Ultimate guide to set up offshore company
- Tetra Consultants has assisted multiple clients to set up offshore company all over the world. In recent years, it has been increasingly challenging to set up an optimum offshore structure due to additional economic substances introduced as well as stricter onboarding requirements from international banks.
- Despite many people falsely assuming that offshore companies are only used for money laundering and tax evasion, many global businesses are still setting up offshore companies to reap the multiple benefits available.
- Properly structured, an offshore company setup is an optimum solution for many global companies while structuring their businesses. Tetra Consultants strive to assist all our clients to decide on the best offshore company structure with good banking facilities and ensuring that the companies remain compliant with global tax regulations.
What is an offshore company?
- An offshore company is an entity that is legally registered outside the country where your main business operation in conducted.
- For example, if you are a resident in the USA and register a company in Singapore, this Singapore company is an offshore company. Many global businesses such as Google, Apple and Starbucks registered multiple offshore companies to facilitate global trading and effectively reduce tax obligations.
- One of the most popular case studies is Amazon in 2018. The company paid no federal taxes despite recording a profit of US$11.2 billion in 2018.
Popular types of offshore companies
There are three main types of offshore companies: traditional tax havens, legally tax-exempt jurisdictions and zero-tax jurisdictions. These three types of offshore companies allow you to enjoy minimal taxes while being able to legally conduct business. In most cases, the time required for company formation is short and you can expect to secure company numbers within one week.
Traditional tax haven
- Despite being labeled as tax havens, countries such as the Cayman Islands, British Virgin Islands, Seychelles and Belize International Business Companies (IBC) remain popular choices. This is due to the fact that these jurisdictions allow your businesses to be freed of corporate income taxes.
- Over the years, large numbers of businessmen flocked to these tax havens to satisfy their offshore needs. In addition, most of these countries do not require the companies to file annual returns and disclose directors and shareholders in the public register.
- Despite having all the traits required to be the perfect offshore solution, the industry has noticed dwindling numbers of tax havens incorporated. By having no corporate tax rates and zero annual reporting requirements, global banks are not willing to onboard companies from these traditional tax havens.
- For example, if you are planning to have a BVI company with Singapore bank account, it is close to impossible for now. Stricter onboarding requirements mean that you will not be able to board your business with reputable banks in Singapore or Hong Kong or Switzerland and your assets may be frozen.
- In addition to the challenge of opening corporate bank accounts, many traditional tax havens are now subject to additional economic substance requirements. They are now expected to implement legislative reforms to ensure appropriate measures are in place to prevent tax abuse. Failure to do so will be subject to blacklist or sanctions from international authorities.
- For example, EU announced that Cayman Islands (along with three other jurisdictions) are added to EU list of non-cooperative jurisdictions for tax purposes. After being blacklisted by EU, Cayman Islands entities will now be subjected to certain measures that will generally prevent firms to access to EU funding from the European Fund for Sustainable Development or the European Fund for Strategic Investments.
- While considering your next destination for offshore company setup, Tetra Consultants recommends you to take into account these negative trade-offs and consider alternative offshore solutions such as legally tax-exempt jurisdictions or zero-tax jurisdictions. In the long run, traditional tax havens are being clamped down to prevent tax abuse.
Legally tax-exempt jurisdictions
- If your business deals with the trading of goods, Tetra Consultants will recommend you to consider setting up a Singapore offshore company or a Hong Kong offshore company. There has always been a debate as to whether Singapore or Hong Kong is a better choice to register offshore company. In fact, both are excellent options and they offer multiple advantages including favorable tax benefits, world-class banking facilities and a stable business environment. In addition, there are no minimum share capital requirements in both jurisdictions.
- Properly structured, a Singapore or Hong Kong offshore company will be legally tax-exempt. A Singapore offshore company is subject to zero corporate tax if the company is controlled overseas, has no local corporate bank account and only has overseas business operations. Find out more about registering a company in Singapore.
- On the other hand, a Hong Kong offshore company is subject to zero corporate tax as long as operations are conducted overseas. Find out more about Hong Kong company registration.
- Despite having zero corporate taxes, these jurisdictions are not labeled as tax havens because the companies are subject to a high level of accountability, due diligence and reporting requirements. As such, reputable global banks are definitely willing to do business in terms of opening corporate bank accounts or providing bank loans.
- Setting up offshore companies in these jurisdictions is straightforward and Tetra Consultants can register your legally tax-exempt companies within 2 business days.
- One of the most popular zero-tax jurisdictions in the world is the United Arab Emirates (UAE). By setting up a Dubai offshore company, you will not be required to pay any corporate taxes because there are no corporate taxes. As such, you are legally allowed to not pay corporate taxes for your Dubai offshore company.
