Offshoring a Company - Explained
What is an Offshore Company?
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Table of ContentsCreating an Offshore Company?What are the Reasons for Offshoring a Company?Academic Research
Creating an Offshore Company?
Forming a company outside of the borders of the United States that does business solely or primarily within the United States is a common practice. This practice is known as “offshoring” or forming a company “offshore”. This begs the questions: What are the reasons or advantages for doing so? How do you do it? And what does it cost?
In this article, we address those various questions.
What are the Reasons for Offshoring a Company?
The process for offshoring a company is fairly simple. Most foreign jurisdictions where offshoring is popular have very relaxed business regulations. The primary considerations when offshoring are:
Which foreign country provides the desired benefits?
The most common nations for offshoring a company are Belize, Seychelles, the British Virgin Islands, Marshal Islands, St Kits and Nevis, Anguilla, Panama, Mauritius, Bermuda, Cayman Islands, Bahamas, Costa Rica, Uruguay, Luxembourg, Monaco, Switzerland, Lebanon, Cyprus, Malta, Dominica, Gibraltar, Somoa, United Arab Emirates, Sweden, and Hong Kong.
All of these countries offer the ability to form a business entity with many of the desired benefits. The desirable attributes of the company are discussed below.
What type of company to form?
There are two popular forms of business entity for offshoring:
International Business Company - In most of the jurisdictions regularly used to offshore a company, the type of business entity formed is a “International Business Company” (IBC). This business designation does not exist within US jurisdictions. The IBC may use popular designations, such as Ltd., limited, INc., Corp., etc. The IBC is very similar to a corporation within the United States. It has shareholders, a board of directors, and officers. Just one person can hold all of these roles. There are numerous limitations, however. The IBC shares cannot be listed for sale on a public exchange or sold publicly in over-the-counter transactions. These entities have some very important features that make them attractive. Unlike the US C-corporation, these companies are tax-exempt and the company ownership is not publicly listed. The secrecy of ownership allows the company to conceal who is the ultimate beneficial owner. The ownership if shares (whether registered shares or bearer shares) are not listed as public record. There is no annual reporting, mandatory bookkeeping, audits, or other regulations.
Private Limited Company (PLC) - The second most popular type of business entity for offshoring is the private limited company. The companies are generally exempt from taxation or are subject to a very low tax. While recording keeping may be relaxed, the names of the owners of the PLC generally appears on public records. Unlike the IBC, the PLC may be required to make annual filings, perform bookkeeping, and conduct company audits. The private limited company also generally requires more than one member.
- Note: Some countries have an entity very similar to a limited liability company. This is rarely used, as it does not allow for the anonymity of the IBC.
What steps are required to bring the company into existence?
Generally, forming the business entity in the country is fairly simple. It simply requires a bit of paperwork with the state business authority. It will require a passport for foreign identification, a named registered agent and office, a nominee shareholder, and a nominee director. The nominees are used to keep the names of the true owners hidden. The nominees can be individuals or companies, but they can be hired locally to serve this function. There are a few administrative and filing fees associated with creating the entity. Also, the annual fee required to form the company varies between $100 and $500 annually. It is generally better to associate with a local business firm to carry out the process. These firms will generally take all necessary steps to form the business entity for anywhere from $500 - $2,000.
- Note: Forming a business entity is relatively simple. The more difficult task is to open a bank account as a foreign individual. It is far more difficult in all jurisdictions if you use nominees rather than your real name for the business filings. The process is far easier if you have a local agent or are able to provide personally identifiable information to accompany the business bank account. The reason for this difficulty are the US regulations in place to crack down on illicit money laundering through offshore tax havens. The primary regulations are the Foreign Account Tax Compliance Act and the the IRS’s Common Reporting Standards (CRS). These regulations require banks doing business with the United States to implement automatic exchanges of financial information (AEOI) with other nations.
- Holistic (Detailed) Overview of Setting Up a Business Entity
- Where to Form a Business
- Incorporating in Delaware
- Forming an LLC in Nevada or Wyoming
- Creating a Company Offshore
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