Did you know that you can decrease your corporate tax and save more money?
Yes, it is possible and It's legal.
But, You need to have a plan and act smart, it's easy!
Hey,
I'm Alan, an advisor at OOBAC...
And on this page, I will explain how you can minimize your tax by designing a proper offshore company structure.
But, Here's a BIG Myth!
Many people think that simply incorporating an offshore company in a tax-haven country will magically make all their taxes disappear!
Unfortunately, It is NOT True 😞
Just because you incorporate your company in an offshore jurisdiction does not necessarily mean you have tax-free business!
You need to DESIGN it CORRECTLY... So, you do NOT get taxed in your home country.
But before that let's agree that corporate tax is different from personal tax.
Corporate tax is the tax your company pays on its profits,
While personal tax is the tax you pay on the money you earn, like salaries or dividends.
As a matter of fact, the offshore company helps you minimize your corporate tax. However, with a PROPER SYSTEM, you can minimize both personal and corporate taxes together.
Let's first see what an offshore company is:
What is an offshore company?
There are many articles and websites about the meaning of offshore companies. Yet, I found it somehow difficult for beginners to understand the term thoroughly.
So I'll try to give you a simple and useful definition of the offshore company.
An offshore company is a company you establish outside of your country and operate your business from anywhere in the world.
It is also called International Business Companies (IBCs) in some countries. Thus, it is an international company and you can conduct your business with anyone around the world except inside the country you established the company.
A Nevis company is an example of an offshore corporation. You may incorporate a Nevis Company under the laws of Nevis and do business from your home or elsewhere. You should not do business inside Nevis. Your company will be taxed if it conducts any local economic activities inside Nevis.
In general, the main characteristic of an offshore corporation is being a Tax-FREE company in its country of formation, having a low maintenance fee, and more flexibility.
Tax haven countries such as Belize, Seychelles, British Virgin Islands (BVI), Cayman, Anguilla, Panama, and Bermuda do not impose any form of taxation on companies and those companies are fully tax-exempt.
Let's see more tax free countries...
Separately from the above-mentioned jurisdictions, companies incorporated inside countries like the UK, Hong Kong, Delaware, Uruguay, and Cyprus, Georgia can be considered as offshore companies f they meet certain criteria.
Thereafter there are certain countries such as Ireland, Netherland, Malta, and also the UK in which people are incorporating a company as part of tax mitigation structures.
Generally an offshore company should have at least the following main characteristics:
No taxation in their home jurisdiction.
Should have business flexibility.
The regulation should be lighter compare to the developed country.
A high level of privacy and confidentiality.
NOTE: Recently, there have been many changes in offshore company formation and many offshore jurisdictions are participating in Automatic Exchange of Information. Therefore, the level of privacy and confidentiality has decreased compared to a few years ago; however, by hiring a nominee you can still maintain a certain level of privacy.
but,
Why should a country offer a tax-free business opportunity?
Why should a country offer a tax-free business opportunity?
Well, this is all about bringing some additional revenue to the country.
Normally, small and non-developed countries that do not have enough resources for their income, create flexible company laws to attract foreign investors and businesses.
They take advantage of the inflexibility and high taxes of advanced countries.
But, before I explain how to design your offshore company...
Let's look at the:
11 reasons for offshore tax planning
Generally, business owners prefer to form a business relationship with a legal entity rather than an individual. So, incorporating an offshore company, which has a very low maintenance cost can be a good start for freelancers and beginners. The opening offshore company gives your business a legal identity and you can make your own brand with lower cost possible. Another reason that one might want to incorporate offshore business is the possibility of purchasing property or licenses in other countries. For example, you can own a property in Malaysia through your offshore corporation. It will be even easier and faster to buy a property if you own a local Malaysian holding company.
Well, this is a very important issue and I need to be clear. Having one offshore company does not necessarily bring better banking opportunities. Many European banks are trying to apply more restricted regulation on offshore businesses from tax-haven jurisdictions.
