Characteristics and Legal Status of Offshore Incorporated Companies
In light of recent political events, people are much more wary of offshore business than they were in the past. I think this confusion arises from a misunderstanding about the nature of legality and policy, especially with respect to what it means for individual financial liberty. There’s nothing wrong with setting up an offshore company on its own—when governments clamp down on offshore companies, they’re trying to eliminate tax evasion. Let’s discuss in detail the Characteristics and Legal Status of Offshore Incorporated Companies.
One of the many reasons business owners set up offshore incorporated companies is to take advantage of tax benefits that come with moving to a tax haven. Some people incorporate offshore because of the financial services the location offers or to take advantage of new business opportunities. Each of these advantages is completely acceptable and legitimate business motives—no government has a problem with this.
Then what really is the problem with offshore incorporated companies and why are these corporations treated with so much suspicion?
Is Offshore Incorporation Tax Evasion Or Tax Avoidance?
The fundamental difference between a legitimate and illegitimate offshore incorporated company is whether the organization in question is evading taxes or not. See, as a business owner, you must comply with certain regulations—the most important of which are your tax payments. You are well within your rights to minimize your tax burdens through legitimate tax avoidance strategies, but tax avoidance is strictly illegal.
Tax evasion involves hiding the true value of your financial asset to reduce the amount of tax payments you need to make. When you evade taxes, you lie to the government about the taxes you need to pay, which is, of course, an illegal activity. Tax avoidance, on the other hand, is the use of legitimate strategies to reduce your tax burdens. Tax avoidance usually involves distributing your assets into tax advantage accounts like IRAs, or between your dependents to incur fewer taxes. There isn’t a uniform tax avoidance strategy, every strategy depends on your specific financial requirements.
Setting up an offshore incorporated company is a legitimate way to reduce your tax burdens, one that was even encouraged by governments once upon a time. The problem arises when offshore company owners not only reduce their tax burdens by setting up in tax havens, but also hide financial assets to avoid paying any taxes in the country of operations. So you see, it isn’t exactly offshore incorporation that’s illegal—it’s the abuse of that privilege.
What Is An Offshore Corporation?
Sometimes your country of origin charges high enough corporate tax rates to make your business activities less than profitable. Global corporate tax rates average at nearly 25%—the average business owner pays a quarter of their total profits as tax. If you move your corporations to offshore locations, then you can reduce that tax amount to enjoy a greater profit than in your country of origin.
Offshore corporations are a special type of business organization that’s headquartered in a country separate from its country of operations. Since the corporation is registered in a separate country, it’s only subject to the tax laws of said country. So you could have a company set up in Ireland, with a tax rate of 12.5% and still sell your goods or services in the United States (which charges a corporate tax rate of 21%). Although you sell your services in the US your revenues are charged at a rate of 12.5% because your corporation is technically a citizen of Ireland.
If you earn revenues of $1 million in the US, and your company was registered in the US too, your tax burden amounts to $210,000. In Ireland, however, you only have to pay $125,000— a difference of $85,000. These differences become much larger as you increase the amount of profits and it becomes apparent how important offshore incorporation can be.
You can start here: Offshore Incorporation Set-Up
Advantages Of Offshore Corporations
Tax benefits are hardly the only advantage of an offshore corporation. There are plenty of other opportunities that these corporations can offer, these include:
A great read: How Can I Benefit From Offshore Incorporation
Access To New Business Opportunities
The geographical location is a fundamental determinant of the business opportunities you can avail. There are plenty of financial opportunities around the world—Cyprus and Vanuatu are growing tourist hubs while Central America is the center of all teak trade in the world. Setting up your offshore corporations in any of these locations will help you capitalize on global economic currents.
Here are a few articles that will help you to understand business offshore: The Fundamentals of Offshore Banking: Belize Checks Out On all Fronts
Specialist Financial Services
A lot of business owners move their business to offshore locations to take advantage of financial services not available in other places. Singaporean financial consultants are some of the best in the world, while the Swiss financial system offers greater privacy than any other. Moving your businesses to either of these locations gives you access to these financial services to cater to your financial needs. Since your companies are native to the country offering the services, it’s also easier to avail those services.
A lot of countries also offer investors dual nationalities in return for investing in the economies. Places like Vanuatu, Panama, Cyprus and Portugal will sell you nationalities if you invest a set minimum amount of money in specific businesses. This opens two separate pathways— you get access to new business markets and passports which let you travel across the world. An offshore incorporation company sets the path for greater mobility and financial liberty.
Offshore incorporation gets a bad rep for no reason really. The only reason anyone needs to be wary of offshoring is if they’re up to something illegal at the same time—but there isn’t anything illegal about offshoring itself. If you play your cards right, offshore corporations can open a whole new world of financial opportunities and gain.
The recent move against offshore corporations isn’t exactly surprising considering the way that these privileges have been abused. As a financial libertarian, I’m all for ensuring the liberty of the individual but it’s a completely different concern to evade taxes. The fact of the matter is, everyone should set up an offshore corporation because there can’t be a better way of establishing financial stability.
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