To pay or not to pay tax is a question which stirs the imagination of every businessman, particularly those who already own or manage one, or several, companies in their own countries, and which often affects the very existence of a venture.
At the same time, taking the first steps towards the establishment of an offshore company may seem rather hard. These steps involve a great deal of uncertainty for the entrepreneur, and, at first sight, appear technically difficult and psychologically depressing.
Later, of course, it turns out that the establishment and operation of an offshore company are no more complicated than in the case of a domestic firm. On the contrary, in a number of cases these tasks are more simple. It is possible to raise or reduce the registered capital of the company, to transfer the shares, to remove the directors and to appoint new ones. The merger of several offshore companies, as well as the separation of individual offshore companies are also permitted. It is possible to close down a company officially without having to carry out final accounting with the tax office and the office of company registration in the given location.
Certain objectives for the creation of an offshore company
What Kind of Advantages Do Offshore Companies Offer?
The process of establishing/purchasing a company
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Certain objectives for the creation of an offshore company
Offshore trading companies: Trading companies may be used to reduce the profit of parent companies located in high taxation areas and to pass those profits on to an offshore company. Having registered an offshore company the parent company presents it with an invoice for the sale of goods at a uniform, minimum price, for example. Then the offshore company concludes contracts for the sale of the goods at a higher price. In this case the parent company derives a much smaller profit based on the minimum price of the goods sold and as a result its taxes on profits are reduced considerably. The offshore company, as a result of the transactions, earns a healthy profit after selling the goods at the higher price.
Offshore investment companies: The use of offshore investment companies makes it possible to have more options for choosing objects for investments, which enables the investor to concentrate on the most advantageous projects or to select areas that offer potentially high incomes. Moreover, it makes it easier for transactions concluded between the company and its clients to be kept in confidence. Making investments on terms advantageous for an offshore company merely provides an opportunity to transfer spare currency resources abroad without violating currency and tax legislation.
Offshore finance companies: The ownership of an offshore finance company gives an opportunity to pursue the most advantageous credit policy considering rganization of taxes on granted credit and borrowed funds, and improves the ability to offer different financial and credit services to clients. Besides, granting credit to a firm located in a higher taxation area through an offshore company at a high rate of interest provides an opportunity to transfer currency resources to a third country without violating the currency and tax legislation, and to greatly reduce or even acquire exemption from tax on profits made in a country where taxation is higher. Offshore companies may be very conveniently used for the rganization of taxes related to joint-venture activities. In this case the same citizens own and manage both the domestic and foreign (offshore) companies which set up the joint venture. It makes it possible to transfer to a third country the share of the profit which belongs to he foreign company in the form of non – taxable dividends. At a later date the money (in the form of privileged investments or credits) may be returned to the country in which the joint venture is registered.
Offshore holding companies may be used for financing the activities of their subsidiary enterprises under different jurisdictions by offering them the opportunity to reduce taxes due to interest payments on loans granted to them by parent companies. In this case a holding company is formed in an offshore area, in which neither tax on profit, nor other types of corporate taxes are collected from it; all the profit made by the above-mentioned method may be used for financing further activities of a holding group or for reinvestment for other purposes.
Offshore insurance companies formed by a company registered in a high taxation country or by a group of such companies may be used for insuring risks of a parent company or a group of parent companies on more advantageous terms than those traditionally offered by insurance companies. The form of an offshore reinsurance company may be used by insurance companies for insuring their own risks.
Offshore banking companies that have licences of a limited or unlimited type may be formed by banks for the purpose of accumulating profit in countries with reduced or so-called “zero” taxation as well as by groups of companies for a pooling of financial resources and a facilitation of money flow within a group. An offshore bank may also be used to finance the international operations of its founders in order to avoid problems of currency limitation.
Offshore companies formed for owning a property give an opportunity to reduce – or even eliminate – inheritance taxes and capital gains tax. Besides, if the owner of any property is a company, it is possible to simplify considerably a process of this property’s sale: in this case only the shares of the company are sold and transferred to another owner, but the company remains the owner of the property. In this way it is not necessary to pay the state duties imposed when a property is sold or given as a gift.
Offshore companies engaged in rendering services (in advertisement, management, marketing, consulting etc.): People and companies gaining large incomes conducting activities in the field of service provision may reduce taxes greatly by assigning the rights to obtain remuneration for their activities to an offshore company. In the future the remuneration, or a part of it, will be paid to an adviser by an offshore company, but payments will be structured in such a manner that taxes will be minimalised.
