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Beginning
early in the 20th Century, many countries set up legislations
to allow non resident entities to establish limited liability
or international business companies to conduct business
outside their jurisdictions. These countries in general
are called offshore jurisdictions. These companies in
general are called offshore companies.
The offshore sector has grown ever faster in response
to the globalization trend and it is estimated now that
more than half of the world wealth is offshore.
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Most
of offshore companies enjoy favorable tax treatment. Offshore
companies in general do not have to pay any taxes to the
local government but only a fixed annual government fee; |
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Bank
accounts under offshore companies' names can be opened
with most of the international banks, such as HSBC, Standard
& Charted Bank and BNP Paribas, etc. |
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Offshore
jurisdictions in general have no foreign exchange controls
which allow offshore companies to remit funds in and out
of the countries freely; |
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Offshore companies
enjoy high degree of confidentialities as companies' information
such as directors and shareholders' details are protected
by local laws; |
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| International
Trade |
| The movement of
goods across international borders offers many opportunities
for the use of offshore companies. Offshore companies
are often interposed in between buying company and selling
company to |
| 1. |
Keep the buyer
and seller's identity confidential |
| 2. |
Centralize
procurements to reach scale of economics |
| 3. |
Accumulate
profits in tax favorable jurisdictions |
| 4. |
Act as commission
agencies |
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| The recently developed
ecommerce often conduct their trading business or consultancy
services to overseas contractors or foreign clients via
offshore companies. |
| Financial
Holding and Investment Activities |
| Offshore companies
are often used for variety of corporate financing and
investment activities, some of which are indicted in the
followings: |
| 1. |
To invest into foreign based subsidiary or associated
companies, |
| 2. |
To
mix profits and losses from subsidiaries to lower
the effective tax rates |
| 3. |
To
obtain financing from institutions that are themselves
free of high taxation and therefore lower the financing
costs |
| 4. |
To hold foreign real estate, |
| 5. |
To
hold equities or bonds quoted on overseas or domestic
stock exchanges |
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| Taxations on capital
gains arise from the disposal of particular investments
or on dividends payments or on interests received may
be reduced or even be exempted through the use of an offshore
company incorporated in a low or zero tax jurisdictions |
| IPO
Planning |
| Offshore companies
are often used by companies who plan to go IPO overseas.
For example, companies wish to be listed on the Hong Kong
Stock Exchange must be incorporated either in Hong Kong,
Cayman Islands, Bermuda or P. R. China. Different rules
and requirements apply for Chinese companies. Proper structure
is essential to the success of IPO. |
| Special
Projects |
| Offshore companies
are often used to establish separate legal entities to
hold projects, to form joint ventures, or to use offshore
funds to invest domestically. A separate legal entity
can effectively minimize risk exposure and insert layer
of protection to the established business. |
| Licensing |
| Intellectual property
such as patents, copyrights, designs, computer software,
and technical know-how may be owned by an offshore company.
The rights can be licensed to companies around the world
and the royalty payments can be accumulated offshore.
International franchises can be similarly structured through
an offshore company. |
| Utilising
Double Taxation Treaties |
| Offshore companies
are often used by companies wishing to conduct business
in a country where there is no double taxation treaty
with their home country. An intermediary offshore holding
company in a jurisdiction where there is a suitable treaty
enables those companies to benefit from double tax treaties
and add more flexibilities as to where the company wishes
to re-invest its foreign source income and when to remit
foreign earned profits back to there home country where
tax credits will be given. |
| Professional
Services |
| Professionals and
professional firms to offer their services internationally
often use offshore companies to reduce their tax liabilities. |
| Employment
Vehicle |
| Multinationals often
use offshore company as a vehicle to hire overseas employees
and to reduce their tax liabilities. |
| Offshore
Banking |
| Bank accounts can
often be opened under the name of offshore company either
onshore or offshore which enable the company to deal with
foreign currencies with more flexibility. |
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