Offshore Knowledge Base
We have been in the offshore incorporations business for nearly 30 years. We know the trade inside and out.
We want to share our knowledge about offshore incorporations with You. Why? Because we believe that the best client is an informed client.
The following articles concentrate on some of the most important topics in relation to offshore companies, tax haven jurisdictions and offshore service providers.
These reviews are prompted by countless genuine queries we`ve been receiving from our clients. These articles are our shot at giving a comprehensive, no-nonsense view on the particular subjects. We have tried to keep the wording simple and free of legal slang as much as possible. We hope You will find this material useful.
Uses of offshore companies
An offshore company is a flexible business tool and as such can be integrated into a wide variety of tax planning and asset protection arrangements. Reduced or deferred tax liability and increased confidentiality are just two of the benefits which can be achieved by right use of an offshore company. The practical implementation of an offshore strategy will of course depend on the anti-avoidance laws that may be in force in the country where the beneficial owner is citizen, is domiciled or does business. Therefore to all potential customers we recommend to obtain a qualified tax advice from a specialist in Your country of residence, domicile or proposed business operations.
how to utilise an IBC to its maximum potential?
An offshore company may act as a trading intermediary - sales, distribution or import -export company. The company would classically buy directly from the manufacturer or wholesaler and arrange the goods delivered directly to the end-customer from the place of production or purchase. This can be of particular interest where goods originate from one country, are sold in another, yet the principal is located in a third country. An offshore procurement company can be used by a domestic importer to source goods abroad, or an offshore sales company can be used by a domestic producer to distribute the goods. The profits arising on the difference between purchase and sales price may be accumulated in a tax-free environment. Such profits can be re-invested into further development of the business, without incurring any surplus tax liability.
A freelance international contractor, consultant, designer or other professional individual working for a fee can reduce his tax burden by incorporating an offshore company, through which the fees for his contracts are routed. While the professional himself would receive a fixed level of taxed remuneration (salary) from his company, the bulk of the fee income would accumulate in the name and accounts of the offshore company, in a tax-free environment. Designers, authors, consultants and entertainers may assign or contract with an offshore company the right to receive fees due under a contract for services. A further benefit of a professional services company is that potential liabilities, associated with a professional services contract, would fall upon the company, not the individual.
Private funds pooled through an offshore investment company can be put into investment instruments all through the world, accumulating the returns and capital gains in a tax-free environment. Using a private offshore investment company would provide additional confidentiality for the investors and tax benefits for the investment returns. While investments in many high tax countries would be subject to withholding tax at source or a capital gains, there are still plenty of investment instruments where no such taxation would be applicable. Returns accumulated in a tax-free area would add flexibility to their distribution and re-investment.
A company can purchase or be assigned the right to use a copyright, patent, trademark or know-how by its original holders, with a power to sub-license and consequently exploit the intellectual property rights in various countries. Such arrangements must be properly planned, as many high-tax countries impose withholding tax at source on royalty payments. An existence of a double-tax-avoidance Treaty between the countries involved may reduce such withholding tax.
An offshore company can be used by internet-businesses in a way of holding domain names and operating websites in a tax-free environment.
The use of offshore shipping companies can eliminate direct or indirect taxation on shipping. Such companies may own or charter ships and accumulate the profits from these activities tax-free. Therefore, ships or yachts may be owned by an offshore company and registered in an offshore jurisdiction, in a cheaper and more tax efficient method of ownership.
A holding company can be established and used for holding shares of subsidiaries located in high tax countries. Most high tax countries require tax to be withheld on dividends that are paid to non residents, so attention should be paid to the availability of the double-tax-avoidance treaty between the country where the subsidiary is located and where the holding company is established.
Where a person is domiciled outside a territory and owns assets located in that territory (for instance, property), then such assets may be protected against inheritance tax and higher rates of taxation by holding the assets through an offshore investment company. A high net worth individual with properties or other assets in a number of countries may wish to hold these through the medium of a personal holding company so that upon his demise the need to obtain probate in each country is avoided. This saves legal fees and avoids publicity.
Many of the difficulties and expenses associated with investment in overseas property, such as holiday villas, may be avoided by the use of an offshore company to hold the title of the property. Sales of the property at a future date can be dealt with quickly and easily by the sale of the company shares to the purchaser. Moreover, this also saves legal fees and overseas transfer and value added taxes levied by certain foreign countries. It can also be used to successfully avoid capital gains and inheritance taxes.
If a holding company is registered in a suitable offshore jurisdiction with appropriate double-tax avoidance treaties in place with the owners´ home jurisdiction, such holding company may be used to hold shares in various offshore trading companies owned by the same owner. Such arrangement would provide for fully or nearly tax-free repatriation of offshore trading profits directly to the beneficial owner of the companies.
