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By utilising
an offshore company, it may be possible to secure a number of advantages.
In the following notes, we outline some of the structures which
are available and give examples of uses which may be made of offshore
companies. This is not intended as an exhaustive demonstration of
offshore possibilities and we would always remind clients that the
tax and other benefits which can be obtained by use of offshore
entities usually depend upon the country of residence of the beneficial
owner and its anti-avoidance legislation and regard has to be had,
too, for the requirements of any other country with which the offshore
entity might carry on its business.
Our professionally
qualified staff will be pleased to advise you on all aspects and
an initial consultation is always free of charge.
Typical uses
to which an offshore company might be put :
Trading
Companies
An importing
or exporting company might establish itself in an offshore area.
The offshore company would take orders directly from the customer,
but have the goods delivered directly to that customer from the
manufacturer or place of purchase. The profits arising out of the
difference between purchase price and sales price would then be
accumulated in either a tax free or low tax area. With such trading
companies, it is important to choose an offshore area which has
good communications as shipping and other documentation may be critical
to the scheme.
Investment
Companies
Funds accumulated
through investment companies set up in offshore areas can be invested
or deposited throughout the world and whilst generally returns or
interest payable in respect of these funds will be subject to local
taxation, there are a number of offshore areas in which funds may
be placed either in tax free bonds or as bank deposits where interest
is paid gross. Similarly, in many offshore areas no capital gains
taxes are applicable. Use of an offshore company incorporated in
a suitable country allows the possibility of investing tax efficiently
in a high tax country where there is a concessionary tax treaty
in respect of investments made by companies incorporated in the
offshore country.
Holding
Companies
Use may be made
of an offshore holding company which would fund the operation of
subsidiaries in various countries so that the subsidiaries obtain
the benefit of tax deductions on interest paid. If the holding company
is situated in an offshore area where there are no income or corporation
taxes and no requirement that dividends must be paid, then the profits
which are accumulated in the tax free climate can be used to fund
the requirement of subsidiaries or reinvested as business convenience
suggests.
Probate
and Privacy
A high net worth
individual with properties or other assets in a number of countries
may wish to hold these through the medium of a personal holding
company so that upon his demise probate would be applied for in
the country in which his company was incorporated rather than in
each of the countries in which he might hold assets. This saves
legal fees and avoids publicity. Again, not everybody wishes to
advertise wealth and an individual may wish to hold property through
an offshore entity simply because of the privacy which the offshore
arrangement gives.
Property
Owning Companies
There are often
great advantages in using an offshore property holding company for
the purpose of holding an overseas property. Advantages of offshore
property ownership include avoidance of inheritance tax, avoidance
of capital gains tax, ease of sale which is achieved by transferring
the shares in the company rather than transferring the property
owned by the company and reduction of property purchase costs to
the onward purchasers.
Taking the example
of investment in property in the United Kingdom by an offshore company,
use of an appropriate offshore vehicle can offer relief from income
tax, capital gains tax and inheritance tax. It should be remembered,
in particular, that when a nonresident company disposes of a property
investment, no capital gains tax is charged and holding through
an offshore company removes the application of inheritance tax which
would apply if a non-domiciled investor held a UK property in his
personal name.
Professional
Services
Individuals who
receive substantial fees in respect of their professional services
in capacities such as designers, consultants, authors or entertainers,
may assign or contract with an offshore company the right to receive
those fees. The offshore employment company may not have to pay
tax on its profits which can be reinvested in a tax free climate
to generate further income from the offshore company. Payments to
the individuals concerned can be structured in such a way as to
minimise their tax liabilities. One example in this regard in respect
of an overseas employment is to increase subsistence expenses as
against fees as such which would be paid to the individual.
Shipping
Companies
The use of offshore
shipping companies can eliminate direct or indirect taxation on
shipping. Shipping companies may own or charter ships, the profits
from which activities can be accumulated tax free. Tax and legal
requirements generally dictate that the offshore company owning
a shipping vessel should be incorporated in the jurisdiction whose
flag the ship flies. The historic havens for these purposes have
been Panama and Liberia. Latterly, the registries of other nations
have expanded and consideration might be given to registrations
at British Ports of Registry such as those in the Isle of Man and
Gibraltar. A certain prestige attaches to the registration of a
ship or indeed a yacht at a British port of registry and the vessel
can be surveyed at most ports throughout the world by a surveyor
recognised by the UK Department of Trade and Industry. The British
flag has always been regarded as one of the world's most dependable.
Patent,
Copyright and Royalty Companies
An offshore
company can purchase or be assigned the right to use a copyright,
patent, trademark or know-how by its original holders with a power
to sublicence. Upon acquisition of the intellectual property right
the offshore company can then enter into agreement with licensees
around the world who would be able to exploit the intellectual
property right in various countries. It is thought preferable to
acquire, for example, a patent at the patent pending stage before it
becomes very valuable so that the capital payment for the
acquisition of the patent can be set at a lower amount. Often
royalties paid out of a high tax area attract withholding taxes at
source. In many cases an interposing holding company may allow a
reduction in the rate of tax withheld at source.
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