- In addition, Dubai is not considered a traditional tax haven and is welcomed by banks, customers, suppliers and investors. However, do note that Dubai offshore companies are not allowed to do business within the UAE nor have any local substances such as local employees or office space.
- The trade-off for establishing a company in a zero-tax jurisdiction is the costlier company formation fees. In addition, depending on your business activity, you will have to meet the different share capital requirements. Tetra Consultants will recommend you register a Dubai offshore company if your business mainly deals with customers or suppliers from the Middle East and Africa. Otherwise, we will recommend you to consider legally tax-exempt solutions as mentioned above.
How do offshore companies work for different types of businesses?
An offshore company setup should be tailored accordingly to each business’s individual needs and long-term goals. The most important factor to consider is the type of intended business activity of this offshore corporation. Tetra Consultants has compiled the most popular lines of businesses for offshore business setup.
Import and export
- Trading companies dealing with import and export can register an offshore company in a different jurisdiction for additional profits. For example, you can issue invoices to customers and make payments to suppliers via the offshore corporation. In exchange, the supplier will ship the goods directly to the customers.
- As such, you will be able to reduce your corporate tax obligations while minimizing your involvement throughout the work process. If your business is importing and exporting on a global scale, Tetra Consultants will recommend you to consider setting up offshore companies in legally tax-exempt countries.
- Investors may wish to register an offshore company if you are looking to invest in multiple countries.
- In some countries, there are strict foreign exchange controls imposed by the Central Bank and local government authorities. There are multiple time-consuming procedures and paperwork to be completed before investors can transfer a limited amount of money out of the country.
- For many investors, the ability to move funds freely is the key to making a profitable investment. By setting up a company offshore and opening an offshore bank account, these investors whose funds were initially trapped and limited, are now able to freely move funds in and out of different investments in different countries.
- As we know, investors earn through capital gains and this profit will be subject to capital gains tax. In some jurisdictions, offshore companies are subject to no capital gain tax and this allows investors to enjoy higher profits.
- For many businesses, an offshore holding company should be a familiar term, especially to the management team. A holding company is used to control subsidiaries which are usually located in multiple countries.
- By setting up the holding company in an offshore jurisdiction, businesses are able to enjoy tax benefits when moving money from one subsidiary to the holding company.
- By choosing the best offshore company structure, the holding company can build up the funds and re-invest into other subsidiaries without suffering any withholding taxes, corporate taxes or capital gains taxes.
Personal holding company
- High net-worth individuals may choose to set up a personal offshore holding company to hold their assets in different countries.
- You will only be required to engage a legal team and accounting team for this personal holding company instead of engaging one in every individual country. Consequently, you will be able to enjoy lower administrative fees.
- In addition, most offshore jurisdictions do not publish information of the shareholders and Ultimate Beneficial Owners. This in turn allows the high net-worth individuals to keep a low profile from the public regarding their net worth.
Property ownership company
- Many investors register offshore companies to hold their properties. By doing so, you will be able to reduce inheritance tax and capital gains. This is because the property is owned by the company and in the event you decide to sell the property, you can do so by transferring the company shares.
How to set up an offshore company?
- Our team of experts will recommend the most suitable jurisdiction depending on your long-term business goals and activities. The most common option for a trading company or holding company will be to incorporate a Hong Kong offshore company. There are minimal requirements for Hong Kong business set up and this can be completed in less than one week. Alternatively, you may wish to consider Singapore or UK.
- Depending on your company structure, Tetra Consultants will recommend the most efficient business entity. For example in Singapore, you will register a non-resident limited liability company. On the other hand in Seychelles, you will register an International Business Company (IBC).
- After the company is successfully registered, the next step will be to open your corporate bank account. Tetra Consultants will recommend the top banks that are willing to board your business. Some factors that the banks will take into consideration include the location of your customers and suppliers, the nationalities of directors and shareholders as well as the type of business activity. Some banks do not board holding companies while others do not board offshore companies generally. Tetra Consultants is experienced in corporate bank account opening and will complete the same within 5 weeks.
- The most important aspect of offshore business formation is to remain compliant and legally conduct business. Tetra Consultants will remind you of annual reporting requirements and assist in timely completing the same.
Advantages of setting up an offshore company
- The first advantage of offshore company is definitely tax optimization. In some countries, personal income or corporate income tax rates can be extremely high. As such, businessmen are looking for practical solutions to optimize their tax obligations instead of paying taxes amounting to half the company profits.
- Despite the media hyping offshore companies as a multi-layer structure to illegally avoid tax and conduct money laundering, this is actually not true at all. An offshore company is actually a simple and practical solution for businesses to legally reduce their tax payable domestically and internationally. This will free up more funds for the company to reinvest and achieve higher profits.
- Tetra Consultants will assist you to properly structure your offshore business according to your business needs and long-term goals while staying compliant with international tax regulations.
