Benefits of Incorporation of Offshore Company
In this article, the basic concept being discussed is the incorporation of an overseas or offshore company. By way of incorporating a company offshore, many benefits are being enjoyed by the company in different ways. The jurisdictions where many individuals prefer to incorporate an overseas company are Seychelles Islands, Marshal Islands, and the British Virgin Islands. These places are selected for incorporation due to the reason of the tax friendliness being observed in these regimes.
The reason behind incorporating companies in an overseas jurisdiction is because of the saving of tax. Many different taxes arise on companies like, income taxes, tax on capital gains, etc. by way of incorporating companies in tax heavens like stated in the paragraph above one can enjoy mitigating the tax. Moreover, there are also easy and comfortable reporting requirements in such jurisdictions.
The trend of incorporating companies worldwide has been increasing day by day. By way of achieving global incorporation of companies, the companies can take a lot of advantage from the foreign incorporation policies be it, the reporting requirements or the tax incentives.
However, the benefits to be enjoyed by the company are restricted to some extent. As in, if a company is trading in its country of residence, it is liable to pay the taxes on the profits earned in the home country. Conversely, if a company whose origin is in a tax heaven and is trading with an overseas company the profits earned in another country are not taxable when remitted back to the tax heaven.
A Tax Heaven:
The term tax heaven can be described as the place where the tax can be legally avoided without committing a crime. Generally, the idea of tax avoidance refers to a criminal activity; however, one can legally plan the tax liability in such a way that it may not be liable for any tax payments. Such a tax planning can be enjoyed in the countries which fall under the heading of being a tax heaven.
Legality of Offshore incorporations:
Many companies and individuals get confused with the idea of foreign incorporations, mostly the concern is whether such an arrangement is legitimate or illegal. The incorporation of a company in a foreign country is legal and one can very easily have bank accounts in a foreign country as well.
The reason behind keeping this incorporation legal is to promote international trade and to boost the economy of the countries.
The following are the benefits which a company can enjoy by way of incorporating offshore:
- The major reason for which the companies seek offshore incorporation is the protection of assets. The benefit of protecting the asset can be enjoyed by the offshore company by way of entering into a combination with Trust. In the absence of such an arrangement, the assets of a company will be subject to claims by the creditors and lenders in the event of bankruptcy. Moreover, by way of this arrangement the assets can also be protected, and business secrets may remain confidential from the competitors in order to enjoy the competitive advantage.
- By way of incorporating offshore and providing for the shares of the incorporation to be held by the Trust the company can keep the business information and matters private and confidential. Moreover, the arrangement of holding the shares in the trust one can also take future tax advantages.
- By way of involving in an offshore arrangement, one can also protect the investment income from being subject to tax liability.
- In case if a company wishes to sell its business properties, there may be a lot of complexities required to be faced by the companies when selling business properties in their own countries. However, these complexities may overcome by way of incorporating companies in the offshore countries and transferring the shares of the incorporation rather than the physical properties directly.
- By way of incorporating companies globally, an offshore company can entirely enjoy exemption from tax payments. The tax heavens like the ones named earlier allow the international companies to save tax and also there are fewer regulatory and reporting requirements as compared to other countries.
- By way of collecting the fees charged for the services by the professionals may lead to savings of money if the fee is being collected in a country where the tax payment is low.
- If a company incorporates itself in an offshore country by referring itself as international incorporation, it can enjoy many advantages in the form of savings of the withholding tax, any expenses incurred for the employees who are employed in the overseas countries, etc.
- If a company is trading with the international companies and wishes to save tax on the transactions taking place, it can opt to incorporate in the offshore country. By way of incorporating offshore a company can very easily transfer the profit earned internationally to the tax heaven and save tax on those transactions.
- If an overseas company attempts to go for either franchising or licensing it can enjoy tax saving in the regime where the tax rate is either low or there is a zero tax payment required.
- Many companies set up a funding company in the foreign countries in order to lend money to the other companies. By way of setting up such funding company, one can earn interest on the loan granted to the foreign company and that interest may bring tax savings to the companies.
- Many companies which are in the shipping business to purchase ships or lease ships in order to carry out transportation. The revenue earned by that transportation of goods may lead to tax savings and leaves the incorporation in a better position.