Offshore Companies

What is an offshore company?

An offshore company is a legal business entity such as a corporations or company that is registered in a jurisdiction under specific corporation laws intended for use by nonresident owners of the company. To qualify for offshore status and benefits, offshore companies cannot carry out any business, trade or investment activity within the country or jurisdiction in which it is incorporated.

There are several types of business entities provided under the classification of ‘offshore company’. The term applies to most corporations that are created to engage specifically in offshore/international ventures. The most common of the offshore companies are the International Business Company or IBC, and the offshore Limited Liability Companies or LLCs. These offshore companies are used for a wide range of business and investment ventures. Offshore companies can be owned and operated by a sole businessman, or corporate entities (large or small). Offshore companies are ideal for use as international trade and business vehicles.

Offshore companies are implemented and regulated by a one or more laws (commonly termed ‘acts’).. Commonly, there are specific and respective laws for the various offshore companies, such as the International Business Company, the Limited Duration Company, the Corporation or Limited Liability Company). Then, supporting laws are passed for regulation, supervision and administration of the offshore company services which covers a diverse range of issues pertaining to the offshore entities and the offshore sector.

In keeping with international requirement, this will include e acts against money laundering and financial terrorism; acts for the establishment of tax information exchange treaties, and acts for the formation of financial service commissions and intelligence units which serve to protect the public from malpractice and ensure that regulatory measures are implemented; thereby maintaining the integrity of the country’s offshore service sector.

Offshore companies are classified as legal entities with a personality of their own. Through company incorporation, the offshore company is granted the powers to engage in legal trade. The offshore corporation is an entity that has an identity that is separate from its members and owners, and the offshore company can enter contracts, can sue, and can be sued, can own and operate bank accounts and conduct all affairs related to the company’s business.

There are restrictions that are placed on offshore companies, though the precise restrictions vary from one jurisdiction to another. They often include rules pertaining to the use of an already existent or registered company name, a name that implicates any royal or state authority, chamber of commerce, or suggests business activity like banking or insurance for which offshore companies are not licensed to undertake under normal offshore company laws. To operate as an offshore insurance company or bank, an offshore company would have to be registered and duly constituted under the relevant offshore banking or offshore insurance act.

Offshore companies are non-resident companies, but in some jurisdictions can be classed as a resident company based on the country in which operations are carried on. The residency of offshore companies determine their tax burden for as a standard, offshore companies are not taxed in their jurisdiction of incorporation because they operate only offshore and are consequently not subject to taxes in that jurisdiction. As a stipulation for many (but not all) offshore jurisdictions, offshore corporations, for example Dominica corporation, should not generate any revenue in the country of registration, cannot have any property in that jurisdiction and can conduct a limited set of administrative duties in the jurisdiction. All offshore companies must appoint a local registered agent to handle the application for business establishement, comparable to Panama company formation, and must have a local registered address (provided by the agent in most instances). Offshore companies are allowed to operate anywhere, and as such the agent will act as the liaison and representative in the jurisdiction for the life of the company. This is a legal requirement for company formation. The registered address and office of an offshore company facilitates the service of process and receiving correspondence.

The owners of offshore companies must be over the age of 18, physically and mentally fit, not be a former convict or bankrupt. Ownership rules for offshore companies are non-discriminatory and are available to any natural or legal person capable of becoming an owner. Offshore companies are owned by their beneficial owners and in most jurisdictions are required to have at least one director and one shareholder. A few jurisdictions want an offshore company be incorporated with a minimum of two or three (PANAMA) directors.

The legal ownership of an offshore company is not restricted to natural persons, which means other legal entities such as foundations, trust or other corporations can own offshore companies.

Generally offshore companies in tax havens are subject to a zero tax policy, but in a few tax havens, there is tax which is generally lower than those levied in non tax haven countries. We do advise that individuals and corporations seeking to invest in, do business or set up an offshore company should seek advice on the countries that still maintain their zero tax regimes for offshore companies in order to truly benefit from the privacy, confidentiality and tax minimization features of an offshore company.

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