The structure of an offshore company
how an IBC is built and how does it operate?
Anyone who has ever come across the concept of a "company" or "corporation" will know that it is a legal concept, aimed at creating a new, distinctive, separate "legal person". The point of creating such a new corporate body is to legally allocate and put some assets into a new "body", which would then have its own existence and continuity. A corporation can own and can do much of the same as any private individual. A corporation can own assets in its own name, enter into agreements, acquire titles, rights and obligations, be liable for its actions. So, same like an adult human being, a corporation has it`s own legal personality. Even a corporations` life is quite similar to that of a human being. A corporation is "born" (by a fact of registration in an official Registrar) and it can "die" (by being dissolved or liquidated). In between, the corporation can go on pursuing its aims, which are typically ones of doing business and making profits.
Each corporation consists of several components. Every component has its own purpose. As this article mainly deals with "offshore corporations", one may ask what is the difference between an offshore company and a "regular" company? Structurally - there is practically no difference! An offshore company is quite simply the same sort of corporation, only it`s created outside the usual domicile country of its owner(s). So, for example in the wider sense of the word, "offshore" for a Spanish individual can be France, Australia ... or Belize. Quite simply, offshore is something that is NOT onshore, NOT nearby the home. However, for quite some time, the term "offshore" has been coined in a much narrower sense - pointing to a company, which is not only formed outside the domicile jurisdiction of its owner, but also has a number of attractive benefits. For example, incomes of an offshore company can be legally free of tax! Offshore company is free from heavy reporting and book-keeping requirements. It is free from onerous capitalization rules. An offshore corporation is not required to register its owners on a public file. It`s usually fast and easy to register, simple to maintain and operate. That`s what most people would deem as an "offshore company". However, in terms of internal structure, an offshore company still retains most of the components of the "regular" corporation.
The following is a description of the main structural elements of an offshore company.
All offshore jurisdictions require that all international business companies (non-resident companies, offshore companies, etc.) have an address in that country. This is called the Registered Address. The formal reason of this address is to have an exact location of the company for the purpose of official correspondence or inquiries from the government. Most often these are just some annual report forms and the annual government fee notices that get sent to the Registered Address. Yet, all companies must have such address, in their country of registration.
Most offshore jurisdictions also require a company to have a Registered Agent within their territory. Usually the Registered Agent is located in the Registered Address of the company. The reason is again the same, to have some person (or, usually, a professional services firm) who acts as an "intermediary" linking the government and the particular offshore company. The name and address of the Registered Agent are on public file in the Registrar of Companies, so this information is accessible to anyone who needs to ask.
Provision of the Registered Address and Registered Agent are standard domiciliation services, provided to all clients of Fidelity Overseas Ltd at a competitive fixed annual fee.
Every IBC files a copy of its Memorandum of Association and Articles of Association, or "M&A" with the Registrar of Companies upon incorporation. These documents can be brief or very detailed, this depends on the law in the particular jurisdiction and on the practices of the particular incorporation agent. In these documents general information about the company is laid out. Usually these documents describe the type of company, its address, operational objects, authorised capital, the procedure for appointing and dismissing directors and officers and their scope of competence and responsibility, the procedure of share allocation, how shareholder`s meetings are called and the competence of such meetings and how it should be executed, the procedures of keeping accounts, liquidation and similar administrative matters that are characteristic to any corporate entity. The Memorandum and Articles of an offshore company are usually signed by a person called "Subscriber" or "Incorporator". The Subscriber is simply a person (or, more often, a dedicated offshore services firm) closely associated with your offshore service provider. The Subscriber essentially incorporates the company for you and acts as the first shareholder on your behalf. Otherwise you would have to travel to the offshore jurisdiction and sign the documentation personally. The Subscriber usually subscribes for the legally acceptable minimum amount of shares in the company. After the registration of the company, the initial Subscriber may remain registered on public file as the (nominee) shareholder, or the minimum amount of shares that he initially holds can be transferred to the actual client.
This document represents a number of resolutions carried out by the Subscriber after the company has been incorporated. These resolutions outline the exact internal structure of the offshore company. The First Minutes contain information about the name, registered address and registration number of the company and also establish who is the secretary (registered agent), first director or directors of the company and how the company shares are being allocated to the shareholders. In some jurisdictions this information may also be "scattered" into several separate documents or resolutions. The First Minutes are usually signed by the Subscriber of the Company and the Secretary. The First Minutes is the right document to look at if you wish to get to know all the important information about the given company. Depending on the legal requirements, all or part of the information that the Minutes contain will also be part of the public record available in the offices of the Registrar of Companies.