Offshore companies dealing with personnel recruitment are used by employers actively for the purpose of reducing taxes on their employees’ salaries. In this case the money to be used for the employees’ salaries is transferred to accounts of the offshore company, in which the employees actually work and its sum may be considerably greater than that paid to the personnel in the country of residence. The difference is accumulated in the employees’ offshore accounts and therefore no tax is imposed on their real income.
Offshore companies formed to hold intellectual property (patents, trademarks, copyrights, techniques etc.): Such companies may acquire any property from its original owner. An offshore company may patent a property or conclude contracts for transferring it into use, thus getting a non-taxable profit by using it.
Offshore ship-owner companies may be formed to reduce taxes on ship-owner and shipping activities by means of the purchase or rent of ships, and the profit earned from their activities may be accumulated in areas of reduced taxation.
Offshore private funds for the ownership and confidential management of private property may be formed in Liechtenstein and Panama. The use of funds provides for either partial or total reduction in taxes on incomes, capital and inheritance. Furthermore, it guarantees that the distribution of income earned by the property or by its inheritance be carried out according to the will of the property owner.
Offshore investment funds are fully rganizati by the international investment community. Usually they pay neither taxes on profit nor extremely high rganizational and legal duties. Besides, dividends and interest are either taxed at a decreased level or are exempt from taxes in general. The pooling of small investors of capital in a fund makes it possible to participate in more expensive projects, and means savings on research of the market, commission and managerial expenses. A founder (manager) enjoys the greatest advantage; he has the flexibility to carry on activities abroad, since it makes it possible to attract investors from a huge number of jurisdictions by means of an unrestricted sale of shares; he can also make investments in many jurisdictions without taxation and can conduct foreign trade activities.
What Kind of Advantages Do Offshore Companies Offer?
We list the advantages related to offshore companies registered in tax havens in two distinct groups:
- Direct taxation advantages/benefits
- Additional benefits independent of the favourable tax status
Direct taxation advantages/benefits
These advantages do not require specific explanation. The amount of revenue generated is taxed in the country of the offshore company. Taking advantage of the fact that these countries provide a wide range of tax benefits for enterprises of this kind, we may secure considerable tax savings.
Additional benefits
This other group of advantages is composed of benefits independent of taxation which are not to be ignored by certain types of businesses in certain situations. Some of these benefits are listed below, though the list is by no means exhaustive:
- Full anonymity: Full anonymity is provided by law in certain tax havens because neither the directors, nor the owners of the companies are recorded among public corporate details. As a result, the personal details of the owners and directors are hidden from the public and this can be used favourably.
- Lack of bookkeeping obligation: In a number of tax havens offshore companies are not required to keep books. This, too, results in a considerable saving since, if we look at the data of a domestic (non-offshore) company of a similar size, the annual bookkeeping fee alone usually amounts to several hundred – or even thousand dollars.
- Enforcement of prestige-related considerations: It may happen that in certain business situations a foreign company may offer more advantageous terms and conditions. The participation of a “foreign investor” in a domestic enterprise sometimes creates considerably more trust and confidence in a potential business partner, or it may even provide exemption from customs duties in certain cases, etc.
The process of establishing/purchasing a company
We conclude an agreement with all of our partners in respect of the establishment of the given company in the form of an “Application Form for a Company”. In the Application Form we lay down the most important details of the company, the main conditions and principles of our services and the obligations undertaken by LAVECO LTD., as well as the amount of the fee payable for the service.
In the case of a company to be newly established where the client provides the name of the company, the foundation process usually takes 2 to 6 weeks. The amount of time required depends upon the distance of the given location, the local laws and the efficiency of the office of registration. If this term seems too long, the client may immediately purchase a shelf (i.e. ready-made) offshore company (see below), in which case the time required for the completion of the paperwork is only one working day. A 50% advance payment is payable, in cash or by transfer, on conclusion of the agreement. The remaining 50% is payable after the incorporation of the ordered company and once the completed documentation has been returned to the offices of LAVECO LTD. from the jurisdiction involved.
A shelf company is a legally established company which a law office in the jurisdiction involved has already set up at an earlier date, but which has neither carried out any activity, nor opened a bank account.
Such a company is set up with the non-concealed intention that at some point somebody will buy and operate it. The legislation of a number of tax haven locations allows for the foundation of companies of this nature.
The only drawback of a shelf company is that it is not possible to select a name in advance (it can only be modified subsequently) since companies of this kind were registered under the names made up by the founder.
