Offshore operations refer to operations in countries other than the place of incorporation. The so-called offshore company makes a general reference to companies which are incorporated in offshore jurisdictions in accordance with offshore company regulations, and which are only engaged in business outside the place of incorporation. Strictly speaking, “offshore company” is not an accurate legal term. An offshore company makes a general reference to a limited liability company or a company limited by shares established in offshore jurisdictions. As a form of commercial organization, offshore companiesare not limited to companies (whether limited companies, unlimited companies, holding companies, exempted companies, international business companies, joint-stock companies, public companies, etc.) but also include trust funds and partnerships.
Offshore companies are known by many evocative names, such as the “beautiful turning point” for getting listed via a roundabout route, the “soft treasure” of venture capital, the eclectic “land of change”, and the “fengshuiwonderland” of legal tax saving.These names tell us that offshore companies have all kinds of amazing charms, which is why they have become a focus for global investors.
When we talk about offshore companies, offshore jurisdictionsarealways an inevitable starting point. Since the middle and late 20th century, to encourage global trading and investment, some countries or regions set up special economic zones with particularly relaxed policies, where foreign individuals or legal persons were allowed to set up companies and operate in areas outside their territories. Therefore, such regions were also called offshore jurisdictions or offshore judicial districts. An offshore company refers to a limited liability company or a company limited by shares incorporated by non-local investors in offshore jurisdictions. Generally speaking, “offshore” implies that the investor incorporates a company in one place without appearing in person there, and conducts businesses all over the world outside of where the company is registered. Such regions are generally called offshore jurisdictions by international investors. The companies established by international investors in such regions are offshore companies.
Of course, for those who wish to establish a companyoverseas for investment in international trade or to manage their personal assets, choosing a jurisdiction for offshore incorporation requires several aspects of consideration – not only reasonable tax savings, international trade, intellectual property protection, capital operations, inheritance arrangements and overseas listings, but also in terms ofthe company’s high-level decision-making, legal areas, banking, and commercial affairs. Therefore, incorporating an offshore companyrequires comprehensive planning.
No matter whether an offshore company is established to make investments or for other purposes, when choosing the offshore company’s place of registration, the foremost element to be considered is the political and economic stability in the offshore jurisdiction. This is the first condition to be considered for minimizing registered offshore companies’risk. General speaking, the politics and economic situation are quite stable in offshore jurisdictions, because they are all prosperous and affluent island states. Secondly, we need to measure the soundness and development of professional institutions because all offshore companies require legal and accounting services. Therefore, such jurisdictions are required to provide law firms and accounting firms in accordance with international standards. Last but not least, local banking services have to be investigated. Most foreign companies can deal with banks all over the world, but many people choose to open accounts in the company’s place of registration. Therefore, a jurisdiction requires not only comprehensive banking services, but also accessibility to international banking facilities.
Besides this, an offshore jurisdiction needs a well-developed legal system and national legislation as well as modern transport and communication facilities. At present, many countries and regions have developed laws on offshore companies, which impose lower capital requirements and fewer obligations for legal registration and filing, andeither don’t require auditing of accounting records or offer the freedom to determine auditing requirements on accounting records. These regions permit the holding of directors’ meetings or shareholders’ meetings anywhere in the world to guarantee the confidentiality and full privacy of corporate business activities, and grant the issuance of bearer shares. Only through modern, flexible and well-developed legislation can different transaction and traderequirements be satisfied. These are required not only to protect enterprises, but also to enable enterprises to enjoy the preferential policies in offshore jurisdictions.
Registered offshore companies basically have three major characteristics, namely a high degree of confidentiality, less tax burden and no foreign exchange controls. Each offshore jurisdiction has its own advantages, but it is still necessary to choose an offshore jurisdiction that matchesthe company’s development goals.
Today, the world's best-known offshore jurisdictions include: Hong Kong, BVI, the Cayman Islands, Seychelles, the Marshall Islands, Singapore, and Bermuda. In the face of so many choices of offshore jurisdiction, choosing one that fits your own needs is key. The following examples show how an offshore company should choose its place of registration.
Finally, companies that want to build international brands may choose larger countries like Britain, the US, France, Germany and Italy, the best places for anyone considering conducting transactions and operating enterprises. Due to the well-developed legal systems plus a sound economic and banking system, these countries are the first choice for investors who want to develop their business, build an international brand, and expand their market.
In addition, there are some common classifications in offshore jurisdictions, such as those directly exempt from taxes, those exempt from taxes based on bilateral tax treaties, and those offering free concessions.
Directtax exemption refers to the fact that some countries (regions) generally don’t sign double taxation agreements with any third country (region),thereby directly exempting all taxes, such as personal and corporate income taxes, capital gains tax, inheritance tax and property gift tax. Such jurisdictions include BVI, the Cayman Islands and the Seychelles Islands.
To exempt taxes based on bilateral tax treaties means that some countries (regions) have signed treaties on the avoidance of double taxation with many third countries and regions, so when parent companies incorporated in such jurisdictions invest in countries subject to such treaties, the capital gains tax can be tax-free or low-tax. The Seychelles Islands is such a jurisdiction.
To offer free concessions means that some countries (regions) don’t exempt income taxes or other taxes, but they might exempt taxes based on bilateral tax treaties, feature very free financial policies and preferential tax rates, and allow residents to be engaged in financial services. Such jurisdictions include Hong Kong, Britain, and Delaware US.
Categories of offshore jurisdictions are always intertwined within the dynamics of the global financial environment, so before choosing an offshore jurisdiction, sufficient preparations should be made, or professionals should be consulted in order to maximize the benefits.
