There is much information provided by a variety of firms about using offshore incorporation. This kind of corporate formation is designed to offer advantages such as confidentiality, labor and tax savings, and asset protection. Challenges associated with offshore companies can include the fact that due diligence for these firms can tend to be more restrictive, and therefore, more complex than other areas.
Operations Costs Savings
There is no doubt that conducting business in the U.S. has typically always been more costly than in other countries. This is most often due to administrative costs, as well as higher operations costs. Factors usually include labor, energy, taxes, environmental regulations and high executive compensation. In addition, fuel, insurance, health care and litigation can greatly affect any company’s bottom line. Many of those costs can be lowered or eliminated through
incorporating and banking offshore, thus making offshore companies a more favorable business choice.
On the other hand, offshore companies are often prohibited from actually conducting business or engaging employees in certain jurisdictions. This can either pose a situation which requires much legal wrangling to overcome or even insurmountable challenges.
Offshore Incorporation Formation
The formation of offshore companies has been simplified in many jurisdictions. There are professional businesses that specialize in assisting individuals and businesses with navigating through the offshore formation process. Many of these firms create service plans that identify specific needs and requirements to protect the company’s and its executives and owners’ interests.
However, there are some restrictions as to the types of businesses that offshore companies may conduct without licenses. Comparatively speaking, this is similar to onshore trading, since most financial institutions retain operations offshore. In addition, worldwide insurance firms are basically offshore captive companies.
Depending upon the jurisdiction, offshore businesses may greatly benefit from the lack of operational tax as non-residents. While there may be nominal business fees, over time, the amount saved on operations taxes will be more than beneficial. With the exception of regulated businesses such as financial firms, the reporting structure is far more simplified, lessening record keeping requirements.
Conversely, some countries have instilled anti-tax haven laws, making it difficult for business to be conducted through offshore companies. For instance, France’s capital market legislation prohibits offshore companies being used in bond issuance.
Offshore firms usually have higher degrees of asset and legal protection by conducting business offshore. This is partly due to the fact that some jurisdictions employ higher restrictions on filing and processing court proceedings. Corporate governance laws usually require that jurisdictions remain where a business is chartered, rather than where the lawsuit happens to be filed. Another advantage is the illegality of disclosing banking information in Switzerland, which adds asset protection for shareholders, owners and their businesses.
Alternatively, due diligence requirements for offshore businesses are usually much more strict than for onshore companies. Opening bank accounts for offshore companies requires compliance with anti-money laundering laws. This requires that banks verify the identity of all names on an account. In addition, notarization and reference letters from lawyers and accountants or bankers may be required.
Offshore companies may execute transactions in the private company name. This ensures that underlying principals are protected since they are not reflected in the documentation. Because the business is considered a separate legal entity, financial institutions usually safeguard compliance with this type of regulation.
Other privacy advantages for offshore businesses include legal fee savings and the prevention of undesired publicity for the executives or individual owners with regard to their personal assets.
Another consideration, however, is that when offshore company shareholders die, it is usually required that wills be admitted into probate within offshore jurisdictions. If the matter is intestate, letters of administration are required to be re-sealed in that particular jurisdiction. This can add a great deal of cost, inconvenience and delay in the administration of a decedent’s offshore incorporation estate assets.