Registration (acquisition) of offshore companies as a mechanism for optimizing tax costs

If, in the process of development, the enterprise reaches a level where operational capital management is necessary both within its own country and abroad, it becomes important to whom, for what and how much to pay taxes. One of the tax planning tools is the registration (acquisition) of a tax-free or offshore company. An offshore company gives an entrepreneur the opportunity to significantly and absolutely legally reduce the amount of tax payments of his local company. As a result of the interaction of local and offshore companies, it is possible to minimize income tax payments and significantly reduce expenses from other taxes.

            A company with low (preferential) taxation is an enterprise (limited liability company, joint-stock company, partnership) that is completely exempt from paying taxes or that pays low taxes in the country of registration, provided that no income is received in this country, and the owners and directors are not must be residents of this country.

            It should be emphasized that despite the negative perception of offshore companies by society, the registration (acquisition) of an offshore company does not contradict the current legislation.

Countries or their parts, on the territory of which it is possible to exempt, reduce or simplify tax obligations, are called offshore jurisdictions. The legislation of such jurisdictions allows registered companies not to declare the income received, and therefore not to pay taxes in the country of registration, provided that the company does not have to do business in the country of registration. This requirement is due to considerations of protection of local entrepreneurship. In most cases, when this condition is met, the company receives tax benefits or is exempt from paying taxes. The rest of the world is more or less open to the operation of an offshore company.

At the same time, it should be taken into account that even companies with a low tax or tax-free status must pay annual state duty in the country of registration. This duty is usually paid on the date of company registration once a year. The size of the duty depends on the country of registration of the company and is determined by legislation. In addition, it is necessary to pay for the services of providing the company’s legal address in the country of registration and the services of a nominal director/shareholder/secretary, if such positions are provided for in the company’s structure.

An offshore company that does not conduct any activity in the territory of the country of registration is exempt from paying taxes in this country with the right to pay taxes at its location. As a rule, in most countries of the world, the presidency of a foreign company (the place where its activities are recorded and taxes are settled) is determined by the place from where the company is managed and controlled. The basis for this definition is the location of the company’s directors. When registering a company in the register of enterprises, at least the name of the director of the offshore company must be indicated. To avoid paying taxes in your country, it is advantageous to use the services of nominal directors. A nominal director residing in a country where the administration of offices is not subject to tax liability will always be able to confirm his directorship in the offshore company and its presidency in the area of ​​his residence.

At the same time, the manager or owner of the company should take into account the terms of conventions on the avoidance of double taxation when conducting certain business transactions, because for some transactions, taxation is still possible precisely for the source of income, that is, in the country in which the counterparty is registered. If there are certain doubts about the possibility of carrying out a transaction on favorable terms, it is advisable  engage a qualified consultant who will provide advice on this matter.

We also note that there are no restrictions on types of activities for offshore companies. The only restrictions are the requirements to purchase a license for a certain activity (insurance, banking operations), i.e. the same restrictions as for ordinary resident companies. Offshore companies can be used in such areas as international trade, services, investments, holding. In addition, offshore companies are used to open accounts in foreign banks, purchase real estate, etc.

Options for acquiring an offshore company

Considering the above, before making a decision on the registration (acquisition) of an offshore company, you should carefully consider all possible options and analyze all aspects: the real purpose of registering an offshore company