An offshore company is the first step to privacy, asset protection, international banking, and planting a flag offshore. Here’s why you want to form an offshore company and where to set it up for maximum privacy and protection.
Types of offshore companies
Active Business Entities: Businesses with employees outside of the United States. This type of offshore company can provide tax deferral to the US parent entity or owners. An active business must be run from abroad with minimal oversight from the US.
Disregarded Business Entities: An offshore company with no employees or activities outside of the united States that’s owned by a US person. In most cases, the offshore company is disregarded for tax purposes and no tax benefit is derived by the owners.
Personal Holding Companies: An offshore company that primarily earns passive income (rents, dividends, capital gains, etc) is a personal holding company for US tax purposes. Such a structure is also disregarded for tax purposes and the profits flow through to the personal return of the owner.
Why to setup an offshore company
The vast majority of offshore companies are formed to protect assets and to open a basic bank account for privacy in financial dealings. Such structures are relatively easy to setup and maintain and provide solid protection from future civil creditors.
Offshore companies formed for asset protection or as investment vehicles are tax neutral. They shouldn’t increase or decrease your US taxes. Income should flow through the company and onto your personal tax returned as earned.
These structures allow you to move assets out of the United States and away from future civil creditors and activist judges. So long as the offshore company is formed and funded well before the problem arises, it should provide excellent asset protection.
Offshore companies also give you access to foreign investments not available in the US, higher returning real estate markets, and currency trading platforms closed to Americans.
Finally, offshore companies can provide your business with significant tax savings or tax deferral. If you’re living abroad and qualify for the Foreign Earned Income Exclusion, or build an autonomous division offshore, an international business structure can significantly reduce your taxes.
Where to setup an offshore company
If you’re setting up an offshore company to operate a business with employees, you want to incorporate in the country where you will be doing the work. This is because you want to avoid any issues with the foreign base company rules of Subpart F of the US tax code. For more on this, see: Foreign Base Company Income.
If you’re setting up an offshore company for privacy and protection, then you want a low cost high protection jurisdiction. The best of these are Belize, Nevis and the Cook Islands.
The Cook Islands is an interesting choice because they offer solid banking and a long history of asset protection. The Cook Islands basically created the offshore trust industry back in the day and are still a leader in quality structures.
How to maximize privacy in an offshore company
Sometimes you need a structure in a larger jurisdiction like Hong Kong or Panama. If you want access to these banking hubs, you need a local structure.
But these countries have public registries. The officers and directors of offshore companies formed in Panama and Hong Kong are public record.
Fortunately there’s a simple solution: officers and directors can be persons or structures. So, form an offshore company in Belize and use that as the beneficial owner and officer of your offshore company.
A few comments on banking for an offshore company
Some international banks will accept offshore companies from a variety of jurisdictions. For example, a Panama company can open accounts in Panama (obviously), Switzerland, Cook Islands, Andorra, and elsewhere.
A Belize company can open accounts in Belize and Cook Islands, but not Panama.
Therefore, your country of incorporation will depend on your banking and investment objectives. It might make sense to incorporate in Panama, and pay the extra fees for a Belize LLC to act as your company officer, if you want access to larger banks.
I hope this post on why you want to form an offshore company and where to set it up for maximum privacy and protection has been helpful. For more information, and a free and confidential consultation on offshore companies, please contact us at firstname.lastname@example.org or call (619) 550-2743.