When the company starts to operate, obviously any further changes may be effected by separate resolutions. Such can be carried out by the shareholders or by the directors of the company, depending on the character of the change. If the particular change is such that requires to be registered in the Registrar of Companies, it should at the same tim be put to the notice of the registered agent or resident secretary, for further filing with the Registrar.
Director of the company is charged with making all material decisions about the IBC and its business. Directors are initially appointed by the first Subscriber, and then elected by shareholders. Usually the Director of an offshore company is elected for an open term "until his successor is elected and qualifies". If there is more than one director, all the directors together comprise the company`s Board of Directors. In this case they may actually have a rather complex system of decision-making process. Offshore companies are required to have at least one director, occasionally more. Belize International Business Companies are required to have a minimum of one director.
Numerous offshore jurisdictions, including Belize, permit the director to be a corporation. This may sound weird, but just imagine a management firm comprising of a team of highly competent management specialists who would take the duty of managing the company`s regular business. However, utilizing a corporate director may blur the clear structure of a company and make it difficult to understand, especially for people who live in countries where "corporate directors" are not a common practice. More often than not the existence of a corporate director will also indicate that the company is most probably an offshore entity.
An individual director makes the whole structure more straightforward, just because we are more used to the fact that a director of a company must be a living, breathing person. There are not many disadvantages for an offshore company to have an individual director, apart from the fact that the services of individual directors would usually be more expensive than corporate. Another aspect, distant as it may sound, is the possible complication when such individual director falls ill, goes away for vacation or, as it may happen, dies. In case of a corporate director there will always be some person who will be empowered to sign or act on behalf of the company. In case of an individual director, there might not be. In such case the company would have to go through a long process of registering a change of director in its file before the new director can act. Electing an alternate in the first place would therefore not be a bad idea. Just as well, a company may have one or several addition officers to fill various managerial and administrative roles within the company. The most common officer categories include President, Vice-President, Treasurer and Secretary. Some jurisdictions require that some or all of these roles be filled at incorporation, thus, that is not mandatory for Belize International Business Companies.
Directors of the company may sometimes appoint managers or attorneys of the company, granting them certain powers to manage the affairs of the company. For example, the manager may have a signing authority on a bank account, or the powers to negotiate certain types of contracts for the company or do anything else that may be written in his power of attorney. Company shareholders or beneficial owners are quite often appointed as managers of the company for such purely practical reasons. For further details on company directors and management, please also see the chapter Company Management.
Offshore corporations, like onshore corporations, use shares to reflect their ownership. Generally, shares are units representing a participation of a person in the company. Taking (or buying) a share in a company means simply that a person has agreed to invest some of his personal money or assets into the company. As soon as he has done so, he acquires the right to participate in the profits and the decision-making process of that company in proportion to his share as in the total amount of the capital of the company.
There are a few different types of capital.
First, there is the authorized share capital. That is the total amount of money that the company has been allowed (by its Memorandum) to take in from the prospective shareholders in return for giving out its shares. Theoretically the authorized capital is supposed to be the total amount of money that the principals of the company have decided to be sufficient to get the company`s business going until the company makes its own revenue. Most jurisdictions have a minimum required authorized share capital, and the amount of share capital selected usually affects the government fees payable.
At this time and age the offshore jurisdictions have been first to recognize that some new businesses might not need any capital at all, for example, if they have a super-original business idea. At the same time, other companies may need to be highly capitalized for a cash-intensive project. A comprehensive International Business Companies Act should prescribe both of these cases easily and without discrimination.
Second, there is the subscribed capital. That is the amount of money that the prospective shareholders actually agree to invest in return for their shares. The subscribed capital can fairly often be less than the authorised capital. This would basically mean that the company has actually issued (or sold) only a part of its shares to the shareholders, whereby the other part remains unissued. Thus, if company ZYX has an authorized share capital of 50,000 shares and George agrees to take 1000 shares, then the company`s subscribed share capital is 1000 shares. George would own 100 percent of the company. If the company also issues 1000 shares to Mary, the company´s subscribed share capital is 2000, and each of George and Mary would own 50 percent of the company (1000 shares each of the total issued 2000).
There is also the matter of the paid-up capital. The subscribed capital becomes paid-up capital when the subscriber (the prospective shareholder) in fact honors his part of the deal and pays for his shares to the company. In the most trivial case it would simply mean that the shareholder has made a payment into the company. Generally, only from this moment the shareholder acquires the right to take part in the decision-making process of the company, that is, to vote in the shareholders meeting. The dependence of the voting powers on the fact of paying-up for the shares would usually be set forth in company`s Articles of Association.
