Why go offshore?
A wide range of clients use Offshore Companies, from large international corporations to small business groups (family businesses and private companies). Clients are engaged in wide range of business activity, from Arts to Engineering, from Banking to Trading.
Some examples of Offshore Companies working with clients are listed below. You will also find comments on these.
Investment Portfolios
Both large companies and individuals regularly use offshore companies as mediators to hold investment portfolios, which may consist of stock, bonds, cash and a broad range of other investment products. Cash assets held by offshore companies earn deposit interest gross or can be placed in collective cash funds.
Many clients prefer life insurance and pension contracts to be arranged by their offshore companies. Individuals often use offshore companies as personal holding companies. Offshore companies are regularly used for inheritance purposes and to reduce probate expenses. Such companies can provide privacy and may save clients professional and other fees. To reduce risks to both corporations and individuals, it is very important to select a politically and economically stable corporate domicile.
Trading and Purchasing
International trading and purchasing companies often involve offshore companies in their trading transactions, because profits arising out of transactions involving purchasing goods in one country and selling them in another accumulate in the offshore company free from taxation.
For European Union transactions, for example, the Isle of Man, Madeira, Cyprus etc. have become very popular locations for low tax trading activities. VAT registration is compulsory within the EU. In this connection the question of minimization of this tax arises. The use of Caribbean companies does not grant this opportunity. That is why the most popular jurisdictions for this purpose are the Isle of Man, Madeira and Cyprus.
Transferring funds to a low tax jurisdiction may enable a company resident in a high tax jurisdiction to compensate for trading losses through a company incorporated in a low tax jurisdiction.
Offshore structures may be very useful in the case of bulk purchasing: a group of associated companies can benefit from reduced administrative costs, and an offshore structure is more tax efficient than an onshore entity.
Personal Companies
Many individuals engaged in providing services in construction, engineering, aviation, computer, finance, film and entertainment can achieve considerable tax savings via an offshore-based private company. The offshore company can contract with an individual to provide him/her with services outside his/her normal country of residence, and personal income can be accumulated free from taxation in the offshore centre. It is possible to minimise income tax through proper representation of personal income structure.
Holding Companies
Offshore corporations often hold investments in subsidiaries and/or associated companies, publicly quoted and private companies, as well as joint venture projects. Capital gains arising from the disposal of particular investments can be made without taxation. In the case of dividend payments, reduced levels of tax on income can be achieved by utilising a company incorporated in a zero or low tax jurisdiction that has double tax agreements with the contracting state.
Many large corporations are interested in investing in countries where no double tax agreement exists between the country of the investor and the country in which they are investing. In this case, an intermediary company is established in a jurisdiction with a suitable treaty. For example, the Madeira SGPS Company has been used for investments in the European Union, since corporate entities registered there can avail themselves of the EU Parent/Subsidiary Directive. Cyprus has an extensive double tax treaty network with many Eastern European countries and countries of the former Soviet Union, and the use of Cypriot companies for inward investment into these countries provides a tax efficient conduit.
Intellectual Property
Intellectual property, including patents, certificates for computer software, trademarks and copyrights can be owned by or assigned to an offshore company. Upon acquisition of the rights, the offshore company can enter into license or franchise agreements with companies interested in using those rights. The income can be accumulated offshore (on careful selection of an appropriate jurisdiction), and taxation on royalties can be reduced by the commercial application of double tax treaties. Countries such as the Netherlands, the UK, Madeira, Cyprus and Mauritius are good examples of jurisdictions used for holding intellectual property.
Real Estate and Land Ownership
The ownership of real estate and land by an offshore company can often create tax advantages, including the legal avoidance of capital gains, inheritance and property transfer taxes.
For example, if an offshore company owned by a non-resident of the UK purchases realty in the UK for investment purposes and this realty is later sold on to a third party, the capital gain arising from the transaction is not subject to UK capital gains tax. By structuring the financing correctly, the offshore company can reduce the effective level of withholding tax on rental income.
Finance
Offshore finance companies are set up for the purpose of inter-group treasury management. Interest payments from group companies may be subject to withholding tax, but these taxes differ from the usual corporation taxes. The interest paid can be a deductible charge for taxation purposes, thus consolidating interest payments in an offshore finance company provides a tax saving. Many large companies establish their own offshore companies for the purpose of mixing dividends of subsidiaries and deriving maximum advantage from tax credits.
In certain countries, foreign exchange losses are not deductible for tax purposes. For example, if an offshore finance subsidiary that has been set up suffers a foreign exchange loss and that subsidiary company is then liquidated, the investment should be a tax-deductible item for the parent company.
Another area where offshore finance companies are used is leasing, particularly where an offshore structure is rich in funds which, if they are not invested, may be repatriated or subject to high levels of corporate taxation.
Offshore companies are often utilised for the purpose of acquiring foreign entities, international restructuring of corporations, real estate and other investments, and other corporate finance-related projects.
Since some countries suffer from political and economic uncertainty, many large corporations reduce the risk by moving their base of operations and ownership of assets offshore. For example, Luxembourg and Bermuda are host to many companies that have re-domiciled their operations.
Offshore companies are regularly employed to raise money through loan or bond issues. Such an arrangement may serve to reduce withholding tax on interest payments. For example, countries such as the UK levy a withholding tax on interest paid to non-residents on non-quoted bonds, thus it is vital to avoid double taxation in such cases.
Transport Companies
Many important offshore jurisdictions (Panama, Liberia, the Isle of Man, Madeira, Jersey, Gibraltar, Cyprus, the Bahamas, Belize and Mauritius) have modern ship and pleasure craft registration facilities for the purpose of providing low cost registration fees and exemption from tax on income derived from shipping and chartering activities. The owners of pleasure craft operating within EU waters for extended periods require specialist advice with regard to VAT.
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