Offshore Company Formation: Business Savvy Way of Tax Planning

In the past, big businesses and wealthy families have made it a common practice to set up offshore companies and move their assets to avoid paying excessive tax on their gains. These days, in the wake of widespread globalization, this practice has become increasingly trending with small and medium sized businesses jumping on the bandwagon.

Is it Legal to Form an Offshore Company?

The first question that almost always comes up with the topic of setting up an offshore company is the legalities of doing such. After all, offshore companies do not carry out business in the country where they incorporate their business – the business is merely taking advantage of the country’s favorable tax rates and avoiding what they deem would be an excessive national tax rate.

In its landmark decision of Gregory v. Helverling in 1935, the Supreme Court ruled that businesses have the discretion to seek out measures to minimize tax liability as long as it’s within the boundaries of the law. For instance, while it is perfectly legal to form a company in offshore locations to avoid national tax on the company’s gain, it is illegal to withhold information on the income of the offshore company in their reports. Doing so is already deemed as tax evasion.

What are needed to Form an Offshore Company?

Generally speaking, the following are needed to form such company:

  1. Registered Office – the official address of the company in the country of jurisdiction.
  2. Certificate of Incorporation – proof of company’s existence and that it has not been struck off or liquidated.
  3. List of Directors and Members – shows the name of those who are behind the operation of the company as well as its legal owners.
  4. Company Secretary – responsible for ensuring that all legal procedures are strictly followed.
  5. Articles of Association – details the internal processes of the company, its objectives, and the rights of all its members.
  6. Statutory and Financial Book Records – regularly maintained minutes of meetings should be made available to the public and its financial records should be regularly audited.
  7. Shadow Directors’ Information – information on the people who hold or controls majority of the company’s stock but do not openly participate in its governance.
  8. Registered Agent – the entity who is responsible for incorporating the company in the country of jurisdiction.

What are the Other Advantages of Setting Up a Company in Other Countries?

Aside from the tax cuts that it affords, setting up an offshore company is widely seen as a clever move if the business has plans to enter international trade or for investment purposes. Additionally, the anonymity offered by this set up as well as asset protection against future legal liabilities are also strong reasons why many businesses form their own offshore company.

This business practice has been the standard practice for many wealthy corporations and families for the layer of protection it offers.

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