There is a substantial difference in how the a range of aspects of share capital are treated in most high-tax countries and in the offshore financial centres. In the "first world" countries, especially in Europe, the legal requirements for minimum authorised, subscribed and paid-up capitals for a domestic company are quite high, often in tens of thousands of Euros. There are also strict rules that these capitals should all be paid-up at or shortly after the registration of the company. The sense behind those rules is apparently that a company in, say, France, can not realistically commence any business without a substantial money available for this purpose.
In most offshore jurisdictions it`s fundamentally different. Mostly, the size of the authorised capital of an offshore company does not have a legally prescribed minimum. If it does, the minimum is really small - think 2 US dollars or equivalent. As a result, there are no requirements to have a substantial amount of paid-up capital. Thereafter, the law does not require that the subscribed capital be paid-up in a certain timeframe. Therefore an offshore company can have an authorised capital of 10 US dollars, of which the amount of 2 US dollars is subscribed for (by a nominee company), but remains unpaid. At the same time, this flexibility allows the owners of the company to opt any amount of capital they wish, and to be very flexible with the rules of how and when the capital has to be subscribed for and paid up. Flexibility is the keyword here.
In most offshore jurisdictions there is a government duty payable at incorporation (and often annually thereafter) of the offshore company. The amount of this duty depends on the size of the authorised capital of the company. However, usually there is a pre-set minimum of the government duty. As in Belize, the government duty for an IBC (International Business Company) with an authorised capital of $50`000 or less is $100 at the company registration and $150 yearly starting from the second calendar year after the IBC incorporation. The $50`000 is therefore the maximum possible authorised capital that you can get registered by still paying the minimum duty. Therefore this amount will usually be registered as "standard" by the offshore service provider. Going to higher capital is possible but will involve higher duty. Going lower is also possible, but needless, as the duty will remain the same anyway. This concept of "maximum authorised capital to which minimum duty applies" is repeating itself virtually throughout all offshore jurisdictions. It is sometimes also called "optimum authorized capital".
Another specific feature of offshore companies is registration of shareholders on the public file, in the Registrar of Companies. Many offshore jurisdictions, like Belize, do not register the shareholders of offshore companies in the Registrar. Therefore the ownership structure or a company is remains an internal matter of the company. In such case the shareholder information (Register of Shareholders) will usually be kept on file with the company secretary or the registered agent, or by the director of the IBC. In such event each individual shareholder certainly should take care to receive appropriate proof from the company confirming his shareholding interest in the company. Such proof can be a share certificate.
Some offshore jurisdictions do keep shareholder information on the Registrar`s file. It does not influence shareholder confidentiality very much, because the shares can be registered in the names of nominees, or left registered in the name of the initial Subscriber. In this case, again, it is up to the shareholder to keep the proper proof that he is the actual owner of the company. Such proof can be an appropriately drafted declaration or an agreement between the nominee and the actual owner.
Direct registration of the shares on public file can still be attractive to those company owners who wish to be completely sure that their private holdings remain protected by being properly registered. This especially might become important when the company is owned by several owners.
All in all, the corporate characteristics and structural elements of an offshore company are just the same as they would be for a typical business company in any country. The difference remains in the fact that with offshore companies, all these elements are made extremely simple and flexible, with minimum government regulation and red tape involved. This in turn makes an average offshore company just a more practical instrument in order to transact business, in particular, a business spanning over several countries and being international by nature. On top of that there are, of course, the significant tax benefits that offshore companies enjoy and domestic companies only dream of.
Which is the best offshore jurisdiction?
With about 50 countries in the world offering tax benefits to offshore business, it is quite reasonable to ask which offshore country is the best to incorporate in. Some of those countries are very popular and have a natural image of offshore tax havens – like British Virgin Islands, Panama or Belize. It is less known that some attractive tax benefits are on offer to some types of non-resident businesses in countries that do not ring the bell as “tax-havens” – for example, UK, US, Holland, Iceland or Denmark.
There can be no standard reply as to which is the best offshore jurisdiction. That answer actually depends upon the anticipated use of the offshore company, upon the personal and business circumstances of its owners and upon variety of tax regulations in force in the countries where the offshore company will engage in business.
Before going into the particular detail, it would yet be useful to define what is a tax haven, anyway?
this question will never go out of fashion...
The OECD - Organisation for Economic Co-operation and Development (to make it clear, these are the guys who think high and uniform taxes are good for everyone) describes the tax haven as a jurisdiction which actively makes itself available for the avoidance of taxes which would otherwise be paid in a higher tax jurisdiction. The term "tax avoidance" should be noted, because there are ways of avoiding taxes without breaking the law, while the opposite term is "tax evasion" - which is in general classified as a crime.
Offshore, in its broadest sense of the term, basically means a jurisdiction other than your own. The country next door can be offshore for you. Offshore is anything that is not "onshore", meaning - not at home.
