want to, the sole directors.
• 2.
Expatriates working overseas frequently benefit from be- Disadvantages
ing employed through an offshore employment/consul- • Offshore companies are usually prohibited from
tancy company. By not remitting the full salary it can conducting business or retaining employees in their
minimise tax and avoid exchange control difficulties in jurisdiction of incorporation though this very much
the country of temporary residence. This arrangement is depends on the jurisdiction in question and type of
sometimes attractive for expatriates working in political- company.
ly unstable countries. • For regulatory reasons, there are often certain
• 3. restrictions on the type of business which an
There are often significant advantages in using an off- offshore company can engage in without the need
shore holding company for the purpose of holding prop- for a licence. In practice this is no different from
erty. The advantages of such an arrangement include the trading ’onshore’ since the majority of banks have
avoidance of inheritance tax, capital gains tax and the offshore operations and the majority of the world’s
ease of sale which can be achieved by transferring the insurance companies are offshore captive insurance
property owned by the company and reduction of prop- companies.
erty purchase costs to the onward purchasers. • Due diligence in reputable offshore centres tends to
• 4. be more strict than most onshore areas.[4] For
Funds accumulated through investment companies set example, to open a bank account in the name of an
up in offshore areas can be invested or deposited offshore company, to comply with relevant anti-
throughout the world. Whilst generally returns or inter- money laundering regulations, the bank will
est payable in respect of these funds will be subject to normally require documents verifying the identity of
local taxation, there are a number of offshore areas in the signers on the account to be notarised and may
which funds may be placed as bank deposits where the require one or more professional reference letters
interest and/or the capital gains are paid and kept gross. from an attorney, accountant and/or banker who
To invest in global securities including mutual funds not has known you.
available to "local" citizens. Offshore jurisdictions are • Certain countries have "anti-tax haven" legislation
typically less invasive allowing for aggressive and unre- which makes it difficult to conduct business in those
strained Free Enterprise. countries using an offshore company. For example,
• 5. capital markets regulations in France prohibit using
Offshore companies can purchase or be assigned the offshore companies as bond issuing vehicles.
right to use copyright, patent or trademark. Royalties can • Where a shareholder of an offshore company dies, it
then be accumulated offshore although often royalties is usually necessary to have the will admitted to
may suffer withholding taxes at source. An interposing probate in the offshore jurisdiction as well (or, if
holding company in some cases may allow a reduction in intestate, to have the letters of administration re-
the rate of tax withheld at source. sealed in that jurisdiction), which can add to cost,
• 6. delay and inconvenience in administering the
A high net-worth individual can save professional fees deceased’s estate.
and unwanted publicity by owning property or other as-
sets through an offshore company. Many jurisdictions re-
quire company accounting records to be published, but
2
From Wikipedia, the free encyclopedia Offshore company
Legitimate uses of offshore Meanwhile, some locations are still seen as being
somewhat in between, or rather as half-way points be-
companies tween full offshore jurisdictions and respectable finan-
cial centres. The offshore regime in Cyprus for instance,
• International trading, especially where the owner
although still maintaining low corporate tax and other
has no fixed residence
benefits has successfully reformed all its financial sector
• Asset protection
legislation in line with international best practice and
• Captive insurance
has implemented a simplified, effective and transparent
• Yacht registration
tax system which is fully compliant with the European
• Tax avoidance
Union and its directive, the OECD, Financial Action Task
• Protection of intellectual property
Force (FATF), and Financial Stability Forum (FSF); since
• Succession planning
EU accession, Cyprus has also harmonised local regula-
• Confidentiality (non-criminal)
tions to the Acquis Communautaire. Following these
measure, Cyprus was excluded from the OECD’s harmful
Illegitimate uses tax haven blacklist and was placed on the OECD white
list of territories which have substantially implemented
Historically the activities of offshore companies have in-
the internationally agreed standard in tax transparency.
cluded activities that were or have become illegal. These
Cyprus has transformed itself from being considered an
include
offshore jurisdiction for grey-area businesses to a unique
• The finance of terrorism
EU gateway jurisdiction simply maintains the lowest cor-
• Money laundering
porate tax rate in the union. It has in turn become the
• Tax evasion
lowest non-offshore tax jurisdiction in the world. [6] Mal-
• Fraud (including investor fraud)
ta is in a similar situation.
