An Offshore, International Company is commonly set up in a tax haven like the British Virgin Islands, Bahamas, and Caymans Islands etc, where there are no corporate or personal income taxes, capital gains taxes, reporting requirements, or restrictions on company employment policies.
As the "world" becomes global, fewer businesses are local and many corporations are increasing going internationalization. Corporate structuring and planning have achieved higher levels of complexity than ever before while the need for anonymity remains strong. Corporation must keep pace and be constantly on the look out for new ways to profit. One way is to have a clear understanding of the characteristics offshore foreign corporations and how they may be put to advantageous use.
Offshore Companies are only applicable if you are doing business overseas and not in the country where you're offshore was incorporated. All income derived in and from the incorporated country is normally taxable. e.g. An offshore incorporation in Bahamas, doing business in Bahamas will require to pay taxes in Bahamas, where else, if the business was done in USA or Hong Kong, all profit are not taxable.
Singapore and Hong Kong although not typically regarded as tax haven, has a favorable tax regime which effectively means that correctly structured, managed and administered these companies can be utilized for offshore business and international business without paying tax in Singapore or Hong Kong provided that any profits arising are not made in the respective country (non resident company) and the earned money can be reemitted back.
For Singapore Based Tax Residence Companies
“If you have offshore investments or businesses, it is possible to manage your affairs in a tax-efficient manner with the use of an offshore company. By ensuring that all directors’ meetings are held outside Singapore and with the company registered with the agents in the offshore jurisdictions, the tax on income arising from offshore investments and businesses could be deferred indefinitely, if not avoided altogether.”
This type of tax regulation is known as "territorial taxation". With the strict rule in place for prevention of money laundering and terrorist financing, opening bank account for other tax haven jurisdictions can be difficult. On the contrary, to open a corporate bank account for companies in Singapore or Hong Kong is easier as these companies are more transparent due to the strict compliance control by the government.
What is a Tax Haven?
A tax haven is normally known as a jurisdiction, which actively makes itself available for the avoidance of taxes, which would otherwise be paid in a higher tax jurisdiction. A more correct term to use would be tax mitigation or planning, because there are ways of mitigating taxes without breaking the law, whereas tax avoidance is generally classified as a crime
Is it legal for me to have offshore companies, and bank accounts?
Yes, because most nations encourage international trade and enterprise, there are usually no restrictions on residents doing business or having bank accounts in other countries. Reporting requirements on such accounts however, differ from country to country. Sophisticated and reputable high-net-worth individuals and corporations routinely use offshore investment vehicles worldwide.
Main keys benefits for having your an offshore company
The main reasons to incorporate offshore are:
Asset Protection Protect assets in combination with a Trust, an offshore company can avoid high levels of income, capital and death taxes that would otherwise be payable if the assets were held directly. It can also protect assets from creditors and other interested parties. From competitors, adverse claimants and other parties from whom you wish to keep your business interests private and to secure against future claims such as bankruptcy, judgment creditors and other litigants, etc.;
Confidentiality - Keep business affairs confidential, Offshore Companies offer complete privacy. If the company shares are held by a Trust, the ownership is legally vested in the trustee, thus gaining the potential for even greater tax planning advantages.
Estate Planning - Family and Protective Trusts (possibly as an alternative to a Will) for accumulation of investment income and long-term benefits for beneficiaries on a favorable tax basis (without income, inheritance or capital gains taxes);
Simplify the transfer of assets and properties held in several countries: The sale or probate of properties in different countries can become complex and expensive. If an offshore company collectively holds these, ownership can be transferred by company shares rather than transferring the actual properties owned by the company.
International Tax Planning - Conduct business without corporate taxes: Tax havens, such as British Virgin Islands, allow the formation of International Companies that have no tax or reporting responsibilities. This means you save money not only from the absence of corporate taxes, but also from reduced compliance and other regulatory costs. Reduce payroll and travel expense administration: Allow employment or consultancy fees to accumulate in a low tax area: Offshore corporations can contract the services of professionals to employers resident in high tax locations or politically unstable areas. This allows the fees to accumulate in a low tax jurisdiction.
Conduct business as an international entity: International Companies have the same rights as an individual person and can make investments, buy and sell real estate, trade portfolios of stocks and bonds, and conduct any legal business activities - so long as these are not done in the country of registration. Offshore Companies set up in offshore need not pay social security, withholding tax, or associated expenses of employees working in other foreign countries.
Major savings for companies that have staff working on overseas projects. Minimize tax exposure when dealing with international transactions: An offshore corporation can buy or lease products from one country and then sell or lease them to a company in another country so the profits of the transaction are accumulated in the offshore company where there is no taxation on profits. Maximize profits from intellectual property rights, franchising and licensing: An offshore company can franchise or license intellectual property rights in other foreign countries allowing the profits to accumulate in a tax-free environment.
Protect investments in other foreign countries: International Companies can loan funds to corporations in other foreign countries. Investors may set up, but not directly own, an offshore company that loans funds to a development company set up in another country and charge interest rates that will lower tax obligations and protect the long term ability to repatriate investment funds. This can be especially important when working in countries with strict exchange controls and high tax profiles.
Own or lease ships or pleasure craft: Shipping companies may own or lease ships or pleasure craft and pay no taxes on income derived from the vessels. Registration fees are low and vessels are welcomed in ports worldwide.