For example, a Labuan company might have more limited banking opportunities than a Cyprus or a UK company have. Also, if your company is incorporated in Peru or Nigeria, it will be very difficult to get a suitable bank account. In contrast, you might have better banking infrastructure if you incorporate offshore company in Belize, BVI, or Cyprus.
In fact, there are still many banks that are welcoming offshore companies. You need to be clear about what you are expecting from banks and what kind of activities your business is carrying out. Most banks prefer to accept a company with low-risk business activities. Activities such as coaching, advisory, international trading, and software development have more chances to be accepted. Please check the bank terms and condition and their restricted activities.
It is very important to protect your asset against your financial enemies that wish to seize your assets for themselves for whatever reasons they have.
They can be any private parties, creditors, attorneys, even family members, or ex-spouses. In unfortunate cases like accidents or failure in business, there might be a lawsuit against you in court. In some countries, the law lets creditors seize the assets that are under your family members like kids, parents, and even your wife.
Unfortunately, the lawsuit is filed every second in the world. In this situation, the chance that many of them are illegitimate is high. So, it is normal for people to find a way to protect themselves against such an uncontrolled situation.
In most countries, starting a business is not as easy as you think. It takes time and you have to spend a lot of money. In most cases, you must have a real office with a valid address in the commercial buildings, a minimum of one staff, and an official contact number. Also, you should take care of the accounting, audit, and secretarial fees too. Many countries do not allow you to place your business in a residential building. In addition to all the above-mentioned costs, most probably the new company is not tax-exempt.
In contrast, incorporating an offshore company is very cheap. You can handle your offshore business from home and everything can be operated remotely. In most jurisdictions, you are not obligated to file an audited account and many of them are corporate tax-free. Please get advice from a local tax expert in your country regarding your income tax obtained from your offshore corporation.
Offshore company formation is very flexible in terms of the capital of the company. There is normally no minimum paid-up capital or very low minimum paid-up capital requirements.
Many jurisdictions offer flexible company laws for offshore company incorporation that benefits business owners.
An offshore company has flexibility in terms of the structure of the company, the amount of capital, number of directors, shareholders, and officers, location of the meeting, and etc.
In addition to offshore jurisdictions, some european countries like Cyprus, Malta, Estonia, Bulgaria, and the UK also offer flexible company acts. These countries may be a good choice for those who like to have access to better court, better legal structure, and more flexible company laws in Europe. These countries may not be a good place for those who want a tax-free company without any reports, but for many people these places are ideal.
In fact, taxes are the biggest challenge for new, macro, and small businesses.
Many of these businesses end up with almost nothing after paying their expenses. They end up with a small amount of profit. Thus, this is very normal for small business owners to plan their taxes.
The issue is how they can do it legally?
Our basic suggestion is to get advice from a local tax advisor in your country to avoid any legal issues for your company and yourself. Generally, offshore company setup is one of the common practices to reduce the tax legally.
In fact, most offshore company formation occurs in tax-haven jurisdictions. So practically, you do not need to pay any corporate tax on your profits.
Changing the structure of the company helps to reduce the tax legally. One of the interesting examples can be Apple, Inc.
Apple has a holding and trading company in Ireland, and its technology company is located in California. Ireland law allows some Irish companies to claim as non-resident companies if they are associated with another company outside the country. They will be tax-exempt if they are managed and controlled out of Ireland. In addition, "US law asks where a company was filed (IRC Sec. 7701(a)(5))". So, none of Apple's Irish companies pay taxes anywhere at all.
Another way is to pay fewer taxes. For example, for Japanese and US companies with high corporate tax, a Bulgaria company with only a 10% tax can be very interesting. Incorporating a company in Cyprus, Malta, and Bulgaria will grant you a VAT number and you can enjoy a lower tax rate. In addition, holding companies in Cyprus and Malta are taxed exempt for the dividends received by their trading companies.
