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"How
to create and use your own Offshore Company ."
There is a certain mystique
to Offshore Companies, by which we refer to those companies usually domiciled
in tax haven jurisdictions with very limited disclosure of their organisation.
This mystique is in fact not warranted as the common characteristic of
Offshore Companies or " International Business Companies " (IBCs) is their
simplicity to form and operate . This article attempts to reduce IBCs to
their essential core so that anyone , receiving proper professional advice
on their personal tax and reporting obligations, can create their own offshore
IBC and enjoy all the advantages that are available through the usages
of offshore IBCs.
There are many reasons
why IBCs may be needed by individuals or corporations. It is useful to
summarise some of the principal risk reasons for setting up an IBC as follows:
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CREDITOR
RISK AND LITIGATION RISK |
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ESTATE RISK AND THE COST
/ DELAYS OF A WILL |
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FAMILY DISPUTE RISK AND
FORCED HEIRSHIP |
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POLITICAL RISK AND SEQUESTRATION
RISK |
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TAX RISK AND TAX MINIMISATION |
The above risks are
often bundled in the general term: ASSET PROTECTION , which can mean many
things depending of course on what your objectives are.
The IBC has certain
features common to most offshore jurisdictions and these are:
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LIMITED LIABILITY |
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PROTECTION OF ANONYMITY |
by which there is no
disclosure of the beneficial ownership of the IBC. Nominee directors ,
officers and shareholders are available to act, shares issued to bearer
or issued registered to nominees are allowed, and the registers of directors
and shareholders are not a public record.
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EXEMPTION
FROM LOCAL INCOME , CAPITAL AND STAMP TAXES |
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MIGRATION OF CORPORATE
DOMICILE IS PERMITTED |
by which through a simple
procedure you may move your company from one offshore jurisdiction to another.
The IBC has practical
issues common to most offshore jurisdictions and these can be summarised
as follows:
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SAME DAY
INCORPORATION |
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FIXED NOMINAL ANNUAL
LICENSE FEE |
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NO RESIDENCY REQUIREMENT
FOR COMPANY OFFICERS |
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WIDE STATUTORY POWERS
TO ENGAGE IN ANY LAWFUL ACTIVITY |
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SIMPLE FORM OF WINDING
UP |
The IBC by its practical
expediency and low fixed running costs is a VEHICLE OF CONVENIENCE which
can be set up in one day and just expended or allowed to lapse when it
has no further purpose for the client.
The essentials to
form an IBC are the following in order:
| (a) |
Choice of
jurisdiction to incorporate. |
| (b) |
Choice of professional
service provider. (your professional adviser or lawyer will usually
be able to recommend a service to you ) . |
| (c) |
Choice of company name
to incorporate. ( for popular jurisdictions such as the Bahamas and
BVI you may need to give several name selections in order of preference
as names may be already taken ). |
| (d) |
Choice of director.
(usually nominee services are available should you not want to act personally
) . |
| (e) |
Choice of initial share(s)
to be issued. (for instance , issue of one bearer share of US$ 1.00
par value , is a common direction for initial issued share capital ). |
Most service providers
will as standard procedure require to have a copy of the ID/passport of
the benefical owner(s) , a bank reference letter on the same and to have
a very general description of what the IBC is to be used for (eg: private
investment holding).
When your IBC is established
you can as soon as the company documentation is released by the respective
Companies Registry (usually 3-5 working days after incorporation ) set
up corporate bank and brokerage accounts anywhere convenient to you (both
onshore and offshore ) .
Your IBC can from the
date of its incorporation engage in whatever business (with some very limited
exceptions such as banking and insurance ) you direct,entering contracts
, owning property and trading .
International banks
are usually very familiar with setting up and operating IBC accounts ,
though their account opening formalities vary . For instance certain banks
will require corporate documents to be legalised and perhaps a certificate
of incumbency to be issued by the registered agent , both of which can
quickly be obtained through the service provider for a nominal fixed fee.
Having seen that you
can set up your own IBC with a simple fax or e-mail , (although the corporate
documents for which would not usually be released by courier to you until
the same are paid for), a review of the common and special uses an IBC
can serve will help you maximise what you have created. It is not necessary
for you to hold the corporate documents and in fact if you do not want
any paper trail you can have the offshore service provider or IBC registered
agent (if they are different ) hold the corporate documents in safe custody
and to your order (there isusually no charge for doing so ).
(1) COMMON USES OF
OFFSHORE COMPANIES:
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OFFSHORE
HOLDING COMPANY: the ownership of foreign activities and investments
can be centralised in an offshore holding company. |
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OFFSHORE FINANCE COMPANY:
as a conduit to channel loans onshore or to a foreign subsidiary, as such
the finance company would not usually be subject to debt/equity ratio requirements
, separate license or minimum capitalisation requirements. |
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OFFSHORE LICENSING COMPANY:
to own trade licences and royalty rights for which the IBC pays no tax
itself on royalty receipts in the offshore jurisdiction . |
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OFFSHORE TRADING OR REINVOICING
COMPANY: triangular trading where the offshore trading company purchases
goods from a related or non-related distributor and then on-sells the goods
at a profit to a foreign subsidary or non-related importer, thereby booking
profit margin in the tax haven jurisdiction . |
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OFFSHORE COMPANY FOR
SECURITIES DEALING: to achieve nominee investor status and can also
be used to allow securities holdings to be held under a family succession
plan without recourse to probate. |
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OFFSHORE MUTUAL FUND
COMPANY: for a public or private investor collective investment vehicle. |
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OFFSHORE SHIPPING COMPANY:
commercial craft or private yachts to shield personal liability , for ease
of chartering and as part of estate planning. |
(2) SPECIAL USES
OF OFFSHORE COMPANIES:
It is not possible to
run through all the special uses to be made of offshore companies, but
the following serve as examples which can be structured in conjunction
with professional and legal advice being taken by the client.
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FOREIGN SALES
CORPORATION: a corporation established (in only certain qualifying
jurisdictions) by a US or Canadian exporter for the purpose of reducing
the exporter's federal tax liability. |
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CAPTIVE INSURANCE COMPANY:
for certain types of cover such as product warranty , creation of the
captive can generate tax deductable premium and tax savings through the
offshore insurance company. |
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SINGLE PURPOSE TRUSTEE
CORPORATION: where
the client creates own corporate trustee for family trust , thereby ensuring
more effective control during client's lifetime and saving on third party
trustee fees. |
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h |
INVESTMENT HOLDING COMPANY
WITH SUCCESSION MECHANISM: corporations can with certain share structures
operate as will substitutes to pass investment holdings to named successors
without recourse to probate. |
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h |
COMPANY LIMITED BY GUARANTEE
WITH / WITHOUT SHAREHOLDERS: corporations can be structured with no
US shareholders but with US persons having guaranteed contractual rights,
subject to legal advice that this avoids US controlled foreign corporation
provisions in certain limited situations. |
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h |
INTERNET BUSINESS CORPORATION:
with the estimated 17,000 web sites being registered every week and
many of which being internet business sites , the site can for anonymity
and protection of personal liability be registered to an IBC. |
The above hopefully
serves to give some examples but is far from exhaustive of the many uses
that an IBC can serve.
In conclusion, an
Offshore Company or IBC can provide you with an easy to use legal entity
which allows you:
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ANONYMITY |
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CONTROL |
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FLEXIBILITY |
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PROTECTION |
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SIMPLICITY |
whether in conjunction with
trust or other structures, or as a stand alone entity, and at all times
in consultation with legal and tax advisers, it is recommended to consider
Offshore Companies as part of any personal or corporate planning strategy. |
