There is no perfect offshore company location. Different jurisdictions have different advantages and disadvantages. When selecting one, there are a number of factors that should be considered.
Reducing or eliminating taxes is probably the most common motivation for offshore company formation. Unfortunately, you can’t simply choose a country with zero corporation tax without considering your particular situation. The following are some questions you should ask yourself:
- What is your country of residence?
- Are there any double taxation treaties between your country of residence and the offshore country?
- Is the offshore country included in any black lists or considered a tax haven by your country’s laws? There are often exceptions in tax laws of developed countries, effectively treating companies from some tax haven jurisdictions as domestic companies for tax purposes.
- How will you extract profits from the offshore company? The typical ways are salary and dividends, but sometimes there are other alternatives, such as getting paid for services which you provide to your offshore company.
Anonymity and company directors
Privacy is another common motivation. Names, addresses and other personal details of company directors and shareholders are publicly accessible in most developed countries. Many offshore jurisdictions don’t have this requirement.
Some countries allow companies to have non-resident directors, while others will require you to hire a nominee director, which may or may not be convenient for your business requirements.
Cost and ease of incorporation
Incorporating a company in some offshore countries can be done remotely, take only a few days and cost just a few hundred dollars. In other locations the cost goes into thousands, you will have to provide lots of documents and in some cases even physically travel there. Required initial capital also varies – from zero to tens of thousands.
Maintenance cost and accounting requirements
The cost and administrative workload in subsequent years can be as little as paying a small fixed annual fee in some locations, but it can involve complex accounting and auditing requirements in others.
In many industries, for example finance or consulting, being based in London or Switzerland will earn you extra points in reputation, while an address in a remote Caribbean island may cost you business. In such cases, choosing a more traditional location with higher taxes and higher cost of doing business may be worth it.
On the contrary, if you are merely operating a website or have a business model where reputation does not play a significant role, it would make sense to choose a cheap and low-tax jurisdiction.
Industry specific regulations
Different countries have different rules and regulations in some industries. Many kinds of services, for example in finance, health care or gambling, are only accessible to domestic companies or subject to extensive licensing and reporting requirements. In such case, moving your business offshore could make it much harder, more expensive and sometimes impossible to comply and continue to provide your services legally. Before setting up an offshore company, make sure that it is legal for companies from the particular offshore country to do business in your industry in all countries where your customers live. Make sure you understand all regulatory requirements.
Combining all factors
Unfortunately, there is no offshore company location that would score high on all the above listed factors. Some of the criteria are clearly in conflict with each other. For example, it is hard to have the reputation of a big global corporation, remain completely anonymous and enjoy low maintenance cost all at the same time. Therefore, it is essential to honestly evaluate your particular needs and set priorities before you select a suitable offshore company jurisdiction. It is best to think about this and roughly know what you want before you approach a lawyer or formation professional.