The third option is something that we call tax deferment. It means you are postponing the payment of taxes by reinvesting the profit into your company again. You can pay tax only when you decide to sell the company a few years later.
An online-based offshore business with an overseas bank account gives you unlimited freedom. You are able to operate and control your business from anywhere without being worried about anything. You are not limited geographically. An offshore corporation is a perfect choice for an online business.
According to Accounting Web, the audit fees are increasing every year and it has climbed to $9.2 billion in 2016. Thus, with an offshore company formation, you do not need to pay audit fees. It means, no need to pay for an expensive accountant or auditor. No tax is a very remarkable feature for offshore business. It can guarantee us one important thing; there is no need to make tax reports. With an offshore company setup, you do not need to make the complicated double accounting. A simple bookkeeping can be prepared to show the real financial condition of the company.
There is a big chance to be competitive with big companies if you register offshore company. Since there is no tax or almost zero tax on products and services you can offer your services or products at lower prices. In addition, there are no professional accounting, audit, and tax report fees. It allows you to compete with big companies in the market.
Of course, you know very well how important it is to keep your security high. Without security, you can easily fall into trouble under unforeseen circumstances.
In general, offshore jurisdictions offer good privacy and security for those who are willing to incorporate their company there; However, the level of security varies between these countries. Sometimes, the tax rate is not a case for you and the most important factor is your privacy for whatever reasons.
You can hide your identity by hiring a nominee as director and shareholder by onshore or offshore company registration. With this system, your security will be kept as tight as possible. You can get the ultimate solution to your security issues with an offshore company. This is the biggest advantage for people or companies who want their identity to be kept private.
At the moment, the best country for offshore company with high privacy and high value is British Virgin Islan (BVI). Other juristiction like Seychelles, Cayman Island, and Delaware are also a good places for high privacy.
How to design your offshore company structure
How to design your offshore company structure
To minimize your corporate tax, you need to DESIGN your business in a way that it gets taxed only in low or ZERO tax jurisdictions.
You may have to place each part of your business in different places... So that you can take advantage of their business infrastructure and regulations.
Here are some key factors you need to consider when designing your offshore business structure.
First is: Corporate Tax Residency Roles
First is: Corporate Tax Residency Roles
These roles determine if a company is taxable in a specific country. So the first step is to ensure your company is NOT a tax resident in a high-tax country.
Typically, there are 4 Types of Corporate Tax Residency:
(1). Incorporation-Based Residency:it indicates that a company is considered a tax resident where the company is incorporated or registered.
For instance: If you incorporate your company in the UK or Canada, it is a tax-resident business in the UK or Canada, even if you conduct all of your business elsewhere.
(2). Management and Control-Based Residency: it means a company is tax resident in a country where the key decision-makers or board of directors reside and its control and management are exercised there.
For example, if a business is incorporated in Seychelles but its key decision-makers (or board of directors) are based in the United Kingdom, the company will be considered a UK tax resident.
(3). Place of Effective Management (PoEM):it means a company is a tax resident where its actual day-to-day operation and decisions are made.
For instance: a firm formed in Hong Kong but effectively run from India would be deemed an Indian tax resident.
(4). A corporation is said to be resident if it does significant business inside a nation.
For tax reasons, a corporation registered in Ireland but with significant activities and income earned in Germany might be regarded as a resident of Germany.
let's have a simple example. Imagine you are a tax resident in the UK and want to have a business outside the UK that is NOT taxable in the UK.
To do that, you need to incorporate a company outside of the UK, ideally in a country with low or ZERO tax. Also, control and management should be exercised outside the UK. Ideally in the same country of incorporation or a country where control and management are not part of its corporate tax residency role.
Understanding corporate tax residency is crucial for companies because it determines where they need to pay taxes, which can impact their overall tax burden and business strategy.
