What Is an “Offshore Company”?
An offshore company is not necessarily what you might think it is. It doesn’t have to be an island in the Caribbean or some exotic dodgy locale. Simply put, the term offshore actually refers to any location outside of a person’s home country and is regularly used in the banking and financial industries to define regions where the policies are different from that in one’s home country. That being said, offshore localities are commonly island nations where individuals set up corporations. High net worth individuals and large corporations may move offshore to directly benefit from favorable business conditions, engage in some form of tax avoidance in some cases and in general benefit from a more relaxed regulatory environment. Offshore organizations can and are sometimes used for illicit purposes but the offshore company in and of itself is not illegal.
Quick Notes Regarding Offshore Companies
“Offshore” by its base definition refers to any business or business activity that transpires outside of an individual or company’s primary base country of operations/existence. Offshore is often used in describing individuals, corporations, investments and banking institutions doing business outside of their country of origin. As stated before, companies and individuals all the time take advantage of lax regulations and tax structures and this is completely legal and, in many cases, advantageous. Although nefarious reasons sometimes lead entities to more offshore, the majorities are simply taking advantage of favorable environments in which to conduct their business. There has been an increase in recent years for more reporting on who is doing what and where offshore so that is important to take into account when considering the move. Moreover, offshore can refer to several types of foreign-based entities and financial services. Plainly, offshore services are those that are offered to non-residents of the country wherein the activities are taking place. “Offshore” activities have become globally linked to specific countries that such as the Cayman Islands, the Bahamas, Bermuda, and the Channel Islands. Switzerland is also well known as an “offshore” locale with respect to the activities and financial services offered there.
Why Go Offshore?
There are many reasons individuals and corporations make the move offshore. Reducing their risk in business/portfolios, favorable tax laws and cost savings are a few reasons folks make the move. Asset protection, less regulation and confidentiality are also attractive reasons to consider re-basing one’s business offshore. High net worth individuals have been capitalizing on these things for years. Fraud and tax evasion are still taking place utilizing offshore moves but there has been increased scrutiny over the years as banks and investment firms try to insulate themselves from that illicit element. Heightened due diligence practices have been implemented across industries offshore to identify and negate the illegal impacts. Relocating offshore is completely legal even though there are increased pressures coming from nations that are seeing significant capital flight.
Who’s Going Offshore?
There are lots of different types of folks going offshore for a variety of different reasons. To summarize though, they typically fall into three categories: businesses, investment vehicles/firms and folks engaged in banking. Businesses go offshore to take advantages of the country offshore versus where they have traditionally been domiciled. These could be tech manufacturers relocating to Asia to take advantage of cheaper labor or an investment firm not wanting to wade through the stricter regulation in the United States. They could also be something as simple as real estate investors not wanting to pay property taxes on their investment properties. With respect to investors, these are usually wealthy people and traders that are looking for lax regulations, a more warm reception from government and regulatory bodies and people who are concerned about asset protection, increased privacy and less taxation on their profits/investments. Those engaging in offshore investing are typically doing so under the umbrella of an LLC or a company rather than in his or her own name. Simply put, an offshore company helps one take advantage of deregulation and avoid higher taxes that may be present in their home country. The third group, those involved in offshore banking, are doing so because the banking laws in their homeland are too restrictive and are cutting into their bottom line. The limitations in their home nations have caused them to look offshore to increase profits and protect assets. Additionally, having assets offshore makes it much more difficult for their native governments to come after or possibly seize their assets. Also, for people who work globally, they are able to benefit directly from currency exchanges and easier access to their assets/funds.
Offshore companies provide many different advantages and benefits to those who form them. Whether you’re setting up an LLC to put your real estate investments in or taking a multi-national corporation offshore, you’re doing it to directly and financially benefit from the offshore nation’s regulatory environment, favorable tax environment and to get the increased protections of more privacy and greater ability to access and use your capital. An offshore company can appeal to a variety of people and it’s worth exploring how going offshore can benefit you or your business.