International business expansion
- The company formation process in some countries is complex and time-consuming. By choosing to setup offshore company and opening an offshore bank account, you will be able to conduct business all across the globe. This is especially relatable to online businesses where there is no need to keep inventories or supplies in a warehouse.
- In addition, registering an offshore company is quick and does not require you to meet many requirements.
- For example, it is challenging to transfer funds out of Cambodia. A Cambodian businessman may choose to register an offshore company in Singapore and open a corporate bank account in Hong Kong to pay Asian suppliers and another corporate bank account in Germany to receive funds from European customers. This allows his business to grow and not be restricted by complex domestic restrictions.
- In the unfortunate event that you are going through a lawsuit or divorce, an offshore holding company will protect your wealth. Assets held by the offshore company will be deemed by the law separately. In most lawsuits or divorces, you will be held liable as an individual by the law. By transferring these assets to the offshore holding company, they will be protected and out of reach. In addition, most offshore jurisdictions allow company owners to remain anonymous and not searchable in the public register.
- For individuals that are residents in politically unstable countries, you may wish to consider setting up an offshore holding company to protect your assets as well. Economic markets are volatile and fluctuate rapidly. By having a company in another jurisdiction subject to different market forces and regulations, you are diversifying your risk against rapid inflation, economic breakdown, or political instability.
Lower business costs
- Doing business in most offshore jurisdictions will usually result in lower costs of business operations. The company registration package service will usually consist of company registration, company secretary, registered address and corporate bank account opening. In some situations, you may require nominee director or nominee shareholder services as well as mail forwarding services. These services are usually affordable and can be provided by a single consulting firm such as Tetra Consultants.
- On the other hand, highly regulated countries such as Indonesia and Thailand require the appointment of local directors and shareholders as well as foreign investment licenses which may take months to be approved. As such, setting up an offshore company for your overseas company formation is definitely cost-saving.
Access to offshore banking
- By leveraging on this advantage of offshore companies, businesses are now able to open offshore corporate bank accounts. This allows you to swiftly receive and send foreign currencies while minimizing transaction fees. With access to offshore banking, your business will enjoy less delays in payment transactions and lower transaction costs.
- For online businesses, you can consider opening a merchant account for your offshore company to receive credit card payments from global clients. In some countries, domestic banks may not be able to provide this service.
- In addition, you will be able to open global brokerage accounts to trade securities on global stock exchanges. This service may not be available in some of the domestic banks.
Disadvantages of setting up an offshore company
- It is increasingly challenging to open corporate bank accounts for traditional tax haves. Businesses are usually subject to enhanced due diligence checks by the banks’ compliance team, resulting in delays during the account opening process. In addition, customers and suppliers are less willing to work with Belize International Business Companies (IBC) as compared to an offshore company in Singapore.
New economic substance requirements for offshore companies
- Global tax authorities are clamping down on traditional tax havens in order to stop tax abuse. As such, many offshore jurisdictions are required to implement additional economic substance.
- For example from 1st January 2020, all British Virgin Islands (BVI) companies dealing with “relevant activities” are required to appoint local active directors, rent local physical offices and submit annual reports to the government. This applies to holding companies, trading companies, fund management companies, shipping companies and banking/insurance companies.
- That said, Tetra Consultants recommends you to set up offshore companies in more reputable jurisdictions such as Singapore, Hong Kong, UK, Ireland, Liechtenstein or UAE.
Can I set up an offshore company?
- Yes, offshore companies have increasingly become more popular over the past few years. This is due to the multiple advantages such as tax optimization, asset protection, global business expansion and access to overseas banking. Offshore companies are suitable for both individuals as well as businesses.
How do offshore companies work?
- A company is regarded as offshore if it has minimal economic substance within the jurisdiction where it is incorporated. For example, a Singapore limited liability company that is conducting normal legal business activities outside of Singapore is considered offshore. Businessmen choose to register offshore entities as they may enjoy tax exemptions if they limit their trade to outside of the borders of the jurisdiction where they are incorporated.
Is it illegal to have an offshore company?
- No, it is not illegal to register an offshore company. As reported in media, many offshore companies are used for tax evasion, tax avoidance and tax fraud. For all our clients, Tetra Consultants will advise you on your personal and corporate tax obligations. This is to ensure that you remain compliant with international tax obligations.
Where is the best place to set up an offshore company?
- This ultimately depends on the long-term business goals of your company. For most types of businesses, our primary recommendation has always been a Singapore or Hong Kong offshore company. By paying a minimal amount of corporate or withholding taxes, you are able to enjoy access to better banking facilities. If you are a small company that is just starting out with limited capital, a traditional tax haven may be more suitable as there are not accounting nor tax nor share capital requirements.
- Contact us to find out more about how to structure your offshore company. Our team of experts will revert within the next 24 hours.