Is it legal to use an offshore company?

Yes. Certainly, it should be used with care and some good advice. Many high-tax countries have introduced some countermeasures in their tax regulations against known offshore finance centres. In particular, some high-tax governments have introduced a sort of discriminating withholding tax on direct payments from domestic businesses out to foreign companies, which are situated in certain listed offshore jurisdictions. Therefore, it is a good idea to check if Your country has such a "blacklist" or any discriminating regulations targeting transactions with offshore corporations. Your domestic tax lawyer or accountant should be able to clarify this question. All-in-all, offshore company is just the same as Your domestic business entity, only the offshore corporation is not burdened by excessive tax, is faster to incorporate and easier to manage. In itself, it's completely legal to have and use.

Issues Over OffShore Companies

After the litigation over the 'Panama Papers', the word offshore has been highly recognized as illegal and corrupt. The media all over the world are looking out for matters to add to their headlines on this corruption news which has included names of politicians other top celebrities. All the politicians with offshore companies are being targeted, and it's a common concern that the other foreign entities will also be pulled into this.

One has to understand that an offshore company is completely legal when it complies with all rules and regulations of both the countries. It is not the enterprise or setting up of the offshore company that is illegal, but it is the activities of the members of the entity that breaks the law. The tax reduction and asset protection gained through offshore companies are legalized by the rules governing them. Major players like Google and Apple have saved billions of dollars with offshore arrangements.

Saving Tax with Offshore Company

People usually try to cut down on the taxes by moving out of their country. Every nation has different tax rules for expatriates. For example in the US, the emigrants are exempted from paying tax for the amount of  $100,000. The tax filing will have to be done, but the tax cuttings can be saved directly. But with offshore enterprises, it does not work the same way through direct tax savings.

Overseas companies have enormous tax benefits can they can easily postpone their tax bills. With a foreign company, the tax documents will have to be filed, but the tax payment can be exempted if the profits are invested back into the business. It can go on as long as one wishes and only when the company is selling off, will the person have to pay the tax at that time. This is known as tax deferment rather than tax savings.

Scope for Offshore Internet Company

Offshore companies are popular recently due to the tax reduction and reduced liability. People move on to set up foreign internet companies to save from the age-old rules governing the country. If your country is stuck with the old rules, you can easy move it to an offshore enterprise. Being an online entity, you can operate from any location, so there is no constraint that you have to stay in your home country. People consider gaining an income source from another country with a stronger currency especially in the current scenario of recession.

Offshore Entity to hold Property Abroad

There might arise several reasons why you would want to own property in another country. Situations may arise that you have to take up a property, or you have some vested interest in buying the property in that country. But most countries does not allow a person who is not a citizen of that country to own property. In such a situation, he can use a trust or an offshore entity to fulfill his requirement.

Passing Property Will  in Another Country

Some countries allow foreigners to own property, but the problem arises when the individual dies and the probate laws of that country will have to be followed. This might bring about situations where the laws of the state will require the property to be distributed against the will of the person who owned it. With an offshore element to take care of the property, probate issues can be avoided wisely. The inheritance rights rightly come over to the entity, and there will be no issues later. We might have seen people having offshore entities in several countries, and the sole purpose might be to manage the several properties in these countries.

Preplanning for Offshore Establishment

There are many countries which have welcoming legal clauses governing offshore enterprises and have attractive tax benefits for such companies. Before venturing into it, even the most minute details have to be accessed and studied to prevent any issues in future. An attorney with experience in international law and taxation can help in evaluating the various aspects of offshore establishments in the most favorable countries.

Once you have done your part of research and the decision is made, the next step is to get established. Most companies allow offshore enterprises to carry on most of the documentation and registrations online. And the whole setup process would take less than a month. The first step is to register the offshore business with the proper company name, and the required documents should be sent to the registration department of the country where you plan to set up the entity. To incorporate the establishment into the jurisdiction, it will be required to open a bank account in the name of the business.

What is the difference between a registered shareholder and a nominee shareholder?

A registered shareholder is when the beneficial (real) owner records his/her name on the share certificate and in the Register of Shares as the owner of the allotted shares.

