An offshore company is an enterprise which only carries out economic activities outside the country in which it is registered. So, an offshore company can be any enterprise which doesn't operate "at home". At the same time, according to public opinion, an offshore company is any enterprise which enjoys tax-free or low-tax status in the country of registration. In the USA, the term offshore company is also used as a synonym for any overseas activities.
The offshore company existed in ancient Greek times, when Greek merchants offered their wares from nearby islands in order to escape the taxes in Athens. The format of the modern offshore company, however, is undeniably linked to the United Kingdom, and it was the British who developed the offshore company as we know it today. It was English corporate law, adopted in one form or another by just about every British territory, which provided the basis for the establishment of the laws necessary for the incorporation of offshore companies.
If we examine the most significant tax havens where it is possible to incorporate offshore companies, then the British legislative roots can be discovered almost everywhere. And here it is not just the everyday transplantation of offshore companies as is the practice in common law which we are talking about, but the legislation itself, based on the English law, specifically allows for the establishment of the offshore company, often through a separate law. For example, numerous jurisdictions have copied one of the most popular laws regarding offshore companies of the last 25 years, the British Virgin Islands IBC Act, which replaced the BC Act, though the rules for the formation of an offshore company hardly changed under the new law.
The only real change in the British Virgin Islands is that while it was possible earlier to form an offshore company with bearer shares, this possibility has now been very tightly restricted. It is still possible today for an offshore company in the BVI to issue bearer shares, but such an offshore company will pay a minimum of 1100 USD in annual tax as opposed to 350 USD, and an offshore company formed this way has to deposit the issued shares with a person specifically authorised for the purpose.
Unfortunately, public opinion today is not particularly positive in its analysis of the offshore company. In many cases, even many economists see the offshore company as something dark, not totally legal and a company form which offers the possibility of providing dishonest solutions. Naturally, the various media have also contributed considerably to the negative image of the offshore company. For the press, ever-hungry for sensational stories, offshore companies are now more like celebrities who are always involved in some kind of scandal. If an offshore company appears in the news, the item hardly deals with the actual content of the transaction, but in most cases they immediately try to show the negative aspects of offshore companies.
So what really is an offshore company? The offshore company is an economic entity authorised to carry out the same economic activities as any other enterprise in the world. If we read the memorandum of association of an offshore company, one of the first points lists in detail all those activities which the offshore company can pursue. The real difference is that whereas an onshore company formed in a country with high rates of tax is forced to hand over a significant part of its income to the taxman, the offshore company only has to pay a fraction of the amount. A further advantage of the offshore company is more simplified administration. Just think how much more simple the life of the offshore company is, when it doesn't have to file audited accounts with the tax authority because this type of offshore company pays a fixed rate of annual tax. In this case, for example, the offshore company does not have to struggle with the accurate systemising of contracts and invoices and recording of receipts. Not to mention the fact that the offshore company is cheaper to operate as accounting fees can be saved legally. Furthermore, there are many other benefits to be gained through the formation of an offshore company, discovered long ago by clever businessmen who are now the successful operators of offshore companies.
The questions which clients put to our staff in regard to the formation and operation of offshore companies in 2009 were both interesting and informative. We would like to share some of them with you, in the hope that the questions and answers relating to offshore companies will be of great help to everyone in dispelling the numerous misconceptions surrounding offshore companies, and will also help people find orientation within the world of offshore companies.
Naturally, it is quite common today to hear that companies from tax havens will be abolished by 2015(?). If they really want to achieve this, then international cooperation on a scale never seen before in will be necessary, requiring the unified participation of every single country. Is this really conceivable when, for example, even the EU is unable to achieve a unified energy policy with the Russians? The abolition of offshore companies would entail some 40-50 tiny states having to repeal the laws regulating the formation of offshore from their legislation, thus removing the possibility of establishing such companies. But this would still not be enough, as this would only deal with the future. There is no legal solution for the abolition of the several million offshore companies which already exist, and no-one can be forced to give up their property.
This is an interesting conception, not without some truth. If an "onshore" company subject to high rates of tax comes up against an offshore company, then the advantageous tax regime undoubtedly provides benefits which will mean greater profits for the company, which can either be used for dividend payments or for further development. During a recession, an enterprise with greater liquid assets, either from its own sources or from bank loans, will certainly be more efficient and successful. If, therefore, as a result of favourable tax conditions, a company has been able for years or even decades to re-invest more in production or development, then it can enjoy significant advantages over competitors who may not have been employing efficient tax solutions.
Yes. Ownership of an offshore company itself is neither a crime nor tax fraud. However, it is very important to examine very thoroughly what tax obligations may arise, intentionally or otherwise - as defined by the laws, for the beneficiaries behind such a company in the country or countries in which they are resident for tax purposes after the income or profits generated by such a company.
While this is definitely true, loads of time can be wasted searching for the information. Using the services of a professional is justified because the knowledge which he has acquired over the years can save you a significant amount of time and money. No internet portal, forum or manual can replace the specialist's knowledge, which has been acquired through the experience of thousands of individual cases.
Within the financial field, this is a serious question of trust. Without a doubt, a lawyer who has worked with a client for a number of years may have a closer relationship, but lawyers, accountants and auditors are not specialists in the formation of offshore companies and they do not deal with this full time; in most cases, the formation of offshore companies is just a type of sideline. LAVECO Ltd., on the other hand, with its 19 years of experience and the infrastructure offered by its 6 offices, concentrates purely on the provision of these services, and as a result is able to provide its clients with a higher level of service.
The anti-money laundering laws of the given country force the banks to identify their clients when a new client relationship is established, and also to monitor continuously the transactions performed on the account while it is active. Although in international practice the identification documents required vary from bank to bank, the tendency is for the banks to request more and more documentation when opening accounts.
Yes, practices are totally different. In Western Europe and North America, companies are primarily established for asset protection purposes, while in Central and Eastern Europe offshore companies are more typically used for activities relating to trade, services and investments. Over recent years, however, it has been noticeable that eastern European practice is following the western trend, and here too asset protection will become the major purpose.
In addition to the advantages of the offshore company in direct taxation, there can be numerous other benefits. These include simpler and cheaper administration, the possibility to use and move funds more freely, anonymity, and asset protection. If, therefore, it is possible legally to operate and use offshore companies, then it is definitely worth choosing this format, as the benefits are not restricted to those associated with taxation.
Basically, this is a very difficult question to answer. It is absolutely essential that you consult a tax specialist in the country in which you are resident for tax purposes, in order to avoid any possible disagreeable tax consequences.
In international tax planning practice, the offshore company is one of the most effective tools for asset protection. There are, however, two vehicles in the offshore world which have been developed specifically for this purpose. These are the offshore trust and the offshore private foundation. There is a significant difference between the two: while the trust is a civil law agreement between two parties, the foundation is a legal entity which manages the assets entrusted to it.
We would not like to comment on the correctness of the bank's actions. In our opinion, it should not be possible for such details to be leaked from the bank, or rather they should not be using client details for marketing purposes. If the bank itself wants to serve the clients, then it certainly isn't well enough prepared to offer a high level of service. If they are offering the services through an outside company, then on what grounds are they using the details of the bank's clients?
Yes, this is possible, but we have to examine each case on individual basis before we can say yes or no to the client. Our decision will be based on consultations with the client and an investigation of the company.
LAVECO's policy is only to open accounts for companies ordered through LAVECO, or for which LAVECO provides the annual administration. We have no problem with the documentation provided by other offshore company formation agents, but our experience over the last 19 years has shown us that when we try to open accounts with papers from other agents, generally there is always something missing, and it is difficult to get the client to obtain these.