Maximise Tax Benefits From Offshore Companies

Creating a Company

Modern day companies have many different components that must all be operating well and working together if the company is going to succeed and be profitable for any length of time. This idea extends from the core aspects of the business such as manufacturing and sales, to the less tangible elements like human resources.

Whilst this fact may seem very evident in large, well-known businesses with many employees, departments and office buildings, it is also true of lesser companies that are still in their infancy. To draw an analogy with house building, setting the foundations is the most crucial stage of the building process since everything else depends on them being laid correctly.

Setting your business off on the right foot is extremely important, and is particularly crucial during times of economic instability. By establishing your company in an intelligent and forward thinking manner you will be able to enjoy the rewards long into the future.

Why get help creating a company?

As previously mentioned, the creation of your business is a very important process and should not be taken lightly. It can also be a complex process that can easily go wrong without the correct level of appropriate knowledge and experience. Would you prefer to pay a little extra money today or suffer large financial losses later?

If a complex component on your car were to break, or if a safety critical system such as the boiler in your house were to fail, you would hire an expert to undertake the required work. It makes sense to spend money on your most valuable resources to ensure they operate correctly.

Perhaps the most problematic aspect in setting up a new business is the level of paperwork that is needed in regards to legal issues. Not only do you have to take into account the legal boundaries of the industry you will be working in, but also any specific legal requirements of the geographical area you will be operating in and any specific needs of your employees. It can be a legal minefield, but a specialist will be able to help you navigate through.

It is also becoming more involved and complex to setup an organization. As new markets present themselves, new trade links are forged and new legal clauses are defined you need to keep up-to-date with the relevant requirements.

Using experts that will assist you during offshore company formation boosts the pace, caliber and usefulness of the process.

Company Distinctions

Before you begin to setup your own enterprise you should understand the different types of company that can be established and the key distinctions between them. Whilst almost all businesses operate on the premise of bringing in more money than they expend, the structures that exist underneath the surface are essentially different.

These corporate structures exist to fulfill the broad scope of situations that cover the business arena. Companies vary a great deal, in terms of the number of employees, the industry they work in and also their sales setting, so different business solutions have been created to cater for this broad variety. Different situations require different business strategies, and these in turn require different business structures.

A few corporate structures are outlined below.

Limited Liability Company (LLC)

A Limited Liability Company, abbreviated as LLC, is a form of business where the owners have only limited liability. In very basic terms, anybody who has total or partial ownership of an LLC can only be held financially liable for a predetermined sum which usually reflects the amount they have invested in the business.

A Limited Liability Company shares characteristics with both a partnership and corporation business structure. It provides its owners with limited liability (like a corporation) but allows for pass-through income taxation (like a partnership).
There is also much less paperwork involved in running an LLC than a corporation, where required levels of administration and record keeping are exceptionally high. It is worth noting though that the levels of limited liability protection offered by an LLC do not cover all possible circumstance. In cases where the law has been broken, such as fraudulent business activities, a court retains the right to hold the owners personally liable beyond their liability restriction.

Limited company (Ltd)

A Limited company is similar to an LLC as a business entity, although it is limited to use in certain countries due to the variations in national laws. Limited companies may be created in the United Kingdom, the Republic of Ireland or Australia.

A limited company offers limited liability to its shareholders by making them personally accountable for only the unpaid sum remaining on their own shares if the company were to go bust. This amount relates to what was unpaid on the shares when they were issued rather than any funds exchanged when shares were sold.

In terms of offshore companies it should be clear that Seychelles incorporation pertains to registration of any offshore business in the Seychelles.

International Business Company (IBC)

An International business company, abbreviated as IBC, is a form of offshore company that isn’t allowed to trade inside the country or jurisdiction where it was authorized. The specific rules that control an IBC will depend upon where it was incorporated, although they usually share certain characteristics, such as greater flexibility of operation and laid back trading laws.

Offshore Companies

One idea that you might consider when choosing what type of business you are going to start is choosing to register an offshore company. An offshore company is one that is incorporated in an offshore financial centre, or one that is incorporated in an area where it does not carry out its primary functions.

Benefits of creating an offshore company

Offshore companies are typically used as one element of an overall tax planning plan. Taxation rules vary between the different offshore financial centres out there, although companies will usually pay tax as a fixed annual sum that is insignificant in relation to the levels of taxation applicable in other parts of the world.

These tax savings can be offered by the governments of offshore financial centres since the businesses that benefit from them are not trading within that area. This means there is not the same need for administrative support and commercial infrastructure that would be required by onshore businesses.

There are other advantages to creating an offshore company, such as the levels of privacy that can be enjoyed. Business operations can be carried out under the business name without having to release the names of the key people of the company. Offshore companies are normally not required to submit the levels of paperwork that domestic corporations do, and as such are easier to run. This doesn’t apply to regulated businesses.

Because the regulations for offshore companies are readily accessible, it gives potential new business owners the opportunity to choose which rules they want their business to be governed by. Certain types of business might be better suited to incorporation in a particular area. Owners can also weigh up short term benefits, such as easy incorporation laws, against longer term rewards such as relaxed requirements on record keeping.

Typical Uses

IBC or other offshore companies will be typically used by businesses where tax is a key concern. These may include property companies that are hoping to avoid capital gains tax and inheritance tax, or by investment companies that do not want to pay tax on investment interest earned.

One of the essential procedures in order to register Ltd company involves splitting shares between members with a managing interest.

Possible locations for offshore companies

There are many areas of the world that can be described as an offshore financial centre because of the ambiguous nature of the term. However, there are a particular few that stand out above the others, including Bermuda, The British Virgin Islands, The Cayman Islands, Luxembourg and The Seychelles.

Two of these locations are lightly profiled below:

British Virgin Islands

The British Virgin Islands, also known as just the Virgin Islands or BVI, is a British overseas territory in the Caribbean Sea. They shouldn’t be mistaken with the U.S. Virgin Islands. Although a large portion of residential income is driven by tourism, more than half of the governmental income of the territory is derived from licensing agreements for offshore corporations. It is believed that around 40 percent of the world’s offshore companies were incorporated in the British Virgin Islands.

Seychelles

The Seychelles is a small territory located within the Indian Ocean, off the Eastern shore of mainland Africa and to the North of Madagascar. Seychelles is the richest nation in Africa in terms of GDP and this is principally driven by the record setting offshore sector in this region.

Off-the-shelf companies

Another option to consider when creating your own company is to not create it at all! It is possible to simply buy a new company “off the shelf” and become incorporated incredibly rapidly. You do not get to select the name of your company, but if that is not a critically important aspect then there are great benefits to buying a company in this manner. Due diligence must be performed, and payment must be made, but if that goes smoothly you can be in business immediately.

Creating a company like this can also reduce the difficulties that are sometimes encountered when registering a new company. Using a respected corporate services provider to manage the paperwork required gets around this problem.

Creating a company in the UK

If after reading this article you do not feel that the creation of an off-shore company would be advantageous to you and your business then you can still get assistance registering a company in the United Kingdom. You may not be able to take advantage of the tax gains and anonymity afforded by an offshore company, but you may feel far better having the company registered onshore. As always, every situation is different and will have specific needs.

There are legal procedures that need to be undertaken, and the amount of paperwork required is likely to be a lot higher than registering an equivalent offshore company. The workload alone may be challenging but there are plenty of corporate services companies that are specialists in this field and can be of use. They should be part of your planning when setting up a new business.