A nominee shareholder is when the beneficial owner chooses not to have his/her name on the share certificate or in the share register; we supply a third party to be the nominee for the real owner. The nominee appears on the certificate and in the register, in return the nominee signs a Declaration of Trust to the beneficial owner giving up any right to exercise any powers over the shares including voting rights or the right to sell or transfer these shares.

The nominee shareholder is used where the Companies Registry may be open to public scrutiny or if the owner requires a deeper sense of privacy. Our company offers this service free of charge.

Formation of Nominee Shareholder

As the name implies, nominees are simply some person put there for no particular use, and they have no role to play in the company business. But because they are named in the business enterprise, it is required to pay them the monthly salary amount as fixed by the agreement.

While forming an offshore company, there is usually more than one person involved and take up the posts of directors, shareholders, and partners. The number of people involved will vary depending on the size and type of business. For limited liability companies, shareholders would be replaced with partners and in such a situation, nominee partners are inducted into the system.

Nomination of a Nominee

A person is randomly selected based on mostly trust reasons to play the role of the nominee shareholder, director or member in the business. There are several agreements maintained with the nominee, and one of the most prominent clauses is that the owner of the company holds the supreme power to release the candidate from his position at any time when it may be required. This owner is the ultimate beneficial owner and is the original owner of the business. Problems arise in legal documentations and implications when this nominee holds true partnership, shares or membership of the company. But as per legal rules, the nominee will not have any powers and has no right to implement any actions without the instruction of the owner.

Things to Know Before Opting a Nominee Shareholder

Several misconceptions are circulating about nominee shareholders and offshore companies as a whole.

Nominees are not resident managers: Some establishments make the mistake of appointing citizens as candidates so that they can serve as resident directors. By selecting a resident of that state where the offshore entity is incorporated, towards the post of the nominee, it is not possible to gain the benefits of being a resident company. It becomes necessary to obtain the accession as a resident business so as to avail double taxation agreements and other benefits legally made available to the resident companies.

For resident benefits its required to hire resident managers from the local areas and they are more expensive than the nominees. Offshore enterprises established in Cyprus, Maldives, and Malaysia, are the ones who pay vast sums to such resident managers to avail the greater benefits of tax and legal issues

In most cases, when the nominee shareholder is entrusted with the job of being the bank account signatory, it will be required to pay extra charges for the same. Nominee shareholders are usually not included in the bank account signatory list due to these charges and mostly the risks associated.

Placing Nominees as Bank Account Signatories

On opening an offshore company, the primary step before beginning operations is to initiate an account in the name of the company in the resident state. The bank will then require having one or more people as signatories to the bank account who will have complete control of the banking details. All transactions with the bank from the company will require being signed by these signatories.

In the majority of the offshore businesses, the owner of the enterprise will be the sole signatory of the bank account. This gives the owner or owners the complete control over the funds in the bank account of the enterprise. When a nominee is placed as the bank account signatory, the bank will not know about the real business owner. Bank mostly require transparency and would not tolerate that they are not knowledgeable about the original business owner and accept the nominee as the signatory. There are international standards of compliance to be followed by the companies when it comes to banking interactions. It will require disclosing the original owner to the bank.

Problems of using the Nominee as a Bank Account Signatory

The bank account of the enterprise is the medium through which all monetary transactions take place. Without the owner's name as the signatory, the nominee will have full-fledged powers over the bank accounts. Mostly nominee shareholders who double up as bank account signatories become essential elements of the business, and their signature is required for every other fund transaction. They usually charge extra for signing on banking files and operations. This means, for every transaction, the business will have to bear the bank transfer fees and also the amount of the nominee.

One of the major issues with placing the candidate as the signatory lies in the risks of handling the funds. The nominee being from the resident country, it would be near to impossible t0 try to sue them in this regard as they have the sole rights to the funds as per the bank documentations which place him as the owner of the business. The maximum proceeding that can be done is filing a civil case.

Need for a nominee

A candidate cannot be used by the owners to remain undercover from the government. They can provide as a safety measure to stay away from the limelight of the business. Nominee shareholders are chosen by people who do not want to reveal their assets to the public.

