New! How To Start an Offshore Company (revisited)
Offshore company formation is generally much easier than onshore incorporation, due to lax legislation and business-friendly regulation. You can have your company in as little as a couple of days from payment to your offshore service provider (OSP).
This article is by no means exhaustive.
There are a few things you need to consider before start your offshore company:
- What company form do you need?
- How many persons will be involved in the company?
- Which offshore jurisdiction is the best?
- What extra services do you need? Offshore bank account, nominees?
Offshore Company Legal Form
The first two questions go closely together.
Companies formed in the most popular offshore jurisdictions, in particular Belize, Seychelles, BVI, and Anguilla, are IBCs, which is short for International Business Company. They are called BCs in BVI, but there is virtually no difference between IBC and BC.
IBC – International Business Company
An IBC is very similar to a private limited company in that it has a board of directors, shares, and a share capital, but the shares cannot be publicly traded.
IBCs are characterized by many if not all of these features:
- Complete tax exemption. In lieu of taxation, an annual fee of usually 100 – 500 USD is charged.
- Strict confidentiality; no company details go on public records.
- No need to disclose ultimate beneficial owner (UBO).
- Very little limitation on business activities.
- Bearer shares or registered shares – neither of which go on public records.
- No requirements to perform bookkeeping and prepare accounts. No audits.
- Minimum of 1 director and 1 shareholder, which can be as few as one person or one legal entity in total.
There are several hundred thousand IBCs registered throughout the world. It is the most common legal form for offshore companies.
IBC can often use a wide range of suffixes: Ltd, Limited, Inc, Incorporated, Corp., Corporation, S.A., et cetera. Not all jurisdictions allow this. The Seychelles is among the most lenient.
Private Limited Company
Not surprisingly, the second most common legal form is private limited or variants thereof. This includes local variants, such as:
- Sociedad Anónima (S.A.): Panama, Costa Rica, Uruguay.
- Aktiengesellschaft (AG): Switzerland, Liechtenstein.
- Société Anonyme (S.A.): Luxembourg, Monaco, Switzerland, and Lebanon.
Private limited companies usually rely on non-residence or territorial taxation to be exempt from tax or apply a very low tax rate. Confidentiality is not as strict, with names of directors and in some cases shareholders often appearing on public record. This can usually be mitigated by using nominees or corporate directors and shareholders, where the corporate entity is an IBC.
These companies are usually required to perform bookkeeping and prepare accounts, and may be subject to audits.
Limited Liability Company
These are not particularly common in offshore jurisdictions but there are a couple of offshore jurisdictions where you can form an LLC:
- Anguilla
- Belize (Limited Duration Company, maximum 50 years)
- Costa Rica (Sociedad de Responsabilidad Limitada)
- Marshall Islands
- Panama (Sociedad de Responsabilidad Limitada)
- Saint Kitts and Nevis
- USA (most famously Delaware)
SÀRL
There are a handful of other legal forms, the main one being Société à responsabilité limitée (French) or Sociedade anónima de responsabilidade limitada (Portuguese), shortened SÀRL.
Originally a French concept, SÀRL can be found in Switzerland, Monaco, Luxembourg, and Lebanon.
A SÀRL company’s liability is limited to the contributions of its members. Transfer of shares require an agreement of half the shareholders, if the beneficiary is a third party.
GBC (Global Business Company) class I and II
This is a company legal form unique to Mauritius. GBC (Global Business Company) is formed in one of two classes:
- GBC class I: these are resident companies. They pay a nominal tax rate of 0 to 3%, require at least one local director, and are required to keep accounts.
- GBC class II: these are non-resident companies. There is no significant difference between GBC II and IBC.
Class I companies cost more to set up and maintain but they are granted access to Mauritius’ DTAs (double taxation agreement), which make them excellent tax reduction vehicles while still maintaining a high level of privacy.
Company Members
Offshore sole proprietorships are most often incorporated as IBC or private limited, where available with only one member.
There are ways around this.
Panama, for example, requires a minimum of three members in order to form a private limited (Sociedad Anónima). Many choose to either hire two or three nominees as members. Corporate directors can be used and one person can incorporate a S.A. in Panama with two or three other companies all belonging to the same person. Be warned though that Panamanian banks may find this structure off-putting.
