What is an Offshore Company?

Like individuals, companies are deemed resident in countries where they are established.

However, companies often expand or relocate to other countries and can reside in many countries at the same time. 

A company can be registered in the UK but conduct its business and financial operations in another country.

You can also set up a company overseas to hold your assets or conduct business, even if you are not in the country physically.

This type of company is called an offshore company. 

An offshore company is a company that is incorporated in a country other than the country where its shareholders reside. Offshore companies typically conduct business operations and other transactions in countries other than where they were incorporated.

Simply put, a UK company can have a US offshore company and vice versa.

Setting up offshore companies is a common practice by large corporations and wealthy individuals that can afford to set up companies in different jurisdictions.

But is this why offshore companies are popular?

Offshore companies are not set up merely for convenience.

Keep reading to find out the benefits of offshore companies and why you need to open one.

Is it legal to have an offshore company?

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

However, offshore companies are totally legal.

There are no restrictions or limitations on the locations in which a person can set up a company.

All that is required is total compliance with the legal requirements for registering the company and conducting business in that country.

As such, an offshore company is legal once it is set up and operates within the confines of the law. 

Another way to look at is that an offshore company is technically an onshore company in the jurisdiction in which it is registered.

If it’s legal for foreigners or foreign companies to set up a company in that country, then it’s legal to set up an offshore company in that country. 

Why open an offshore company?

Offshore companies offer major benefits to individuals, companies, and even the countries involved.

Countries enjoy increased revenue from incorporation fees, taxes, and charges.

Individuals can diversify their investment portfolios and protect their existing and future assets.

Companies get to expand their operations, maximize profit, and establish a global presence.

However, setting up an offshore company in any country might be a rigorous and capital-intensive project.

Therefore, you may be wondering if it’s worth your while.

If you’re weighing your options, here are some benefits of opening an offshore company to help you decide.  

Favorable Regulations

As an entrepreneur, the regulatory environment is a key consideration for setting up your business in any country.

Living or conducting business in a country with unfavorable regulations for your business can be tiring.

It can hinder your business growth and reduce your bottom line.

If you’re looking for favorable regulations for your business, setting up an offshore company will be beneficial to you.

Popular destinations for opening offshore companies typically have less stringent regulatory bodies and requirements that can affect your business operations.

You can explore the regulations guiding your business in other countries and pick the country that best suits your needs. 

Lower tax burden

A lower tax burden has to count as the most popular benefit of opening an offshore company.

Countries that attract many offshore companies mostly offer lower tax rates or have tax laws that promote lower tax obligations on companies and individuals.

For instance, some countries deem offshore companies as non-resident companies which absolves them from any tax obligation in the country.

In some other countries, offshore companies pay zero direct and indirect taxes while other countries offer low single or double-digit tax rates. 

Thus, if you’re looking for a legal means to reduce your tax burden, offshore companies are worth considering. 

Access to Better Banking Infrastructure

Popular offshore destinations are known to provide higher bank interest rates and specialized banking services to individuals and companies.

Some offshore destinations are home to Fortune 500 Banks and some of the best digital banks.

Offshore destinations are also often free from political and economic instability which may affect the county’s banking sector. 

Setting up an offshore company may be a great way to access a better banking system that’s more organized than that of one’s country of residence.

You can also enjoy better returns on your savings and investments. 

Investment-friendly policies

Not all countries’ policies encourage foreign investment.

This can be problematic for large corporations seeking to expand to different parts of the world and individuals looking for a legal means to protect their assets.

Anyone can take advantage of the investment-friendly policies in some countries by setting up offshore companies in those countries.

Some of these investment-friendly policies include guaranteed profit repatriation, citizenship to foreign investors, beneficial tax treaties, tax waivers, incentives and reliefs, and the ability to own properties in such countries.

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.

Some countries are the go-to destinations when it comes to incorporating offshore companies for several reasons.

These countries offer certain benefits and incentives that make them suitable for establishing offshore companies.

Some of them are considered tax havens by individuals and businesses. 

 If you’re looking to set up an offshore company, here are some of the top countries worth considering.

Hong Kong

Hong Kong is situated in the heart of Asia and is best if you’re looking to establish an offshore company that’s in close proximity to China and the rest of Asia.

You can tap into the manufacturing opportunities in China and import goods at a low cost from Hong Kong.

Hong Kong also has an easy and straightforward incorporation process, an advanced banking system, zero percent income tax for offshore companies, financial secrecy policies, a free market, no foreign exchange controls, and a stellar reputation on the international scene.

Cayman Islands

The Cayman Islands is a British overseas territory that is popular for being a tax-neutral jurisdiction.

The corporate tax rate on the Islands is zero and investors also enjoy low offshore company registration and renewal fees, guaranteed  business privacy, and a stable political environment

The Cayman Islands is is a party to the Multilateral Convention for Mutual Administration in Tax Matters which requires companies resident in the Caymans to disclose tax details with other participating countries.

Thus, it may not be ideal for companies and individuals seeking to hold assets offshore. 

Bahamas

The Bahamas is another popular destination for incorporating offshore companies due to its tax system and confidentiality laws.

Offshore companies incorporated in the Bahamas are exempted from paying corporate taxes on income derived outside the Bahamas.

Offshore companies are also exempted from certain taxes such as stamp duties and estate duties for up to 20 years.

However, offshore companies in the Bahamas are required to pay a fixed annual fee irrespective of profit turnovers or margins. 

Cyprus

Cyprus’ membership in the EU makes it an ideal location if you’re looking to enjoy access to the European market.

If you set up an offshore company in Cyprus, you’ll get an Intra-Community VAT number which allows Cypriot companies to easily conduct businesses with other EU members.

Cyprus has no minimum capital requirement for incorporating companies and offshore companies in Cyprus also enjoy low tax rates.

British Virgin Islands

The British Virgin Islands is another popular destination for offshore companies.

Offshore companies pay zero taxes on income obtained from overseas.

There are also no exchange restrictions between offshore companies and offshore banking customers, and it’s easy for investors to repatriate earned dividends and profit through offshore bank accounts.

How to open an offshore company in Hong Kong

Hong Kong has been ranked as one of the best places to start a business in the world.

It’s easy to set up your company in Hong Kong and the country has the right infrastructure and policies to encourage and support foreign investment. 

If you’ve decided to register an offshore company in Hong Kong, the process is quite simple and straightforward.

First, you’ll need to select and register a name for your offshore company with the Hong Kong Companies Registry. 

Then, you’ll need to prepare the relevant incorporation documents.

These documents include specific application forms, articles of association, identification documents of shareholders and directors as well as parent company registration documents for corporate shareholders and directors.

You’ll also need to appoint a Hong Kong company secretary and pick a registered office address for your offshore company.

Finally, you’ll need to file all these documents with the Companies Registry within the specified time frame and proceeding to set up a business account.

Luckily, you do not have to be in Hong Kong to do this or even register your offshore company in Hong Kong by yourself.

You can register your offshore company in Hong Kong from anywhere in the world with Air Corporate.