The deeds (documents) of foundation do not usually differ from those of a newly set up company, and the fee of establishment is usually the same, too.
| Jurisdiction | Number of available companies | Number of reserved companies |
|---|---|---|
| British Virgin Islands | 3 | 1 |
| Belize | 4 | 1 |
| USA, Washington D.C. | 10 | 3 |
| Seychelles | 12 | 1 |
| Marshall Islands | 2 | - |
| USA, Delaware - Corporation | 5 | - |
| USA, Delaware - LLC | 5 | - |
| USA, New York | 6 | - |
| USA, Wyoming | 2 | - |
| USA, Nevada | 1 | - |
| USA, Utah | 1 | - |
| Cyprus | 5 | - |
| United Kingdom | 2 | - |
| Totally | 58 | 6 |
| Flag | Jurisdiction | Formation fees | Fee for Registered Office and Registered Agent | Annual Tax and Duties | Details |
|---|---|---|---|---|---|
 |
Belize - IBC | 995 USD | 895 USD | 100 USD | Details |
 |
Hong Kong | 1575 USD | 990 USD | 416 USD | Details |
 |
Marshall Islands | 995 USD | 995 USD | 0 USD | Details |
 |
Panama | 890 USD | 750 USD | 300 USD | Details |
 |
Seychelles - IBC | 890 USD | 780 USD | 100 USD | Details |
| EU | |||||
 |
Cyprus | 1090 EUR | 780 EUR | 10% on net profit | Details |
| UK | |||||
 |
British Virgin Islands | 980 BGP | 890 BGP | 350 BGP | Details |
 |
Gibraltar - Exempt | 990 BGP | 745 BGP | - BGP | Details |
 |
London - LTD | 590 BGP | 740 BGP | 19-30% on profit + 250GBP admin. fee | Details |
|
London - LLP | 590 BGP | 740 BGP | 18GBP + on profit if applicable+ 250GBP admin. fee | Details |
| US | |||||
 |
Delaware - CORP | 695 USD | 935 USD | 60 USD | Details |
|
Delaware - LLC | 995 USD | 695 USD | 200 USD | Details |
 |
Nevada - LLC | 890 USD | 690 USD | 300 USD | Details |
 |
New York - LLC | 1895 USD | 890 USD | - USD | Details |
 |
Utah - LLC | 990 USD | 690 USD | 200 USD | Details |
 |
Washington DC - LLC | 1095 USD | 700 USD | 90 USD | Details |
 |
Wyoming - LLC | 995 USD | 795 USD | 100 USD | Details |
| Other jurisdictions | |||||
|---|---|---|---|---|---|
 |
Antigua | 1490 USD | 990 USD | 300 USD | Details |
 |
Barbados | 2090 USD | 1190 USD | 100 USD | Details |
 |
Cook Islands | 1990 USD | 1990 USD | 500 USD | Details |
 |
Dominica | 1290 USD | 990 USD | 150 USD | Details |
 |
Grenada | 2090 USD | 1190 USD | 100 USD | Details |
 |
Liberia | 990 USD | 990 USD | 150 USD | Details |
 |
Liechtenstein (A.G.) | 4990 CHF | 5900 CHF | 1000 CHF | Details |
|
Liechtenstein (Anstalt) | 5990 CHF | 5990 CHF | 1000 CHF | Details |
 |
Mauritius | 990 USD | 990 USD | 200 USD | Details |
 |
Saint Vincent & Grenadine | 990 USD | 990 USD | 100 USD | Details |
 |
St. Kitts & Nevis | 1290 USD | 990 USD | 200 USD | Details |
 |
The Bahamas | 990 USD | 635 USD | 350 USD | Details |
 |
Vanuatu | 990 USD | 650 USD | 300 USD | Details |
| EU | |||||
 |
Bulgaria | 700 EUR | 50 EUR/month min. 6 months | 10% of net profit | Details |
 |
Malta | 2990 EUR | 1990 EUR | 35/18,5% of net profit | Details |
 |
Romania | 780 EUR | 80 EUR/month min. 6 months | 16% of net profit | Details |
| UK | |||||
 |
Anguilla | 1240 USD | 890 USD | 200 USD | Details |
 |
Cayman Islands (Exempt) | 1550 USD | 1400 USD | 410 CI$ | Details |
 |
Isle of Man (Exempt) | 1560 GBP | 990 GBP | 330 GBP | Details |
 |
Montserrat | 775 GBP | 750 GBP | 200 GBP | Details |
 |
Turks & Caicos | 990 USD | 990 USD | 300 USD | Details |
Belize is a relatively small c