• Protection from current or future creditors
It is no longer possible for illegitimate jurisdiction
(including taxation authorities and spouses)
to operate in light of the OEDC and the FATF as well as
• Irregular trading practices (such as increasing
current and pending US legislation (13/06/09). It is very
margins on deals by interposing clandestinely
much in the interest of most offshore jurisdictions to en-
controlled offshore companies as apparent third
sure their house is in good order as this failure to comply
parties)
and subsequent sanctions could lead to the total econom-
The situation has much improved since the 1970s and
ic collapse of a country dependent upon its international
1980s largely due to increased regulation and general
reputation.
changes in commercial practice. The leading offshore fi-
nancial centres are now more compliant with the Finan-
cial Action Task Force on Money Laundering’s ’40+9’ rec- Features of offshore companies
ommendations than many onshore financial centres.[5]
• - these documents are fundamental to the existence
However some traces of these abuses persist today both
of the company. The Articles detail the rights of the
in offshore and onshore jurisdictions.
members, the objectives of the company and the
internal processes of the company and the
Importance of choosing a legit- Memorandum states the type of Company and its
capital.
imate jurisdiction • - this is issued by the Registrar of Companies or their
Many offshore jurisdictions are regarded by banks, the equivalent, and is serves as proof that the company
OECD and other bodies in the finance industry as being has been brought into existence. Other information
regulated either as effectively as or better than their on- may be necessary to prove that the company has not
shore counterparts whilst others are known to be areas been liquidated or struck off such as a certified of
of dubious legitimacy. incumbency or good standing.
Unfortunately gone are the days (if ever they existed) • - it is often the case that an agent must be appointed
where the distinction between onshore and offshore in the jurisdiction in which the company is
equated to legitimate or illegitimate. The current posi- incorporated for the purpose of dealing with official
tion is that there is no correlation between legitimacy communications with the registrar. The Agent will
of jurisdiction and tax status. For example Nigeria would have to be licensed and will assume some level of
not be regarded as offshore but perpetrates much of the responsibility for the company’s activities.
world’s advance fee fraud whereas Switzerland would be • - this is the official address of a company, to which
regarded as a highly respectable jurisdiction. official documents are sent and legal notices
received. It is normal for the registration agent to
3
From Wikipedia, the free encyclopedia Offshore company
provide a registered office. A company may have British Virgin Islands, to replace the IBC type of company
other business and correspondence addresses. with the Business Company (BC).
• - these are the legal owners of the company. For The following types of company are common in both
administrative simplicity, or for anonymity, a onshore and offshore jurisdictions:
corporate service provider may supply nominees • - these companies issue shares. Once the initial cost
who will hold shares on behalf of a beneficial owner, of a share (capital and premium) has been paid, the
and act on his instructions. shareholders have no further obligation to the
• - the individuals who manage the day-to-day affairs company. The shares may, subject to the rules of the
of company. In many jurisdictions it is possible for company, be sold or transferred, and the
companies to be directors of other companies. shareholders have the right to enjoy the profits of
Corporate service providers in offshore jurisdictions the company or any proceeds of a liquidation. The
will often provide directors, provided they are able liability of the shareholder is therefore limited to the
to control, and be satisfied with, the activities of the amount invested. Shares are assets.
company. The company is generally considered to be • - the members of the company agree to pay up to a
resident for tax purposes at the place where the maximum limit in the event that the company
decisions are made. In many cases if a person is becomes insolvent. They may acquire certain rights
acting as a director they will be considered de facto against the company, such as the rights to a dividend
to be a director in spite of not having recorded this and the specific rights will be set out in the rules of
with the relevant body. the company. Membership may terminate on death,
• - in some cases, it has been shown that the formally and guarantee companies have been used for not for
appointed directors merely act as the alter ego of profit organizations. There are also sophisticated
others, blindly following their instructions. In these estate planning schemes which make use of
cases, the courts have considered that those guarantee companies. Membership is a liability.
instructing the named directors really control the • - a combination of the above two classes - i.e. a
company, and that the named directors merely company have bother liability class shares and asset
rubberstamp decisions. Companies managed in this class shares.
way will be tax resident in the jurisdiction where the • - some jurisdictions permit cellular companies,
shadow director is resident. where particular assets and liabilities are segregated
• - this is the person or body corporate who is into "cells", in such a way that the assets of one cell
responsible for ensuring that the company meets its cannot be used to satisfy the liabilities of another.
statutory obligations. Corporate service providers Cell companies are particularly used for umbrella
usually provide this service. mutual funds or unit linked insurance bonds. In this
• - a company is obliged to maintain registers setting instance the separate cells are effectively distinct
out certain information about the company. The legal entities.
mandatory records vary from jurisdiction to It is important to note though that the above is a gross
jurisdiction, as does the level of public access to the oversimplification of the near infinite variety of types of
information contained in the records. Many company most sophisticated jurisdictions permit. Shares
jurisdictions require that the records are kept within themselves come in many different types with the rights
the jurisdiction in which the company is in respect of dividend, preference, voting etc. being de-
incorporated. The records required may include termined by the constitution of the company to which
minutes of meetings, registers members, directors, they relate. Also, it is by no means uncommon for compa-
officers and charges. nies to utilise many different classes in particular when
• - directors are generally required to keep proper they are soliciting for investment from third-parties.
records. They may be required to prepare audited However, many offshore jurisdictions offer increas-
accounts. Specific requirements vary between ingly specialised forms of companies (as well as spe-
jurisdictions and may depend on the nature of the cialised trusts and partnerships) seeking to increase their
company’s activity. For example all banks will need share of the market. Examples include limited duration
to prepare audited accounts, whereas a private companies, unlimited liability companies, companies limited by
investment guarantee and with a share capital, restricted purpose com-
panies and hybrid entities such as limited liability partner-
Types of companies ships, which are more akin to companies to actual part-
nerships, and foundations, which are nominally trusts but
Examples of offshore companies include the Internation- are more akin to companies than trusts.
