Understanding Offshore Business and Offshore Companies
As terms the words offshore business and offshore company have no precise legal, tax or general business meaning, as the word offshore often means nothing more than anywhere other than the place of physical location of the person using the word (i.e. overseas). The word offshore often implies an activity, business or arrangement which is in some manner not entirely legal. Therefore, it is important to understand that we use the words offshore business and offshore company as terms of definition in connection with matters that are entirely legal, such as the structuring of international business and family wealth management or tax planning.
Types of Offshore Companies
Typically, our clients utilise the following types of offshore companies to structure international business and for tax planning:
O Very low or zero tax offshore companies incorporated in jurisdictions often described as tax haven islands, such as the differing types of offshore company that can be formed in offshore company formation centres such as the BVI or British Virgin Islands, Belize or the Seychelles.
O Companies incorporated in jurisdictions which offer both offshore companies and onshore companies and which may benefit from favourable tax regulation and / or special offshore company regimes. For example:
R Mauritius has two types of company that are used for offshore business and international tax planning. The Mauritius GBCII Offshore Company pays zero tax and is effectively a tax haven company, similar in many respects to a BVI Company, whilst the Mauritius GBCI Company is tax resident and typically utilised for double tax treaty and international tax planning.
R Hong Kong, although not typically regarded as a tax haven, has a favourable tax regime which effectively means that correctly structured, managed and administered Hong Kong Companies can be utilised for undertaking offshore business and international business without paying tax in Hong Kong provided that any profits arising are not made in Hong Kong. This type of tax regulation is known as "territorial taxation".
O The LLC or Limited Liability Company and the LLP or Limited Liability Partnership types of company.
R These classes of company are used for offshore business, international business and tax planning because they have the advantage of limited liability but the flow-through characteristics of a partnership for tax purposes. By this, we mean that profits are divided among the members, in proportion to their respective holdings, and are taxed in their hands.
R In some circumstances, if all the members or partners are non tax resident in the domicile of the LLC or LLP company and no business is undertaken in that country, neither the LLC or LLP company nor the members or partners will be subject to tax in the company’s country of establishment. Such companies are said to be "fiscally transparent" and examples include US LLCs, the Isle of Man LLC and the UK LLP.
O Companies incorporated in the many onshore countries which have tax regimes that are by statute tax advantageous for specific international purposes.
R The world of offshore is more complex than the black-and-white tax world inhabited by the media; offshore business consists not only of tax havens but also of onshore high tax countries competing fiercely to attract international companies and individuals with all manner of tax planning regulations and opportunities. These tax advantageous regulations are used for a wide variety of tax planning business, such as:
? Double tax treaty planning relating to dividends, interest and royalty payments.
? The establishment of holding, international headquarter treasury and finance operations.
? Specialist business, for example, leasing.
? Personal and family wealth management and tax planning.
In fact, almost all countries offer tax regulations of one kind or another to encourage inward investment.
International tax advisers have long been aware of the opportunities which exist for improving overall tax efficiency by using the special low tax regimes offered by high tax countries seeking to encourage international business. However, successful implementation of such structures is dependent on a wide variety of issues, often relating to matters such as anti-avoidance provisions, double tax avoidance, controlled foreign company and management and control tests and provisions, transfer pricing, thin capitalisation, participation exemptions, capital gains tax and a myriad of other ever-changing tax regulation. More recently, the weapons contained in the armoury of the tax collectors have been supplemented by exchange of information treaties and provisions.
So today the offshore world includes the expert implementation of specific tax advantageous structures domiciled in high tax onshore countries as diverse as the UK, Portugal, Singapore, Greece, Belgium, Austria, Spain, Switzerland, Luxembourg and the Netherlands.