An offshore company is a powerful corporate vehicle that can be used for different uses of business. Depending on your chosen type of offshore company, your company can be entitled to certain advantages or subject to requirements for setup and maintenance. This blog will walk you through several popular types of offshore companies that you should consider.
For those who have just started to learn about the offshore world
“What is an offshore company?” is probably the most frequently asked question for newcomers to the offshore world. To simply put, an offshore company is a company incorporated in another country. It is quite common that many offshore seekers tend to choose jurisdictions with no tax (or low tax) and simple compliance duties to move their business.
Besides knowing where to incorporate your intended offshore company, it is also crucial to determine what type of offshore company that you, as a foreign business, should opt for to maximize the most benefits for your business.
In the next part, we are going to explore four kinds of business entities that are most widely used for offshore business:
- International Business Company (IBC)/ Business Company (BC)
- International Limited Liability Company (LLC)
- International Company (IC)
- Private Limited Company (Pte Ltd)
Types of offshore companies for starting your business
Please note that offshore countries can offer different types of companies available for foreigners. A separate legal entity is highly recommended thanks to its various benefits regarding asset protection or offshore tax exemption.
Strikingly, some types of offshore companies, despite their presence under different names, share similar features and advantages. It depends on certain needs and circumstances to know which business entity is the best suited.
The following options are the most common types of offshore company to consider:
1. International Business Company (IBC) Business Company (BC)
IBC company appears in the top list of choice for those doing business overseas. It’s popular in many offshore locations deemed as tax havens in the Caribbean region.
Reasons why offshore IBCs are broadly preferred:
- Tax exemption for foreign-sourced income
- Suitable for international trading or investment activities
- Super-fast incorporation process. For example, a Belize IBC can be registered in 1 – 2 working days. Some high-performing incorporation service providers can surprisingly register your offshore company within hours.
- Minimal maintenance requirements. Like other offshore centers, a Seychelles IBC is imposed with no requirement to have paid-up capital before the operation or hold a regular annual general meeting. In addition, directors/shareholders of a Seychelles IBC can be of any nationality.
- Ease of opening a bank account. The British Virgin Islands (BVI) offshore company is a typical example. Thanks to its renowned reputation, BVI business companies are welcomed in most offshore banking jurisdictions, including the reputed but stringent financial meccas like Hong Kong or Singapore.
High levels of confidentiality used to be a striking drawcard for entrepreneurs seeking international business companies. It, however, has been changed a lot due to the recent intervention of international bodies namely OECD and EU council.
Particularly, to enhance the transparency in relation to offshore structure benefits for foreigners, certain new legislation has been issued in many offshore jurisdictions. Belize, BVI, Cayman Island, and other countries have currently had such laws in place. For this reason, the existence of confidentiality might be much less guaranteed in some jurisdictions as previously.
2. International company (IC)
International Company (IC) is similar to International Business Company (IBC). It is a legal entity that is popularly incorporated in a tax-neutral jurisdiction. Several offshore jurisdictions are well attached to this type of offshore company including Samoa IC, RAK IC, and many more.
Some highlights of registering an offshore IC
- Simple annual maintenance requirements. For example, a Samoa IC has no annual reporting requirements, no need to file annual returns or submit financial accounts.
- Tax exemption for offshore corporations
- Corporate confidentiality guarantee. Typically, the register of members of RAK international companies is not made publicly available by the RAK Registrar.
- 100% foreign ownership of an offshore IC allowed.
Normally, an offshore IC would be restricted from doing business with local residents or domestic companies in its offshore jurisdiction of incorporation. Yet, in some countries, Samoa for example, the company can become the shareholder of other ICs or entities established under the International Companies Act.
Like an offshore IBC/BC, international companies, excluding a limited life IC, can select the following options for registration:
- A company limited by shares ( the most coveted), or
- A company limited by guarantee, or
- Unlimited company
3. International Limited Liability Company (LLC)
Offshore LLC is the next must-know option. A limited liability company refers to a hybrid of two popular business forms: a corporation and a partnership. Remarkably, an LLC obtains both merits of both structures. The main drawcard for those seeking offshore LLCs is its strong protection for the entity’s members and owners. Two offshore LLC countries which are highly recommended for foreign investors are Belize LLC and Nevis LLC.
So, what makes an offshore LLC in Belize attractive?
- Belize LLC’s members have limited liability in respect of their corresponding amount of share contributed to the company. It means that if there is no legal arrangement existing, you as an LLC member shall not be personally responsible for debts or liabilities of the company.
- Belize LLC’s members have the right to participate in the decision-making process for the company activities.
- There is no tax for Belize LLC’s foreign-sourced income.
- Offshore LLC regulations in Belize allow the company to perceive the judgment from Belize court only. In other words, a foreign judgment may not be enforceable against Belize LLC’s members or owners. This enhanced asset protection feature makes this type of company in Belize stand out among others.
- Fewer compliance requirements on an annual basis for Belize LLC. Moreover, re-domiciliation is allowed in Belize.
Nevis is also another worth-considering option if you wish to find an offshore LLC with convenience, stability, privacy, and superior asset protection in comparison to US entities.
4. Private Limited Company (Pte Ltd)
Are you looking for an offshore company in the Asian region? If yes, you should not miss out on this type: Private Limited Company. Two offshore jurisdictions for establishing your Pte Ltd recommended are Hong Kong and Singapore.
As its name denotes, Pte Ltd refers to a privately held company. The number of shareholders allowed in a Pte Ltd should not exceed 50 people. Similar to LLC, this business form also offers limited liability to its shareholders. The company has the ability to own property, make contracts and sue/be sued under its own name.
Further advantages of forming a private limited company are as the following:
- There shall be no influence on the company’s existence if Pte Ltd decides to change any shareholder of the company.
- Easier transfer of ownership through sales or release of shares.
- Lower tax rates/offshore tax exemption.
For example, both Singapore and Hong Kong follow a Territorial Tax System. Strikingly, profits earned from outside the country would be tax-free. Corporate tax rates in Hong Kong and Singapore are 17% and 16.5% respectively, much lower than many other offshore jurisdictions for the similar business structure. Many tax incentives schemes are also given for tax reduction of Pte Ltd companies.
Unlike ease of maintenance duties in offshore tax havens like the BVI, Belize, or Nevis, reputed jurisdictions namely Hong Kong and Singapore ensure a high level of transparency on companies. Accordingly, certain compliance duties must be followed on an annual basis.
Private companies, Hong Kong, for example, are required to comply with filing requirements with the relevant authority. Particularly, your company needs to file an annual return with the Companies Registry (CR) and submit the annual profit tax return with the Inland Revenue Department. Still, you can enjoy free hassle from such burdens if you engage Hong Kong company formation services from reliable service providers. This is among the effective solutions to save your time and resources while your desired private company will move smoothly.
Establishing an offshore company is not just a walk. Among the list of things to move on, selecting an appropriate type of offshore company is very essential.
There are various offshore island nations like Belize, the BVI, Nevis, UAE, Panama, and many more you can consider. Despite its different names, IBC, BC, or IC structures are the most common types for business entrepreneurs to move business overseas. Ease of maintenance requirements and offshore tax exemption are two of the biggest driving forces of these types. Offshore LLCs, on the other hand, are highly preferred by their strong asset protection for the company members.
Other than offshore tax havens, Hong Kong and Singapore are highly recommended if you are looking for favorably low tax jurisdictions plus a range of incentives and supporting schemes for business growth. A private limited company is the most widely considered type of business entity in such countries.
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