al Business Company (IBC). More recently new legislation
has been enacted in a number of Jurisdictions, such as the
4
From Wikipedia, the free encyclopedia Offshore company
Merger •
•
Isle of Man
Jersey
The traditional method of merging companies is for one • Jordan
company to acquire the assets of a subsidiary on its liq- • Labuan
uidation. This sometimes creates contractual difficulties, • Lebanon
and requires third parties to accede to the transfer of • Liberia
obligations from the liquidated company. Some jurisdic- • Marshall Islands
tions have tackled this issue by permitting companies to • Mauritius
merge, forming a new combined entity, which represents • Monaco
a continuation of the businesses of each former compa- • Netherlands Antilles
ny. • Nevada
• Nevis
Relocation of companies •
•
New Zealand
Panama
Some jurisdictions permit companies to redomicile. They • Ras Al Khaimah
may do this to take advantage of particular features of • Seychelles
the new jurisdiction, such as merger legislation, or tax • Singapore
treaties with other countries. The law in both the old and • Trinidad and Tobago
new jurisdictions must permit redomiciliation. The busi- • Turks and Caicos Islands
ness of the company is deemed to continue without in- • United Kingdom
terruption on redomiciliation. • Vanuatu
This is usually not a complicated process, but it might
be slow and involve some paperwork; it can be used when
the cost of the transfer of domicile is less than the tax Buenos Aires ban of offshore
consequences of transferring the assets of the company companies
in question to a company newly incorporated in the de-
sired new jurisdiction. Following the 2004 República Cromagnon nightclub fire
in Buenos Aires, Argentina, it was discovered that the
club was owned by shell corporations. Ricardo Nissen, In-
Offshore jurisdictions spector General of Justice for Buenos Aires, subsequently
Main article: List of offshore financial centres froze $20 million, and then banned offshore corporations
It is possible to incorporate offshore companies in many from Buenos Aires that could not prove that they had re-
jurisdictions. In some onshore jurisdictions, such as the al activity in the city. Such a ban is the first to be imple-
UK and New Zealand, there are particular types of com- mented world-wide.[7]
panies which offer many of the advantages of typical off-
shore structures. The following list is not exhaustive. See also
• Andorra
• Anguilla • Flag of convenience (business)
• Aruba • Quasi-foreign corporation
• Bahamas • Offshore bank
• Barbados • Offshore Financial Centres
• Belize • Private foundation
• Bermuda • Tax avoidance and tax evasion
• British Virgin Islands • Tax exporting
• Brunei • Tax haven
• Cayman Islands • Tax resistance
• Cook Islands • Underground economy
• Costa Rica • Liquidation
• Cyprus • International business company
• Delaware (see also Delaware General Corporation • BVI Business Companies Act
Law) • Delaware General Corporation Law
• Dubai
• Gibraltar References
• Grenada
• Guernsey [1] Scevola, Carlo (2009). Offshore Jurisdictions Guide.
• Hong Kong CS&P Fiduciaire. ISBN 978-1-60594-433-3.
5
From Wikipedia, the free encyclopedia Offshore company
[2] "Offshore Company". Formation. [5] Anti-Money Laundering and Terrorist Financing:
http://www.offshorecompany.cc/. Retrieved 12 Financial Action Task Force
October 2011. http://www.ifcforum.org/show_article.php?id=5
[3] "Practical Uses for Offshore Companies". Healy [6] "Offshore jurisdiction reforming to credible
Consultants -- offshore company formation onshore financial centre". Offshore-Gateway.org --
specialists. http://www.healyconsultants.com/ professional services via Cyprus.
offshore-information/offshore-company.html. http://www.offshore-gateway.eu/
Retrieved 29 March 2011. credible_jurisdiction.asp. Retrieved 28 January
[4] Jason Sharman, Shopping for Anonymous Shell 2012.
Companies: An Audit Study of Anonymity and Crime in [7] Lucy Komisar, Bringing Business Back Ashore:
the International Finance System, 24 (4), 127-140, Fall Buenos Aires issues world’s first ban on offshore
2010 shell companies, Corp Watch, April 4, 2005
(English)
Retrieved from "http://en.wikipedia.org/w/index.php?title=Offshore_company&oldid=473794945"
Categories:
• Offshoring
• International taxation
• Offshore finance
• Legal entities
• Types of business entity
• What does offshore mean?
This page was last modified on 29 January 2012 at 03:14. Text is available under the Creative Commons Attribution-
ShareAlike License; additional terms may apply. See Terms of use for details. Wikipedia® is a registered trademark of
the Wikimedia Foundation, Inc., a non-profit organization.Contact us
Privacy policy About Wikipedia Disclaimers
6