Offshore Companies: Are They Right for Your Business?

What Is an Offshore Company?

An offshore company is a company formed in a country different from the owners’ country of residence, often in a tax-neutral or territorial-tax jurisdiction. These companies are commonly used to hold assets, trade internationally, or structure investments.

Is It Legal to Set Up an Offshore Company?

People often assume that offshore companies are illegal, as there's a common misconception that they are mainly used for illicit activities, money laundering, tax evasion, and unfair business practices.

However, offshore companies are totally legal when done in full compliance. Legality depends on:

• The laws of the place of incorporation, including Economic Substance (ES) or equivalent rules.
• Your home-country tax and reporting duties.
• Cross-border reporting frameworks such as the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA).

Under CRS and FATCA, financial institutions report account information for automatic annual exchange between tax authorities, so secrecy is limited.

Some jurisdictions also apply targeted rules like Hong Kong’s Foreign Sourced Income Exemption (FSIE) regime, which can bring certain foreign-sourced passive income into scope when received in Hong Kong if conditions are met.

What Are Offshore Companies Used For?

International Trading and Contracting

Offshore companies are commonly used to handle cross-border trading, procurement, and service contracts. 

They can centralize invoicing and supplier arrangements, provided that the company has real commercial activity, adequate substance where required, and meets tax and reporting obligations in the relevant countries.

Asset Protection and Risk Segregation

Some groups use offshore entities to separate operating risk from valuable assets such as intellectual property, cash reserves, or investments. 

When structured correctly, this can help ring-fence liabilities and maintain clearer risk allocation across different business lines.

Investment Holding

Offshore companies often act as holding vehicles for shares, bonds, funds, or group investments. 

They can provide a neutral platform for joint ventures, co-investments, or regional expansion. 

The tax outcome still depends on the laws of the investor’s home country and the location of the underlying assets.

Estate and Succession Planning

In certain jurisdictions, trusts or foundations are used to hold family assets and manage succession. 

These structures can support long-term planning, continuity, and governance. 

The effectiveness depends on the client’s domicile, forced-heirship rules, and tax obligations in relevant jurisdictions.

E-Commerce and Software with Cross-Border Customers

Digital businesses and SaaS operators sometimes use offshore entities for international operations, hosting, or IP management. 

However, VAT/GST, digital-services taxes, economic nexus rules, and platform reporting obligations still apply based on where customers are located, not where the entity is incorporated.

Benefits of Setting Up an Offshore Company

Business Flexibility and International Presence

Offshore companies can help entrepreneurs operate across borders without relying solely on their home-country legal or commercial environment. 

This structure is well-suited for:

• remote-first teams,
• consulting firms,
• international contractors, and
• e-commerce or SaaS operators with customers in multiple regions.

Segregation of Risk

A separate legal entity can ring-fence:

• operating risks
• intellectual property
• investment portfolios

This approach helps keep liabilities compartmentalized across business lines when the entity has genuine commercial activity.

Succession and Estate Planning

Some jurisdictions offer structures designed for long-term governance, including:

• trusts
• foundations

These vehicles can assist with inheritance planning and asset continuity, subject to applicable tax and estate rules.

Access to Customized Corporate Structures

Offshore hubs often offer entity types that are not always available onshore, such as:

• International Business Companies (IBCs)
• LLCs
• Segregated Portfolio Companies (SPCs)
• trust or foundation structures

Companies select these structures based on their holding, trading, treasury, or investment objectives.

Operational Efficiency

Many offshore registries provide:

• online incorporation
• digital filings
• simplified renewals

These systems make administration easier for internationally active or lean teams.

Risks and Disadvantages of Offshore Companies

Increased Reporting Obligations

Offshore companies are subject to information exchange under CRS and FATCA, which may require disclosure of:

• account details
• ownership information
• entity data

Economic Substance and Ongoing Filings

Many jurisdictions now mandate:

• Economic Substance (ES) notifications
• annual returns
• basic financial statements (in some jurisdictions)

Failure to comply can lead to penalties, strike-off, or regulatory escalation. For example, BVI companies must file an annual financial return within 9 months of the financial year-end to the registered agent.

