Everything You Need to Know About an Offshore Company

An offshore company is defined as a company that is incorporated in a jurisdiction that is other than where the beneficial owner resides. In other words, an offshore company is simply a company that is incorporated in a country overseas, in a foreign jurisdiction.

Offshores and International Investments

BAHAMAS, PANAMA, BRITISH VIRGIN ISLAND, ISLE OF MAN, CURACAO, URUGUAY, CYPRUS, LUXEMBURG, SINGAPORE AND MORE.

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IS A OFFSHORE COMPANY LEGAL?

Yes. An offshore as the proper name says, is a company owned off the shores of your fiscal residence and is compleatly legal and bounded. Offshore investing is often demonized in the media, which paints a picture of tax-evading investors illegally stashing their money with some shady company located on an obscure Caribbean island. While it’s true that there will always be instances of shady deals, the vast majority of offshore investing is perfectly legal.

DIVERSIFICATION OF INVESTMENTS

In some countries, regulations restrict the international investment opportunities of citizens. Many investors feel that such restriction hinders the establishment of a truly diversified investment portfolio. Offshore accounts are much more flexible, giving investors unlimited access to international markets and to all major exchanges. On top of that, there are many opportunities in developing nations, especially in those that are beginning to privatize sectors formerly under government control. China’s willingness to privatize some industries, in particular, has investors drooling over the world’s largest consumer market. Offshore jurisdictions, such as the Bahamas, Bermuda, the Cayman Islands, and the Isle of Man, are popular locations that are known to offer fairly secure investment opportunities.

KEY TAKEAWAYS

Offshore investing is beyond the means of many but the wealthiest of investors. Advantages include tax benefits, asset protection, privacy, and a broader range of investments. Downsides include high costs and increased regulatory scrutiny that offshore jurisdictions and accounts face.

PROS OF OFFSHORE INVESTING

Tax Advantages Many countries (known as “Tax Havens” offer tax incentives to foreign investors. The favorable tax rates in an offshore country are designed to promote a healthy investment environment that attracts outside wealth. For a tiny country with very few resources and a small population, attracting investors can dramatically increase economic activity. Simply put, offshore investment occurs when offshore investors form a corporation in a foreign country. The corporation acts as a shell for the investors’ accounts, shielding them from the higher tax burden that would be incurred in their home country. Because the corporation does not engage in local operations, little or no tax is imposed on it. Many foreign companies also enjoy tax-exempt status when they invest in U.S. markets. As such, making investments through foreign corporations can hold a distinct advantage over making investments as an individual.

ASSETS PROTECTION

Offshore centers are popular locations for restructuring ownership of assets. Through trusts, foundations, or an existing corporation, individual wealth ownership can be transferred. Many individuals who are concerned about lawsuits, foreclosing lenders, or creditors collecting on outstanding debts elect to transfer a portion of their assets from their personal estates to an entity that holds it outside of their home country. By making these on-paper ownership transfers, individuals are no longer susceptible to seizure or other domestic troubles. If the trustor is a U.S. resident, their trustor status allows them to make contributions to their offshore trust free of income tax. However, the trustor of an offshore asset-protection fund will still be taxed on the trust’s income (the revenue made from investments under the trust entity), even if that income has not been distributed.

CONFIDENTIALITY

Many offshore jurisdictions offer the complementary benefit of secrecy legislation. These countries have enacted laws establishing strict corporate and banking confidentiality. If this confidentiality is breached, there are serious consequences for the offending party. An example of a breach of banking confidentiality is divulging customer identities. Disclosing shareholders is a breach of corporate confidentiality in some jurisdictions. However, this secrecy doesn’t mean that offshore investors are criminals with something to hide. It’s also important to note that offshore laws will allow identity disclosure in clear instances of drug trafficking, money laundering, or other illegal activities. From the point of view of a high-profile investor, however, keeping the information, such as the investor’s identity, secret while acumulating shares of a public company can offer that investor a significant financial (and legal) advantage. High-profile investors don’t like the public at large knowing what stocks they’re investing in. Multimillionaire investors don’t want a bunch of little fish buying the same stocks that they have targeted for large-volume share purchases. The small fry runs up the prices. Because nations are not required to accept the laws of a foreign government, offshore jurisdictions are, in most cases, immune to the laws that may apply where the investor resides. U.S. courts can assert jurisdiction over any assets that are located within U.S. borders. Therefore, it is prudent to be sure that the assets an investor is attempting to protect not be held physically in the United States. On the other hand (see below), assets kept in foreign bank accounts are still regulated under United States law.

Special Considerations

More than half the world's assets and investments are held in offshore jurisdictions. Many well-recognized companies have investment opportunities in offshore locales.

Still, like every investment move you make, use common sense and choose SAFETY TAX as we can offer you consultancy  with an experienced and reputable investment advisor, accountant, and IRS Enroled Agents, who specialize in international investment.

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