The Best Offshore Incorporation Jurisdictions
The following are the most popular offshore jurisdictions and the common company legal form:
- Belize – IBC
- Seychelles – IBC
- British Virgin Islands (BVI) – BC
- Panama – Private Limited (Sociedad Anónima)
- Hong Kong – Private Limited
- Mauritius – GBC II
These six truly stand out in terms of number of offshore companies incorporated. A few years ago, the Cayman Islands and Bermuda and while there are still many companies there, they are no longer the largest in numbers of new offshore incorporations. The costs to incorporate in the Cayman Islands are significantly higher than other jurisdictions and Bermuda has moved away from tax exempt trading companies. The two may still have uses but they are becoming niche jurisdictions.
Below is a list of additional offshore jurisdictions where incorporation is popular:
- Anguilla – IBC
- Bahamas – IBC
- Costa Rica – Private Limited (Sociedad Anónima)
- Cyprus – Private Limited (non-resident)
- Dominica – IBC
- Gibraltar – Private Limited
- Malta – Private Limited
- Samoa – IBC
- Saint Kitts and Nevis – LLC
- United Arab Emirates (UAE):
- Dubai
- Ras al-Khaimah (RAK)
To see more jurisdictions, click here for a list of offshore jurisdictions.
Picking jurisdiction is not easy. It should be done together with a qualified adviser and after doing your own research.
Other Offshore Services: Bank account, Nominees
If you have visited a couple of OSP websites, you have no doubt noticed that they all offer miscellaneous services in addition to incorporation.
The first and most obvious one is bank account. I wrote another blog post titled “How to Open an Offshore Bank account” which details the process.
Nominees are persons (individuals or companies) which assumes director and/or shareholder roles in the company, in order to keep your name away of from the company records. This can be useful when incorporating in a jurisdiction which publishes names of directors and/or shareholders on public records. It can also be used in other jurisdiction as an additional layer of privacy. Note that using nominees make bank account opening on your own significantly harder, if not impossible.
Some OSPs offer virtual offices, which will be discussed in an upcoming article.
I would like to know why you included Costa Rica on this list. What would be the benefit of a Costa Rican corporation and would you choose the SA or SL ?
Costa Rica applies territorial taxation, very similar to Panama.
Whether to choose SA or SRL depends on the specific situation. SRL might be more suitable for smaller setups, since SAs have fairly high requirements on number of members.
I was recently thinking of moving our business to Cyprus and registering a newco there. Then the lawyers starting on about taxes, etc. Are you aware of what the tax regime is like in terms how you reports per quarter (VAT) or earnings specific to Cyprus. I know in Hong Kong we had to dissolve our firm as the HK tax department became to difficult to deal with. I just do not want to repeat the same scenario in Cyprus. Thought on this?
If you think Hong Kong tax authority was too difficult to work with, I can only imagine how miserable you’ll be when you start dealing with the Cypriot tax authority.
I don’t deal much directly with tax authorities on operational issues. That’s a task I trust CFO and accountants to handle. From what I’m told – and I’d recommend checking with other people as well – the Cyprios tax authority is a slow-moving machine which unfortunately has inherited a lot from Greek bureaucracy.
But I’m not really the right person to ask this, I’m afraid.
Great advice!! Very logical and well said.
Can a Foundation own an IBC? Supposing you opened your IBC’s bank with your Company Name per se — by transferring the IBC ownership to the Foundation — does this cause issue with the bank if the Foundation name is not the same???
Keeping in mind that what a foundation is might vary between jurisdictions – Yes, foundations can own IBCs. I’m told foundations (or trusts) can’t always act as directors since some jurisdictions might not recognize the trust as a suitable director (not a problem I’ve ever faced, though), but shareholding isn’t an issue.
Yes, it might cause an issue with the bank if the company’s ownership changes from you (as a natural person) to a foundation (even if controlled by you), without informing them. I always tell people to never lie to the bank. Chances are that no matter what your plans are, the banks is doing far shadier things.
What the bank will care about is identifying the UBO (ultimate beneficial owner) of the new owner. As long as you are able to declare the UBO or UBOs as well as managers/equivalent of the new owner, it’ll be fine in most cases. I would consider it unwise to form the IBC, open bank account, and then immediately hand over the IBC to a foundation, though. Build up trust with the bank. Let them know in advance.
