If you wonder what an offshore company is, here comes a simple answer. It is a business registered in a country other than where its owner lives. Such businesses are often set up to benefit from lower or no taxes.
Nowadays, traditional offshore companies can only be established in countries blacklisted by international regulators (think the FATF and the OECD). This isn’t ideal because of many restrictions and risks. In 2024, offshore companies are still a good option, but it’s important to do thorough research before you proceed with registration.
Is offshore still worth it?
In the past, over 60% of international entrepreneurs chose classic tax havens to set up companies and enjoy tax benefits, as well as reliable asset protection and privacy. However, things have changed. Today, it’s almost impossible to hide the owner’s identity, while getting zero taxes requires you to meet several conditions.
Countries that used to be classic offshore havens, e.g., the Marshall Islands, Belize, British Virgin Islands, and the US states of Delaware and Wyoming, are no longer tax-free zones where you can hide your identity and money. Yet, despite these changes, there are still legal ways to reduce or even eliminate taxes.
While it might seem easy to register an offshore company, entrepreneurs often have no legal and tax knowledge necessary to choose the right country and business type. This may be a source of problems during and after the setup process.
So, how do you set up an offshore company for serious business activities? You need to understand the process and consider all legal and tax aspects involved. The founder should also be ready for the challenges that offshore businesses are associated with. Financial stability is important here, as offshore company registration is not always cheap.
Get offshore company formation right the first time
Would you like to succeed with offshore company formation on the first try? We have good news: it is actually possible. Simply follow this plan:
- Understand the legal environment:
- Learn the Basics: Know what an offshore company is and the challenges you might encounter. Understand how offshore companies work and what countries are blacklisted by the OECD.
- Choose the Right Location: Balance tax benefits with the reputation of the country where you plan to register your company and set up a bank account. This depends on your business type, shareholder structure, and expected profits.
- Know Your Responsibilities: Learn about the rules that regulate economic substance and controlled foreign companies. Consider the tax implications of where you form your company and your country of tax residency.
- Select a reliable offshore service provider:
Hiring a professional offshore services provider is actually very helpful. Not only will they assist you with finding the best solutions, but also give you a hand with other stuff, whether you need to gather necessary documents, register your company, or open a bank account. Besides, you can use such providers to manage administrative tasks and secure ongoing compliance.
You are welcome to choose from several provider types:
- Specialized Providers: They focus on services in a single country and are usually based there. The option is ideal if you know exactly where you want to set up your company.
- Universal Providers: These providers render services in multiple jurisdictions and are useful for building long-term offshore structures. Before you pick up one, make sure they have the necessary experience and work closely with registered agents.
- Plan for offshore business financing:
- Standard Costs: Be prepared for the usual expenses of registering a company and maintaining it.
- Additional Costs: These might include opening a bank account, registering corporate seals, renting offices, and ordering services like apostilles, audits, and nominee services. It pays to plan for them in advance. For example, you may develop a financial plan for 5 to 10 years to cover all potential expenses and ensure your offshore business remains sustainable.
IBC, LLC, and Pte Ltd.: which offshore company structure suits your business?
When setting up an offshore company, founders usually choose from three main structures: IBC, or International Business Company (it may also be BC, or Business Company), LLC, or Limited Liability Company, and Pte. Ltd. (or Private Limited Liability Company).
An International Business Company (IBC) is great for international trade and investments. These entities don’t pay local corporate taxes if they don’t do business in the country where they are registered. IBCs are easy to set up, offer high levels of banking and corporate privacy, and have minimal reporting requirements. They are also protected from being blacklisted by the Financial Action Task Force (FATF) and the Organization for Economic Cooperation and Development (OECD). To set up an IBC, you need at least one director and one shareholder who can be the same person. Popular countries for IBC formation include Nevis, St. Vincent and the Grenadines, Marshall Islands, British Virgin Islands (BVI), and Belize.
A Limited Liability Company (LLC) combines features of both corporations and partnerships. LLCs don’t pay local corporate taxes on income earned outside the country. Their members aren’t personally liable for the company’s debts. Unlike corporations, LLCs only need members, not shareholders or directors, and have minimum reporting requirements. Want to incorporate an LLC? Have at least one member. Common places where LLCs are registered are Belize, Cook Islands, Nevis, and various US states.
A Private Limited Company (Pte Ltd.) is for businesses with fewer than 50 shareholders who all enjoy limited liability. This company can enter into contracts, acquire assets, and file lawsuits on its own. While it benefits from low tax rates or exemptions on income from abroad, it can’t go public through an IPO, and it has higher reporting requirements compared to an IBC. Canada and Great Britain are top options to form Pte Ltd. companies.
Where to launch an offshore business in 2024? Get expert recommendations today!
Thinking about starting an offshore company in 2024? Not sure where to open a bank account for your international business? Want to know the best countries to register an offshore company? You can get answers to all your questions in one go. Just book a consultation with Offshore Pro Group experts to receive valuable business tips and suggestions for success and growth!