In a more practical background offshore usually means a country or territory which offer specific benefits or incentives to foreigners. The most understandable ones are tax concessions. These come in various forms. It may be a complete tax exemption for all international business operated by non-residents (Belize or Seychelles International Business Companies), an ultra-low income tax for international businesses (Seychelles Special License Companies, which pay 1.5% tax), a complete exemption from income and capital gains taxation for all companies, despite of their ownership or country of operation (British Virgin Islands), local no-tax or low-tax liability on all investment income regardless of the residence of the investor (Bahamas, Cayman Islands); local tax exemption for non-residents of that jurisdiction (Gibraltar, Channel Islands); tax holidays for certain types of investment (Portugal, Netherlands Antilles, Iceland); favorable tax treatment through treaties and agreements with the investor´s home country (Cyprus, Barbados, Netherlands, USA).
In addition, some foreign countries may appear to offer better legal protection from creditors and other potential litigants who might attempt to seize an individual`s wealth. This is the second key aspect why offshore jurisdictions are so popular - asset protection. It may even have nothing to do with tax, although usually both are intertwined. It`s just safer to be offshore. The access to the corporate or banking information held by offshore service providers is strictly limited by laws and international agreements. No private parties and very limited amount of Government Authorities only from specific countries and only for specific purposes (tax and criminal investigation) can obtain some of the restricted information. Additionally, the Belize International Business Companies Act contains specific provisions against confiscation that put the offshore assets out of reach of any creditors as well as Government Authorities even if the information of such assets becomes known to them.
Before taking into consideration a particular offshore jurisdiction you should first consider it in view of your intended business. Will your potential customers be concerned that their new supplier or service provider is registered in a particular offshore territory - or won`t they care? Have your prospective market countries imposed any restrictions against transfers of funds to the particular offshore jurisdiction? How will your partners, suppliers, customers or investors react when asked to transact their business with an offshore company? Will it cause any problem for them? Many high-tax countries have extensive blacklist regulations in their tax system, imposing tax surcharges or financial penalties on business carried out with known tax havens. Can it influence your business?
Perhaps, Your business partners already have their own offshore companies? If so, where are those registered? Nowadays, a considerable part of international trading business is completely transacted through offshore companies. The money never actually leaves the "low-tax zone", as both parties to a deal would have their businesses registered in tax havens. According to some estimates, up to 60% of the total global mass of money at any given moment actually sits tax-free in offshore accounts, and not in the highly invasive, highly taxed financial systems of the big jurisdictions.
The offshore jurisdictions are also qualified into treaty jurisdictions and non-treaty jurisdictions. The treaty jurisdictions have a wide network of double-tax avoidance treaties (DTA`s) with other countries. A double-tax avoidance treaty basically removes or reduces levels of taxation on certain transactions, taking place between residents of both member countries. The most common and tangible benefits granted by a double-tax avoidance treaty are usually the reduction of withholding taxes on the payment of dividends and royalties between the contracting states - thus, great for a targeted establishment of offshore holding companies. It may sound surprising, but there are actually many DTA`s between tax-haven jurisdictions and distinctly high-tax jurisdictions.
Treaty jurisdictions often portray a non-offshore image - typically offering reduced levels of tax instead of a complete exemption. This obviously may provide a better "image" of the jurisdiction. Cyprus is a typical treaty jurisdiction. Seychelles has concluded a number of useful DTA`s, in particular with China, South Africa, Thailand, Cyprus, Belgium and several other countries.
Non-treaty jurisdictions are "classic" in the offshore sense - they would usually have complete absence of corporate taxes on the profits of the company and only a fixed annual license fee. In respect of International Business Companies, Belize is a non-treaty jurisdiction.
It is for you to decide whether the circumstances of your business require the tactic of "offshore stepping stones" through treaty jurisdictions, or the clear-cut approach through a classical offshore tax haven.
If you can find positive answers to these issues, the major part of choosing the right offshore jurisdiction is already done.
The most important condition for those who want to set up their business interests in an offshore financial center is to select a jurisdiction that provides both political and economic stability, so that business can be conducted with certainty, confidence and corporate security.
A good offshore jurisdiction should not be subject to violent political swings or the possibility of military coup or invasion. A historically bad example was the African state of Liberia, whose well intentioned offshore legislation was overrun by a military conflict and political turmoil. Most of the offshore tax havens, however, have good track records as regards their political and social stability.
A similarly important factor is economic stability. The ideal offshore jurisdiction should have transparent economic policies, a sound economic system, a stable currency with no restrictions on investment repatriation, low inflation and the main economic liberties strongly protected by the rule of law and an independent judiciary.
One should stay away from any offshore jurisdiction that has an image of corruption, dictatorship, social tension and economic instability.