Banking Scrutiny

Banks generally classify offshore entities as higher-risk, resulting in:

• longer onboarding
• enhanced due diligence
• higher documentation thresholds
• ongoing monitoring

Applicants should be ready to provide additional information to satisfy banking compliance requirements.

Reputational Considerations

Offshore incorporation can raise concerns for:

• counterparties
• investors
• banks

These perception issues may be more pronounced in regulated or consumer-facing sectors.

Jurisdictional Changes

Offshore rules evolve frequently. Jurisdictions may update:

• regulatory lists
• substance standards
• compliance requirements

As of 10 Oct 2025, the EU list of non-cooperative jurisdictions remains at 11. Such changes can affect long-term planning and overall cost.

Hidden Costs

Maintaining an offshore company often involves:

• registered agent fees
• legal updates
• annual filings
• accounting or audit services
• nominee or local service providers, when needed

These recurring costs can reduce the economic appeal of offshore structures, particularly for low-activity entities.

Best Countries to Open an Offshore Company in 2025

Not every country is suitable for every use case. The following are commonly considered, each with different compliance and banking profiles:

How to Register an Offshore Company

Step 1: Define Your Goals

Identify whether you need a holding, operating, IP, or fund vehicle. 

Your purpose will determine the jurisdiction, the level of substance you can support, and the overall compliance burden.

Step 2: Choose the Jurisdiction and Structure

Select the appropriate structure such as an IBC, LLC, or private limited company. 

In some situations, a trust or a foundation may also be used for planning or asset management. 

Your choice should reflect your planned activities, the regulatory environment, and the substance requirements of the jurisdiction.

Step 3: Prepare KYC and AML Documents

Registries and service providers typically require passport and address details for owners and controllers, a clear description of the business activity, and, where relevant, evidence of source of funds and source of wealth. 

Complete documentation helps due diligence proceed more smoothly.

Step 4: File Incorporation and Pay Government Fees

Submit the incorporation forms through your registered agent and pay the required government fees. 

Processing time depends on the jurisdiction and the depth of due diligence. 

Be cautious of promises of guaranteed same-day incorporation without conditions.

Step 5: Open a Business Bank Account

Expect enhanced KYC, detailed questionnaires, and ongoing monitoring when opening an offshore bank account.

Banks usually request corporate documents, ownership charts, and supporting compliance information before approving an account for an offshore entity.

Step 6: Maintain Ongoing Compliance

After incorporation, meet annual renewal deadlines, keep statutory registers up to date, and file Economic Substance (ES) notifications or returns where required. 

Offshore structures may also be reportable under CRS and FATCA, so owners must comply with their home-country tax reporting obligations.

Where to Open an Offshore Company

You can open a company in any country in the world but not all countries are ideal for setting up offshore companies.

For several reasons, some countries are the classic offshore jurisdictions and the go-to destinations for incorporating offshore companies.

What Documents Do You Need to Set Up an Offshore Company?

Setting up an offshore company typically requires a standard set of corporate and compliance documents. The exact list varies by jurisdiction, but most structures will need the following:

• Certificate of Incorporation: official proof that the company has been formed.
• Articles of Association (or equivalent constitution): outlines governance rules and internal operations.
• Memorandum of Association: required in some jurisdictions to state the company’s objectives.
• Share Certificates: evidence of issued shares and ownership.
• Register of Directors and Register of Shareholders: statutory records identifying key individuals.
• Registered Office Address evidence: confirmation of the company’s legal address in the jurisdiction.
• KYC/AML documents: identity and address proof, details of business activities, and where applicable, source of funds and source of wealth.

This core documentation supports incorporation, bank onboarding, and ongoing compliance across most offshore hubs.

Ready to set up? Air Corporate can handle formation, ES planning, bank readiness, and first-year filings so you can focus on growth.