Do you need help to establish your tax-free business
Contact Us NOW!Second is: The Country's Specific Tax Regulations Regarding Offshore Company
Second is: The Country's Specific Tax Regulations Regarding Offshore Company
Once you check the tax residency rules, you also need to check if your country has specific tax regulations regarding offshore companies or tax-haven countries.
For example, Japan has specific measures to calculate tax for Japanese residents who have offshore companies (normally called paper companies or shell companies).
If they fall into any of those measures, they will be taxed in Japan no matter how they structure their company. So this is an important factor to consider before incorporating any offshore company.
Check Your Country Tax Regulation about Offshore Company
Another factor you need to consider is,
The Nature of The Business
The Nature of The Business
The nature of the business significantly affects the design of the company structure. You need to always ask and consider the following points.
Should your business be operated in a specific location? If yes, A specific design is required for you to be able to save taxes.
or This is a kind of business that can be done from anywhere in the world?
Or does your business require a license? For example, if you wanna establish a company that does cryptocurrency exchange, you may need to consider countries like Poland, Estonia, or those who offer licenses.
Or is your business activity categorized as high-risk or low-risk? This may affect opening a bank account and payment gateway processes.
typically, businesses that can operate virtually anywhere with an internet connection, benefit the most, businesses like:
IT Management
Coaching
Consulting
Social Media Agency
Advertising Company
Service Provider
Stock Trading
E-commerce
Next One is The Bank Account
Next One is The Bank Account
One of the most important factors you need to consider is the BANK ACCOUNT. A trading and holding company without a bank account will not be able to operate.
Recently, it has become very difficult to get a bank account for offshore companies without a real business presence or significant business activities.
You must design your company structure in a way that opening a bank account should not be an issue. Sometimes you may combine an onshore and offshore company in order to benefit from developed and highly reputed banks.
Contact Us If You Need A Bank Account.
Contact Us NOW!Another factor that you need to consider is
The Capability To Apply For An Online Payment Gateway.
The Capability To Apply For An Online Payment Gateway.
it is crucial to design your structure in a way that passes the payment systems' verification process if you wanna receive money online. Examples of these service providers could be PayPal, Stripe, or similar.
So...
You need to be very careful about how you design your offshore company structure...
So that it does not become a taxable company in high corporate tax jurisdictions.
So that it does not become a taxable company in high corporate tax jurisdictions.
With a proper structure, you can save a significant amount in taxes and keep your money in your company, reinvest in your business or your new projects.
Remember, this is corporate tax...
The moment you receive money as salaries or dividends or any other form of payment from this company, you WILL BE taxed in your country of residence.
How To Solve It?
Well...
There are a few ways you can minimize your tax on dividends. The following are just a few examples of them:
1. Become a tax resident of a country that imposes a low or Zero dividend tax on its residents.
2. Move to countries with tax territorial systems and establish an offshore company in a tax-free Jurisdiction.
3. Take advantage of life insurance and loans if applicable in your country of residency.
4. Take advantage of the Whole-life insurance and waterfall approach if doable in your country of residency.
Need Help to Plan Your Tax?
Contact Us NOW!Best countries to incorporate offshore company
The followings are the most common jurisdictions to register offshore company:
- Belize: Belize is one of the best offshore jurisdictions that offer cheap and fast offshore company formation services.
- Seychelles: Seychelles is one the fastest and one of the best jurisdiction for offshore company registration.
- The British Virgin Island (BVI): BVI is one of oldest and best jurisdiction for offshore company. It can be considered as one of the good overseas holding company when you want to register offshore company.
- Nevis
- Mauritius
- Cayman Islands
- Antigua
- Anguilla
- Hong Kong
Other low-tax countries:
- Gibraltar
- Ireland
- Bulgaria
- Cyprus: If you are looking for a flexible and low tax or tax free country in Europe, Cyprus is one of the best offshore countries in the EU area. It is very advantageous for non-resident companies.
