Ultimate Guide to Offshore Companies

The use of offshore companies has been a controversial and debated topic in recent years because it is directly associated with unusual activities to take advantage of the efficiency of offshore centers with tax benefits. However, what does the term “offshore” really mean, and what are the uses, benefits, and disadvantages of offshore companies?

¿ What is an offshore company? 

It is a legal entity (company) that is created in an offshore jurisdiction with a competitive tax and regulatory system, making its processing and maintenance easier.

As the term indicates, to qualify as “offshore,” the activity must be based in a country different from the company’s or investor’s country of origin. Therefore, even though the person or company has its base in one country, the business activity is carried out in another country.

Differences between an offshore and onshore company 

Onshore companies are registered and managed within the client or ultimate beneficial owner’s domicile. Offshore companies have their domicile in a location distant from the residence of their beneficial owner. Likewise, the assets of international companies are usually outside the country where the shareholder or beneficial owner lives, creating better alternatives for asset protection, estate planning, wealth planning, tax planning, more order, and greater agility in the disposal of assets and rights.

Legal uses of offshore companies

An international company provides services to non-residents seeking to cover needs such as asset protection, estate planning, wealth planning, and tax planning, as well as order and vitality in the administration and disposal of assets.

It is used to hold equity shares in subsidiaries of any jurisdiction, owner of movable and immovable property, merchant ships, pleasure yachts, and intellectual property; open and manage bank and investment accounts; serve as a guarantor and participate in loans and financial transactions; participate in all kinds of contracts (leases, leasing, sales, and others).

A use case would be that of an investor or entrepreneur who, having a professional or business activity, wants to legally separate it from his personal assets and thus protect the family’s assets foreseen any vicissitude, such as a lawsuit or insolvency process.

In other cases, offshore companies are set up, for example, to own real estate that will later be bequeathed without the need to initiate tedious probate proceedings.

Is it legal to own an offshore company?

It is important to note that an international company has full capacity to contract and obligate, so we must understand that these types of entities are completely lawful instruments as long as they are used correctly and with the necessary advice.

Setting up an international company in an offshore center is not illegal, but hiding its activity can be.

Most international entities have no or very low income tax rates. The income or profits derived from these extraterritorial entities must be declared by clients, shareholders, or ultimate beneficial owners of these entities in the place of their tax domicile. There are no drawbacks, impediments, or problems in owning extraterritorial entities as long as the client complies with his obligations in his country of domicile.

Benefits of international companies in offshore centers

Fast registration, simple administration, and easy dissolution; No need for mandatory meetings; No minimum capital requirement for incorporation; Directors, officials, shareholders, and beneficial owners can reside in any country; They can contract, open accounts, and oblige themselves with ease.

What are the best countries or jurisdictions to set up an international company?

Preferred are those with a good reputation for their seriousness and continuity, such as Panama, the British Virgin Islands, Belize, Anguilla, Seychelles, Samoa, Costa Rica, the United States (Delaware, Florida, Wyoming, Nevada), and the Marshall Islands.

For more complex transactions, Barbados, the United Kingdom, Canada, Hong Kong, and others are preferred. The use of nominal services or the involvement of provider personnel as directors or dignitaries of entities is allowed.

What are the main differences between one offshore jurisdiction and another?

These jurisdictions differ in several aspects:

  • Price, government license or annual fee, number of directors, number of dignitaries, name of government agencies;
  • Need to demonstrate economic substance;
  • Requirement to annually submit accounting records and supporting documentation;
  • Number, complexity, and frequency of compliance or due diligence document submissions;
  • Existence of private and/or government records of ultimate beneficial owners;
  • Annual reporting requirements;
  • And obligations to maintain corporate documentation at the Registered Agent’s offices.

How do double taxation treaties work if I have an international company in an offshore center?

Each extraterritorial jurisdiction has a different list of countries with which it has signed treaties to avoid double taxation. Upon request, the client would be provided with explanations of the benefits of these treaties in applying preferential tax rates. In addition, there are multilateral automatic financial information exchange agreements (known as CRS and FATCA). These agreements do not apply to extraterritorial entities, but they do apply to the institutions in which these entities open bank and/or securities accounts.

Tax benefits of offshore jurisdictions with double taxation treaties

In the case of Spain, there are tax benefits to redomiciling a Foreign Securities Holding Entity (ETVE) and using Panamanian companies to acquire properties in Spain.

Spain currently has a special relationship with Panama, based on the tax agreements signed and implemented between these countries, which classify Panama as a cooperative tax jurisdiction. Therefore, Panama is well received for use as a holding entity for participation certificates of subsidiary companies of European Union countries and as the owner of properties in Spain because the Panamanian company is considered “non-resident,” with the tax benefits that this implies.

At ILH Law, we have a team of lawyers with over 30 years of experience in the formation and management of international companies in the main jurisdictions, providing our clients with personalized advice adapted to their needs, always ensuring the protection of their assets through legal instruments.

If you need advice, schedule a meeting here!