Very important factor is that the legislation is modern, flexible and well proven. Some jurisdictions have introduced new and modern suites of corporate legislation, in particular designed for international business whilst others have amended existing domestic legislation to cater for offshore requirements. That being said, for fairly many offshore jurisdictions the relevant pieces of legislation are basically carbon copies of each other. For example, quite a number of jurisdictions have taken the IBC Act of the British Virgin Islands and adapted it to their situation without much of a change. Quite often the legislation of relatively new offshore centres, such as, for example, Seychelles or Saint Lucia, tend to be very well thought out and put together, having taken care of all the shortfalls and errors of the earlier laws in other, more older offshore tax havens. All in all, if the total number of IBC`s registered in a certain country is in six figures or more (you can usually tell by the current registration numbers), it means that the system is working fairly well.
A successful offshore financial centre must besides have a reliable, independent judiciary system with a proven track record of defending offshore interests, especially against claims and requests originating from abroad.
Many offshore jurisdictions have made efforts to make sure that their company law provides features such as minimal or optional statutory filing obligations, availability of bearer shares, non-disclosure of beneficial ownership, minimum number of directors, minimum information on public file, ability to hold directors meetings anywhere in the world, lack of requirement to file audited records, flexibility in regards the amount and paying-up of the authorised capital, and similar. It is for you to decide if any of those unique features (which will usually be widely advertised by the agents in the respective country) are of any particular interest for you.
Apart from that, an offshore company is an offshore company - generally they are quite similar to each other. Virtually all entities that are known as "offshore companies" in the narrow tax benefit sense will have the same distinct feature. Such company is essentially unburdened of any substantial tax obligation and all the reporting that usually comes with it, insofar as it stays out and away from the country where it has been registered. Thus, they will also be free from the requirement to prepare and file the financial declarations for income tax reporting. At the same time there are particular types of entities, subject to what is called "designer taxation", which pay minimum rate of tax. An example of that is a Seychelles Special License Company, which pays between 1.5% and 5% of tax, and, consequently, is also supposed to file tax returns.
The infrastructure of an offshore jurisdiction is important. You would not like to place your corporate nest-egg in a country which takes ages to get through by telephone. Factors such as quality of telecommunications and internet, physical access to the country, business language, work ethics, legal system, confidentiality culture, exchange controls, quickness and variety of administrative and financial services obtainable all can influence the smooth running of your business. You should be able to travel to the particular offshore jurisdiction easily, safely and without visa.
Take time zone into account - dealing with a jurisdiction on the other side of the world may regularly make you lose a day while communicating via email, or to make calls in the middle of the night.
Work ethics is an significant factor. Some regions of the world tend to be more laid back and relaxed than others - not useful if You need something done fast. Some countries are historically blessed with diligence, confidentiality and prudence. Some are less so.
A rather obvious factor. However, in the offshore industry, same as anywhere else - price is not the whole thing.
Offshore financial centres have developed a considerable variety in terms of cost. There are some jurisdictions, like Liechtenstein or Bermuda, where paying premium fees is unavoidable, and not always the level of service is up to par. On the other side there are some jurisdictions where high incorporation volumes and lots of competition have driven the prices down to the bottom. Often, unfortunately, at the expense of quality.
After the corporate features and legal aspects of the offshore jurisdictions are all compared, price still remains an interesting variable. One particular position to compare is the minimum possible government duty. This is the fixed amount that an offshore company will pay every year instead of income tax. As the government fees are fixed and don`t fluctuate unless the laws are changed (that does not happen often), easy comparisons are possible. In this respect, one may indeed prefer a jurisdiction where the minimum state duty is USD 100 or USD 150 (Belize), as opposed to another, where it is USD 350 (Bahamas) or USD 450 (BVI).
The level of professional fees are even more significant, as these constitute most of the annual maintenance cost of an offshore company. What is the incorporation fee and what are the continuing management fees? What are the reporting and statutory compliance requirements and how much will it cost to fulfill them? Generally, the level of the professional costs will depend on (A) how much competition there is in the market (B) how old and reputable is the jurisdiction (C) what is the general cost of living and business operation in the country (D) how old, successful and reputable is the offshore service provider (E) how much does the offshore service provider wants to attract new business – some of them are not very enthusiastic to take on new clients.
A combination of all these factors may yield a victory for one or another offshore jurisdiction, BOTH in terms of service quality and price! Similarly, inside one jurisdiction, some offshore service providers will definitely be more competitive than others, again both in terms of price and service quality. Given that an offshore company will essentially be the same product, regardless of who is the provider, going for the most expensive offer will not buy a guarantee of quality, speed and reliability - in fact, very often the opposite will be the case! So, it definitely pays off to do some careful research before committing to a particular firm.
