Do you want to set up offshore company for your business? Before that, you must understand what an offshore company is and the advantages and disadvantages to incorporate the same. An offshore company is one that is set up in a jurisdiction other than the home country of its owners. In this article, we highlight the benefits and drawbacks of setting up an offshore company.
What are the benefits of setting up an offshore company:
- Privacy and Security:
Setting up an offshore company would imply that the businesses receive additional privacy and security, owing to the strict government policies of the jurisdiction of your choosing. This will subsequently lead to a greater level of confidentiality and asset protection provided to businesses.
In several jurisdictions, businesses are not required to disclose the personal information of the business’s shareholders, directors, and unique beneficial owners. This protects the identities of the business’s stakeholders.
Moreover, in some jurisdictions, the investments made by the business and the asset of the business is not disclosed to any external parties or the public, thus securing the business even further.
Besides the above, setting up businesses in different jurisdictions allows for a diversification of risk which will lead to a decrease in the vulnerability of the business.
- Tax benefits and incentives:
The governing bodies of different jurisdictions have different policies set in place. This leads to different corporate tax rates levied on businesses. Furthermore, the government provides various tax incentives and exemptions to attract foreign direct investment. Setting up an offshore business in a suitable jurisdiction can allow for businesses to take advantage of the low tax regime followed by the government. The optimization of the tax burden that businesses must pay will allow them to grow and scale further.
Besides, if the government of your chosen jurisdiction has formed tax treaties with that of other countries, businesses might be safe from being subjected to double taxation.
- Stable political and economic environment:
If there were high levels of instability in the political and economic environment of your home country, it would be beneficial for your business to shift offshore to a more stable environment. This is because, in an unstable environment, there would be a reduction in investments made by individuals and businesses and would
By shifting your business to a more stable environment your business would suffer from a lower risk as opposed to that in the home country.
- Compliance requirements:
Businesses need to meet certain compliance requirements prior to and after the incorporation of the business which differs from country to country. In certain jurisdictions, businesses need to meet fewer requirements in terms of the number of directors and shareholders, the nationality requirement, the need for local offices, and more.
Moreover, businesses may face fewer accounting and tax filing obligations which makes it more convenient for the businesses to operate in the chosen jurisdiction.
- Infrastructure and labour force:
In certain jurisdictions, the government invests high amounts of funds in the development of infrastructure. This is done to attract foreign investment to the region. Thus, businesses set up in those jurisdictions will be able to take advantage of the well-developed infrastructure available.
Besides this, the labour force available in some jurisdictions may be inexpensive and vast in number. Businesses can also take advantage of the inexpensive labour available in the country, thus, reducing the overhead costs.
- Banking facilities available:
It is imperative that you also check the banking facilities available in the country of your choice. This is because you will require an offshore bank for your offshore business. Selecting a bank that is relatively inexpensive and easy to open is a factor that you must consider.
Besides this, you must also note the services that the bank provides for your business including internet banking, currency exchange services, multi-currency facilities, the opportunity to invest in international markets, and more. These services allow offshore businesses to not only conveniently conduct their business but also reduce any risk of currency fluctuation and investing in one portfolio.
What are the drawbacks of setting up an offshore company:
- Expensive incorporation process:
The cost of setting up your business offshore depends on the choice of your jurisdictions. The government of each country decides on the incorporation and legal fees that must be paid during the business registration process.
Moreover, some countries may require businesses to have a minimum paid-up share capital amount required during the incorporation process. This leads to a higher amount of money required by businesses to address these costs.
Therefore, it is imperative for you to understand the costs of each of the jurisdictions and decide on a suitable one for your business. For example: it is costlier to set up your business in the Cayman Islands than it is in Hong Kong or Singapore.
- Difficult to choose a suitable jurisdiction:
Deciding on a jurisdiction that will be suitable for your offshore business is difficult and requires a lot of research. You have to consider multiple factors when deciding on a jurisdiction for your business including location, business-friendly government policies, political and economic environment of the country, costs, banking facilities, infrastructures and labour force available, and more.
Moreover, you will need to compare different jurisdictions to decide on a suitable one for your business. Therefore, deciding on a suitable jurisdiction will be a time-consuming process.
- Negative perception:
Businesses set up in certain jurisdictions such as traditional tax havens including the Cayman Islands, British Virgin Islands, and more are subjected to negative perception. This may be disadvantageous for the business’s reputation as the public may believe the business is attempting to do so to evade tax even if that reasoning is invalid and not true.
- Proving ownership:
Since businesses are provided with high levels of privacy that do not require them to disclose the personal information of the various stakeholders of the business, it may be difficult to prove the ownership of the offshore business. This is because there will not be a publicly maintained record proving the same.