The Benefits of Going Offshore
Most offshore jurisdictions are free from foreign exchange controls and have tax-free and simple company legislation to cater for a diverse range of international business requirements. The most common reasons that businesses and high-net worth individuals consider using an offshore company is for:
Asset Protection/Investment Portfolios
Offshore companies are widely used for asset protection, wealth management and to hold investment portfolios (stock, bonds, cash and a broad range of other investment products). They are also utilized for inheritance purposes, and to reduce probate expenses. Cash assets held by offshore companies earn deposit interest gross or can be placed in collective cash funds.
Holding Company
Offshore corporations often hold investments in subsidiaries and/or associated companies, public listed and private companies, as well as joint venture projects. Capital gains arising from the disposal of particular investments can be made without taxation. In the case of dividend payments, reduced levels of tax on income can be achieved by utilising a company incorporated in a zero or low tax jurisdiction that has double tax agreements with the contracting state.Many large corporations are interested in investing in countries where no double tax agreement exists between the country of the investor and the country in which they are investing. In this case, an intermediary company is established in a jurisdiction with a suitable treaty. Cyprus has an extensive double taxation treaties with many Eastern European countries and countries of the former Soviet Union, and the use of Cypriot companies for inward investment into these countries provides a tax efficient conduit.
Confidentiality & Financial Privacy
Offshore companies provide a higher level of privacy and anonyminity than an onshore company due to many of these offshore jurisdictions have zero tax and the governments do not require annual filing of company’s accounts. Also, details of company Directors and Beneficiaries/Shareholders are not on public records. Although complete financial privacy and confidentiality is not possible in this day and age, with the ‘non-disclosure policy‘ being adopted by these offshore jurisdictions, it is still worthwhile to consider opening an offshore bank account.
Reducing Tax Liability (personal or corporate)
For individuals engaged in providing services in construction, engineering, aviation, computer, finance, film and entertainment, considerable tax savings can be achieved via an offshore-based private company. The offshore company can contract with an individual to provide him/her with services outside his/her normal country of residence, and personal income can be accumulated free from taxation in the offshore centre. Most tax planning consultants utilize offshore companies to minimize their clients’ personal income tax.
Trading
International trading and purchasing companies often involve offshore companies in their trading transactions to minimize taxation. Profits arising out of transactions involving purchasing goods in one country and selling them in another country can be accumulated in the offshore company, free from taxation.For European Union transactions, for example, Cyprus has become a very popular location for low tax trading activities and for minimization of VAT payments. Offshore structures are also useful in the case of bulk purchasing, whereby a group of associated companies can benefit from reduced administrative costs.
Estate Planning
You can create tax advantages and legally avoid capital gains tax, inheritance and property transfer taxes with the use of an offshore company to own real estate and land. Another popular estate planning and wealth management vehicle is the Offshore Trust.
Intellectual Property Registration & Safekeeping
Intellectual property, including patents, certificates for computer software, trademarks and copyrights can be owned by or assigned to an offshore company. Upon acquisition of the rights, the offshore company can enter into license or franchise agreements with companies interested in using those rights. The income can be accumulated offshore (on careful selection of an appropriate jurisdiction), and taxation on royalties can be reduced by the commercial application of double taxation treaties. Mauritius, Labuan and Cyprus are good examples of jurisdictions used for holding intellectual property.
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