For more insight on selecting an offshore incorporation agent, please read the next article in this chapter: How to choose the right offshore service provider?
How to choose the right offshore service provider?
because You really don't want to fall for a bad one...
Considering that we are an international offshore incorporation service provider ourselves, this might not be the best issue to speculate on, for fear of a subjective opinion. Nevertheless, just some considerations for Your own verdict.
To begin with - what is an offshore service provider anyway? They tend to be different, but generally all do the same kind of job. The "product" or, to a certain extent as the name suggests, the "service" that is offered by an offshore service provider is the incorporation and registration of an offshore company or an offshore trust at a request of a client, who would be the "beneficial owner" of the offshore company.
The offshore corporate service provider is also aimed to take care of the administration tasks essential to maintain the offshore company in good legal health (also well-known as "good standing") in its country of registration. This support mainly includes the provision of the Registered Address and Registered Agent for the company, following up the annual renewal rules and regulations of the company by acting as official intermediary linking the Government and the owner of the offshore company, taking care of the obligatory annual filing and reporting requirements (if any), keeping and updating such books and records pertaining to the company as the law prescribes. Likewise, the support and administration services would be provided to offshore trusts.
The offshore service provider would also endow various optional services which improve the functionality and confidentiality of the offshore company. Such services include provision of individual and corporate directors, provision of nominee shareholders, document custody and re-mailing services, mail and fax forwarding services, telephone call handling services, bank account introductions. In various offshore jurisdictions the corporate service providers also assist the client through the more complex matters of licensing the company to carry out some of the specifically regulated activities - offshore banking, offshore insurance, mutual funds, online gaming. Moreover, some providers would offer certain legal assistance or tax advice, although not many do that.
In general, the offshore corporate service providers fall into two extensive groups – the specialized providers, and the universal providers.
The specialized providers are narrowly focused on the offshore services offered from one particular jurisdiction. As a rule, such providers are actually located in that jurisdiction, are licensed by the local regulatory authority as Registered Agents or International Corporate Service Providers, and, therefore, tend to be experts in everything their particular jurisdiction can offer. The specialized provider (Registered Agent) is usually the one who actually prepares the incorporation documents, goes to the Registry of Companies, submits and receives the paperwork and does all the "grunt" work related with offshore company formations. Proficient in their field, fast and cost-effective, the specialized providers are the "source" of the offshore incorporation services.
Downside? The source providers would be naturally biased towards their "own" jurisdiction. So there is actually no sense asking them to compare the benefits of other jurisdictions, as theirs` would always come out on top anyway. They may also be unable or unwilling to structure complex, multi-jurisdictional arrangements as may be necessary for some more complicated business models. But for a client who has done his research and knows exactly which jurisdiction and what sort of company and services he needs, dealing with a genuine Registered Agent is utterly the best bet.
The local, specialized offshore service providers are also not all too similar. Here, the distinctions are like in any other business.
The older, more mature Registered Agent firms would have a tendency to be slower, less flexible, conservative and more burdensome to deal with, as the institutionalization has settled in. Of course, they would be more expensive. On the upside, the "old players" would usually have a firm internal framework, experienced senior staff (in case You can reach them), and the implied assurance of being around forever.
The new players in the market would quite surely be quicker (sometimes also quick to overpromise), and generally easier to deal with. What they may lack in experience and sheer market presence, is often compensated by better customer support, flexibility and, of course, friendlier pricing.
Apart from all that, it is certainly true that all providers in one jurisdiction sell totally the same product. If not considering purely cosmetic variations between two standard packages of documents of, say, a Belize International Business Company, there is no other difference, legal or otherwise - regardless whether the package has been provided by a startup Registered Agent or a half-a-century old law firm. From this perspective, it would seem likable just to look for the lowest possible price. Largely true - but with a word of caution. Same as in all markets, there will always be an undercutter, desperate for a quick boost. Sometimes, it just does not work out. When rock-bottom fees prove unable to support decent record-keeping and database facilities, sufficient internal security and confidentiality controls and reliable staff competence, dealing with an offshore provider may turn into a nightmare - certainly not worth the initial saving of a few hundred dollars.
As so often, the best bet is somewhere in the middle, in between the rip-off for the "brand name" and the bargain basement of price wars. In any established offshore financial centre there will be a fair number of reliable and experienced Registered Agents, who take their work seriously and professionally. At Fidelity Corporate Services Ltd, we would like to think of ourselves as belonging to exactly this group.