Really interesting article.
I’m a Brit living and working here.
Want to offshore my company – don’t sell anything physical.
What’s my best approach please?
Thanks for the feedback!
There are two ways of doing. One includes tax evasion and really isn’t recommended. Sure, you could shift your company to an offshore entity, not declare taxes, and run it from home, but that can bite you in the behind. The other would include setting up some form of offshore ownership structure that likely costs a lot of money. There are a number of ways doing this, such as the Dutch Sandwich or Double Irish.
Make sure that the costs of such a structure are less than the tax savings you would make.
To set something like this up, I’d always suggest paying for quality professional advice from someone who is intimately familiar with your local laws and regulations. An accountant, tax adviser, or specialized lawyer should be the right person to discuss the details with.
Best of luck!
Hi Streber! Not sure if you are going to answer this one.. But If he chooses the tax evasion option, how likely do you think a government will find out of your ‘illegal’ offshore structure if you incorporate and bank in a jurisdiction with no DTA, TIEA with your country and also not on the list for the upcoming Automatic Information Exchange?
Hi balboni,
Thanks for your comments!
Until we have AEOI in place, authorities find out about tax evaders through whistleblowers or mistakes made by the tax evader.
Whisteblowers are fairly obvious. It can be a shareholder or a director at a company blowing the whistle on illegal tax practices at a business, or just a private person or someone else. Private individuals tipping each other off to the tax authority rarely leads anywhere since it’s usually about small amounts.
Mistakes made by the tax evaders account for the vast majority of busts that aren’t linked to something else, for example law enforcement winding up a drug smuggler and then going after them for tax evasion as well. Living above your means is a common mistake tax evaders make. If you’re declaring no or very little income with an address in the nice part of town, you might be subject to scrutiny and from there it’s often a quick and very painful road that leads to penalties and even prison sentences.
I go into the ins and outs of how treaties work in the post titled How Requests For Exchange of Information Under A TIEA Work.
The risks of being caught are largely up to the tax evader.
With AEOI, things will change. It will be a slow change, though, but it will come. Any financial interest held in any jurisdiction will be shared with the interest holder’s jurisdiction. It will then become a struggle of consolidating, analysing, and maintaining the enormous amounts of data involved. Spotting tax cheats will be easy, though, with the right systems in place. OECD wants it live in the next few years but it will likely not be fully as envision for many more years.
If there are no EOI mechanisms of any kind (TIEA, DTA, AEOI), it comes down to using other laws to share information. This is usually not possible with tax havens since they have specific secrecy laws that are only overriden by EOI mechanisms, unless there is serious political pressure or large public/international embarrassment involved. For mere tax matters, this is rare.
Thank you for your input; it was very helpful. And thank goodness for people like you making their expertise available on the internet, and for free. Really liked your very thorough reviews of the individual offshore service providers and also lesser known offshore jurisdictions. Great stuff and much appreciated. Best Wishes
I am a well-travelled Brit, of modest but not uncomfortable means, currently living in Europe. Am trying to figure out best locations: 1) for a long term personal base, and 2) and to incorporate my small, but globally oriented, documentary film production & services company. Reading through all the info on your website (really excellent, by the way) I realise I could do with some expert advice to walk though all the structure/ domicile/ banking options you present and help me work out the best ones for my particular circumstances. Is this something that a good OSP would provide, if you went through one to set things up and manage the resulting structure, or should this input be sought separately? If separately, anyone you can recommend? Yours Hopefully
Thanks for your kind words!
Going through an OSP may be sufficient, but keep in mind that they are often limited to the jurisdictions that they have on their menu. If you turn to an international giant like Deloitte, PWC, KPMG, or E&Y, you will get better (but more pricey) advice.
Generally speaking, for industries that require physical labour (which in your case would be the actual filming and documenting) are difficult to fit into offshore structures. What’s common, however, is to split such endeavours into multiple entities (for example subsidiaries with complex ownership structure):
Such a structure is expensive, with the IP holder being the most expensive to set up and maintain. However, if you have a fairly high turnover, it might be something to consider.
To be clear – I’m not giving advice here. Just letting you know what I’ve seen done and maybe give you some ideas to discuss with a qualified, paid adviser.