What are the advantages of using an offshore company?

The main advantages are:

• total absence or minimum levels of taxation;
• confidentiality, due to no sensitive personal information available on public file;
• protection, due to secrecy provisions enshrined in law and absence of international information-sharing agreements;
• corporate flexibility: no paid-up capital requirements, no requirement to state operational objects, minimum conditions on directors and shareholders, fast incorporation, etc;
• ease of management – shareholders' meetings can be held anywhere, including by electronic means, flexible decision making process;
• minimum reporting – no audits, no tax reports, no financial information for public file. All in all – a lean, mean international business machine.

Tax Reduction

You might have often come across the word tax haven when you read about foreign enterprises. The countries which welcome foreign investors with tax incentives are widely known as tax havens. States undertake such moves to rake in more investors to bring in foreign wealth. The benefit that it has for the country is mainly economic growth, and usually, small countries with very less population and industries are the ones that are tax havens. Investors set up their corporations in these foreign countries and these work like a shield protecting the assets and profits of the investor from the high tax rates in the domicile country.  Most offshore jurisdictions prevent them from running local business activities and therefore they are not liable to pay local taxes.

Asset Protection

The asset protection provided by an offshore entity can be both real estate or even intellectual property. The structure of property ownership can be distributed with such a move. An individual can transfer his property to an offshore trust, foundation or corporation. Such a restructuring is usually done by people who face lawsuits or have problems from lenders. Total assets or even parts of it are moved across to an external agency across the border. By doing so, any seizure can be tactically avoided. With an offshore trust created to handle the assets, the individual can also gain tax benefits on payments due to the trust.

Confidentiality

Top celebrities and individuals with high net worth need some confidentiality of their assets and incomes. Many countries that promote offshore enterprises have clean jurisdictions that allow the privacy of the people involved. The rules are structured to meet the requirement of high-profile investors who require privacy for corporate and banking sections. Some states even have strict rules to prevent the disclosure of shareholders. It is because of this confidentiality factor that some people have misunderstood the goals of offshore companies. Such laws are not made to safeguard criminals, and the jurisdiction holds the right to disclose all details in case of alleged drug trafficking or other illegal activities by the offshore companies. Usually, investors who make large share purchases do not want the public and media knowing about their investments and also want to prevent any small shareholders in their vested interests.

International Investment

Some countries prevent its citizens from investing in foreign countries and thus puts a block on the development of the business and the opportunity to reap benefits internationally. Investors look forward to an international portfolio of investments, and offshore entity provides the platform for the same. With a single offshore establishment, the investor can gain access to move into any country with investment offers and even provides entry into the major exchanges. It is mostly the developing countries that are targeted for investments where the government sectors have been opened up for private establishments. The recent advancement of China's opening up of government sectors to the private agencies has pulled in several foreign investments.

Lower Administration Arrangements

For an offshore company, the legal responsibilities of the owner and the administration team is very less compared to one set up in the home country. The administration effort can be reduced by cutting down the staff and resorting to a virtual office which can save time and money at the same time. Company administrator services are available which will handle all the sections, and they have reasonable prices too as they make use of automated systems. The individual can work on the profit generation, and an external agent will do the rest of the administrative work like accounting, secretary, finding directors and setting up of the virtual office, etc.

Holding Intellectual Property

Any patents over science and technology can be assigned to an offshore entity. This foreign entity will have the rights to distribute the license to interested people and companies The royalties that come in is entirely exempted or reduced considerably from tax payments according to the double tax treaties. Not all jurisdictions allow offshore intellectual property management and therefore the proper selection of the right administration is inevitable.

Reduced Capital Requirement

The process of registration is rather complicated in the home country, and countries have eased out their registration policies for offshore enterprises to attract more foreign investors. Some legislatures do not even require any capital release during registration.

People who have realized the potential of offshore businesses try to understand the rules and jurisdiction governing the registration and setup operations in the place of interest. It is the ease of creation and the multitude of benefits that have attracted many individuals to move on with foreign investments through offshore entities.