The universal providers also sell offshore companies. The difference is that here, like in a supermarket, the client is offered a broad variety of products and jurisdictions, plus some advice and guidance on the top. Unlike the specialized providers, the "supermarkets" are often physically located in the big commercial centres of the world, like London, Hong Kong or New York. Thus, quite often, they do not register the companies by themselves - they simply outsource the job to a, You guessed it, specialized Registered Agent. Most of the universal offshore service providers are essentially middlemen between the actual client and the Registered Agent who will actually be registering and maintaining the clients´ offshore company.
Speaking of the middlemen, there are some really big ones. Think of a 40-jurisdiction offshore supermarket with outlets in all major cities of the world, full page advertisements in leading business magazines, TV ads, posh Main Street offices, complex websites, glossy brochures, lots of staff, lots of fuss ... lots of overhead. Without doubt, it`s the customer who pays for it. But price is only part of the story. Big, multi-level systems tend to be slow, bureaucratic and nonflexible. They don´t do anything by themselves, they outsource. You wait. The arguably good aspect of the big superstores is just that - they will be able to sell You just about anything, with just about any combination of extras and additional services. But don`t expect them to really go the lengths of actually thinking and choosing the right jurisdiction and configuration for you - at the end, it`s just a "supermarket", where You take Your pickings and proceed to checkout. The truth is, in this area, the best research is the one you have done yourself. Big brands don`t help you out here.
Some of the big, multinational offshore services firms do in fact have some of their offices located in the actual offshore jurisdictions, licensed as Registered Agents. In this case, clients can be reasonably assured that the speed of registration and competence of the service will be adequate (the price might still be not). Some of the universal providers, especially the heavily internet-oriented ones, outsource all of their orders to third-party Agents. In this case, there is nothing precluding you from finding the source provider. If a straightforward offshore arrangement is what you are after, then it has good sense to talk to people who will actually go to the Registry and file the paperwork for you. Even more importantly, they will also be the ones who will maintain it for you, hopefully for years thereafter, without the delays and outlays associated with layers of middlemen.
There is, in fact, one particular type of intermediary who may be quite useful to You. It`s Your legal advisor and/or Your accountant. Protected by client-attorney privilege, a lawyer can also be Your "offshore service providers" - with the assumed benefit of a competent knowledge in the legal and fiscal circumstances of Your business and Your assets. When going offshore, it is very advisable to take competent legal advice from a specialist, who is located in the country where You live or do business. Just as well, many of such advisors would be in position to outsource the required offshore services from a particular tax haven jurisdiction. However, without doubt, an offshore company purchased this way may cost You very dearly, on top of the legal fees. But that`s just the way world works..
So, if You are in the market for an offshore company, how to abstract a good offshore service provider from a bad one?
If all you have about their business is a pompous website with an anonymous "contact us" form and no hint of the real location of the Registered Agent, stay alert! Any reputable offshore incorporations provider should at least have a street address and a landline telephone. If there is none, especially after you ask - at best it`s an irrelevant internet-business wannabe and at worst it`s a scam. Confidentiality is not really an issue here - who hides from his prospective client?
So, internet age or not, a good offshore service provider must have a proper business office, which can be visited in person if required - OK, this may involve several thousands of miles of air travel, but You knew that... Any decent offshore agent must be available to call on office telephone at general business hours in the particular country.
If your prospective offshore service provider can not evidently identify his legal status and the geographical location, walk away.
You have heard this before: if the deal looks too good to be true, it probably IS! Watch out for sites promising anonymous accounts, offshore companies for $100 and all the wonders of the world. Again, at best it`s incompetence or irresponsible marketing, at worst it`s a scam. The experience shows that the best offshore service providers are actually very down to earth, they know their limits, they rarely overpromise. What´s even more important, they should be absolutely competent about the product and service they sell. They should be able to give a full explanation of all fees and charges involved, what happens when and why. Competence is the key word in this business.
A bona-fide offshore service provider will be for all intents and purposes a domestic company in the particular offshore jurisdiction, with its registration number, local address, director, manager and all the other accessories of any regular business. Unlike the internet-based middlemen, a real Registered Agent based in an offshore jurisdiction will hold a financial services license. For example, to provide offshore incorporation services in the Belize, the Registered Agent must hold either a Company Management or a General Trust license issued by the Belize International Financial Services Commission. In order to obtain such license, the Registered Agent must satisfy an impressive list of requirements. The owners, directors and all of the top management of the firm are screened and approved by the Financial Services regulator, same as the company`s internal control and due diligence systems. The licensed provider must also have a large amount of paid-up capital and a professional indemnity insurance. It is a paradox of the 21st century, but even a small offshore formations provider in a tiny tax haven jurisdiction is subject to more stringent official supervision that a huge consulting firm located in, say New York or London. Which one to choose - we leave it to You.
Let us help you find the right answer!
If You think there is another important theme we should write about, please let us know! Here at Fidelity we quite believe that an informed client is the best of them all…