What You Can Do
Run a Business
You can use your offshore company to conduct business, whether this is selling goods or services or just as an billing or invoicing company or holding company.
Running an offshore company can be a lot easier than running a local company, with simplified record keeping and filing requirements. It can also be associated with lower costs both for formation and maintenance as well as in terms of share capital. Audit requirements are generally more lax although Hong Kong is an interesting exception.
It is very popular to use offshore companies simply as investment vehicles. This is done either by forming a company and this company then buying stocks directly from other companies or by the company opening accounts with investment brokers and banks that offer trading services.
The idea here is that the company might be considered a completely separate legal entity – even in the eyes of tax authorities, in more permissive jurisdictions – so that money held by the company does not become a part of your taxable income. This will vary enormously from country to country.
Offshore investment companies can also open up investment opportunities that are otherwise restricted. Some lesser developed countries limit personal investment in foreign companies. An offshore company can bypass such restrictions, although the legality of doing so should of course be discussed with a qualified legal adviser.
Offshore asset protection is a huge industry. The way it works is usually by forming a legal entity (company, trust, foundation, other, or combinations thereof) which acquires ownership of or is entrusted with assets. Assets here can refer to anything from wealth to property to businesses.
Setting up asset protection structures needs to be done with the assistance of someone who understands the implications of your local law as well as the offshore law. Some are content with just a financial adviser while some device to seek the assistance of lawyers and accountants.
Reduce Tax (Maybe)
While some countries may consider even your company’s income your personal income and tax you on it, there are others who will only bother you if you pay yourself a salary. This means as long as the money stays in the company, it’s tax free. In some cases, this can be further reduced by paying yourself through a holding company, so that profits pass from the company to the holding company to you. This way you can pay yourself salary in the form of dividends, which may or may not be subject to lower taxation.
Pass-through vehicles (tax neutral or tax transparent) companies might also reduce your tax where such entities are not available domestically. For example, utilizing an Anguilla LLC as a resident in a country that does not have LLC or LLC-like entities. Your country may not recognize the LLC, though.
Again, this varies enormously from country to country. Speak to a qualified tax adviser before doing anything, because you certainly don’t want to get caught evading tax. Most structures like these fail because the offshore company fails to live up to tests determining its domicile or residence.
What You Cannot Do
Technically, you can do these things. It’s just not very smart to and might land you in some very hot water.
Whether you like it or not, you probably live in a country where your tax free offshore company effectively isn’t tax free.
Technically, you can evade tax. But that’s a crime in most countries and the repercussions tend to be far worse than having some tax free income on the side.
The punishments for tax evasion are usually far greater than the short-term benefits of not paying tax.
Solution: declare income and pay tax or move to a tax haven. Speak to a tax adviser about setting up a compliant tax minimization structure.
Be Entirely Anonymous
To run a trading company, you will at some point need to enter into an agreement. This can be with a payment service provider, a web hosting company, a courier company, or whatever else. Companies are required to perform due diligence on prospective clients and this can in many cases include disclosing the UBO.
You will also need to declare your identity to the registered agent and the bank(s). Although there may be banking secrecy, anonymity is out of the window.
Holding and investment companies as well as asset protection vehicles typically will not enter into agreements with anyone other than banks and known persons and companies.
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