- Malta
- Estonia
- Singapore
- UK
One important fact about US companies, the US is the best country to set up an offshore company for the non-US citizen. The US is one of the most secure places for offshore business owners in terms of privacy. Unlike other jurisdictions, the US refuses to participate in tax information exchange with OECD's initiative. It means that your business information in US jurisdictions can't be accessed by your home country government. Some of the most common US jurisdictions are:
Is offshore company setup legal or illegal?
Ok, this completely depends on how you want to use it. It is the same as other types of company formation.
One may say the offshore corporation is about tax evading or keeping illegal funds somewhere else. If you incorporate an offshore company or any type of corporation and use it for tax evasion and fraud, it is definitely illegal. It does not matter which kind of company you use or in which country you incorporate. What you want to do is illegal.
We do not aim or support such an idea. What we offer or provide is how to expand your business globally and plan your tax legally in a more efficient and cost-effective way.
So, offshore company formation is 100% legal. If not why do reputable banks set their branches up in offshore jurisdictions? Why do some countries like the UK, Hong Kong, Singapore, Ireland, or Malaysia offer offshore incorporation? And, why do they have the offshore system?
If you think carefully, you will find out the answer.
Offshore company registration is not illegal. An opening offshore company, maintaining it, and doing business globally, living wherever we like using such a system, are part of our rights.
Maintaining high security, using an overseas address, getting our own secretaries, and opening bank accounts in reputable banks, are all legal and are our lawful rights.
Who benefits the most from offshore company formation?
In general, businesses that do not depend on a specific physical address and operate their activities from anywhere in the world benefiting the most from offshore corporations. For instance, the following business activities benefit the most if they move to offshore business:
- Software development companies
- Online businesses
- E-commerce
- Consultancy and advisory
- International based company
- International trading
- Forex and stock trading
- Offshore savings and investments
- Overseas Holding Company
- Ownership of intellectual property
Indeed, not all individuals who incorporate an offshore company receive the same benefits as others receive. It depends on your citizenship, where you reside, and how the tax regulation of your country of residency works. For example, if you are a Japanese citizen living in Malaysia and register offshore company in Belize with a corporate bank account in Mauritius, you do not need to pay tax anywhere for the income you make from your offshore business. Neither to Japan or Malaysia. You only pay tax for the income you receive from the source inside Malaysia.
In conclusion, if you would like to enjoy the full benefit of your offshore business and take advantage of your financial freedom, you should think and live globally.
General FAQ
What is the cheapest offshore company formation?
The cheapest offshore corporation can be incorporated in Belize as Belize IBC with only EUR 599. The second cheapest offshore company formation in or services is Seychelles company which costs you around EUR 799.
What is the best offshore jurisdiction for a holding company?
It depends on your plan and company structure; however, in tax-haven jurisdiction, British Virgin Island (BVI), Delaware, and Belize are the best offshore countries for business and holding companies. Cyprus is the best country to set up an offshore company in Europe. It also is the best offshore jurisdiction for a holding company. The tax rate for a Cyprus company is 12.5% on net profit. The dividends of non-resident shareholders are tax-free. Cyprus holding company is tax-exempt on revenue from sale of securities and dividends.
What is the best offshore company structure?
There is no specific company structure that can be called as the best offshore company structure; however, based on your needs and tax plan you can structure your company. For example, for higher privacy you may hire a nominee director and use a Cyprus holding company for your tax plan. This all depends on your business activities, country of residency and level of privacy.
What is the difference between offshore and onshore company?
Onshore company or domestic company is a form of corporation that usually operates its business inside the jurisdiction that is registered while offshore companies cannot perform any kind of business inside the country that is incorporated. Unlike offshore corporations, onshore companies do not have preferential tax options. Onshore companies have less privacy and confidentiality compared to offshore companies. Onshore companies' information are traceable easily and most onshore companies' information is available in public. Onshore companies have higher maintenance fees than offshore companies.
