How Can An Offshore Company Be Used?

Listed below are just some of the ways our clients use their Offshore Companies. Intended as no more than a general guide, and avoiding technical terms, it is meant to give you an idea of how versatile offshore companies can be. Naturally, we can give you precise advice on how best to achieve your goals by using an offshore company. All you need to do is ask.

International Trading using an Offshore Company

How to use an offshore company

Import and Export transactions can be made significantly more tax-efficient if they're carried out through offshore companies. Using an offshore company as an intermediary between a seller and a buyer of products or services in different countries allows profits to be accumulated offshore. (This is often called Transfer-Pricing.) Such offshore-companies are generally called marketing or export consultancies, and, with nominees handling all offshore company administration such as phone calls, emails or faxes, the appearance of the company is greatly enhanced.

Although invoicing is invariably carried out via the offshore company, the goods can, nevertheless, normally be delivered direct from seller to buyer.

Such devices can be particularly beneficial for transactions between EU countries, with VAT accounting problems solved by registration in a suitable location, such as the UK or Southern Ireland, the onshore company then working in conjunction with another corporate vehicle, for example a Belize company.

Factoring of debts using an offshore company also offers possibilities to move money from a high-tax to a low-tax area.

Manufacturing

Some countries have a preferential tax-rate for manufacturers, and this can be exploited by establishing a manufacturing company in the appropriate jurisdiction and separating the manufacturing parts of the company's operations from its other functions by basing it in such a free-trade zone. Structured correctly, huge savings can be made.

Offshore Investment companies

An Cloud Worldwide Ltd is often used to make investments and accumulate wealth. Just as an onshore company can invest in stocks, shares, property or commodities, so can an offshore company. The only difference is that the offshore company doesn't have to pay tax on its profits, nor inheritance tax when it is passed on to heirs.

In many jurisdictions, Withholding Tax is levied on income remitted out of the jurisdiction, but the careful use of double-tax treaties can reduce or even eliminate tax on the investment income. This may enable the investor to make investments in high-tax countries from an offshore base with minimal tax liability.

In some countries, interest is paid gross on tax-free bonds or bank deposits and this can be integrated into the client's tax planning. In certain circumstances, interest may be rolled up without income being remitted, and, in some jurisdictions, death duties and capital gains taxes are not levied.

Most importantly, the use of an offshore company also protects the identity of the ultimate beneficial owner. Anonymity comes automatically with offshore companies, and is respected by the law in the offshore world

Offshore Holding companies

Offshore holding companies can handle dividend receipts from a spread of subsidiaries. This allows a group to centralise its resources and maximise tax benefits. Careful use of tax treaties is necessary to obtain the best results.

Various locations, both on and offshore, can be used, with the holding company funding subsidiaries in a tax-efficient manner.

Property-owning Companies Registered Offshore

Placing property into the ownership of an offshore company yields many immediate advantages, including the avoidance of Inheritance Tax and Capital Gains Tax. This is because the anonymously-owned offshore company changes hands in the event of death or re-sale, not the property.

Additionally, any subsequent sale is greatly simplified. In some countries the establishment of title is time-consuming and costly; but once title has been established for a company-owned property it never needs to be dealt with again. This is because the sale can be made by transferring the shares of the company, with title to the property remaining vested in the company. In other words, the company can be sold instead of the property.

Sales by share-transfer almost always save on legal fees, together with any transfer or value-added taxes that are levied in some countries. Government stamp-duties and capital gains taxes can also be avoided.

Probate

The ownership of a portfolio of investments through a single offshore holding company greatly simplifies probate procedures upon the owner's death. It is easy and anonymous to deal with an Offshore Banking in this way. Probate can be applied for in one offshore jurisdiction rather than in several different countries where the assets are located.

Legal fees are often significantly reduced and publicity can be avoided for high-profile individuals and families.

Consultancy and services

Consultants, financial advisors, real estate agents, musicians, security consultants, bodyguards and entertainers often receive much of their income from overseas.

This income can be remitted to an offshore company, which is the individual's employer, and, after paying only a modest amount for expenses, thus retains the bulk of the funds in an offshore account.

Employment overseas is often facilitated by the use of an offshore employment company. This can either employ an individual or a group of individuals working overseas. The employee keeps the bulk of his income outside the country of employment. This type of structure can also reduce currency exchange problems and circumvent a number of employment and residency obstacles. For further information on this, please see our Offshore Payroll section.

Offshore Ship and yacht ownership

It's often advantageous to pass ownership of a vessel to an offshore company. As well as securing significant tax benefits, it can also provide an easy registration procedure for yachts, which in certain countries can only be registered on the major national register with onerous compliance requirements.

We can provide a separate offshore company formation to operate or charter the vessel, thus separating ownership and income for additional tax benefits.

Intellectual property

Patents, copyrights, trade marks, franchises and other rights such as those in music, computer software and technical know-how can all be transferred to the ownership of a licensing company, either offshore or onshore. The licensing company enters into licence or franchise agreements with the original company owner and then receives royalty payments and licence fees.

Insurance companies

Most offshore centres will only accept registration of insurance companies which are subsidiaries of existing insurance groups, or which are very heavily capitalised. Nevertheless, in several first-class jurisdictions it is still surprisingly easy to register an insurance company that would not meet the capitalisation requirements of the UK.

Offshore Internet Trading

One of the fastest growing areas of international trade is the Internet. The international nature of the trade and the potential tax complications of dealing across borders can be solved by the creation of a specialist internet trading company offshore.

To obtain favourable tax treatment, it is best to locate the server physically offshore. However, you can still use a normal domain name.Your customers would not notice any difference, no matter where the server was hosted. We can assist with Web Design and Offshore Hosting or simply give you free advice if you require it.

Though the opinion is often expressed that such operations are 'all in cyberspace' and therefore location is not important, it remains a fact that regulation is increasing and planning should anticipate possible future developments. Although the Americans seem determined to keep the internet tax free, no one really knows how it will turn out long term. True to form, EU legislation concerning the sale of downloadable products and services relating to the payment of VAT is making things more complicated. An example of this is eBay: if you live in the EU you have to pay VAT on your invoices, but if your billing address is outside the EU you don't. This is the result of EU legislation which came into force in July 2003.

Asset Protection using an Offshore Company

An offshore company can be perfect for Asset Protection. Transferring title to assets to an offshore trust means that the settlor (the person who gives up ownership in favour of the trust) no longer visibly controls these assets. This means that they cannot be seized in cases of insolvency, marital proceedings, professional negligence, or by the taxman.

However, if the trust was set up intentionally to avoid a known current or future liability it may be set aside by the courts. Particular care is needed in the US and, since the 2004 budget, the UK is also looking closely at trusts.

Regardless of problems in some countries, trusts, when correctly structured, are excellent asset protection vehicles, and are extremely flexible in times of political and economic instability.

A further advantage of trust formation is that 100% anonymity is still possible and a trust can perform all the functions of a company without some of the restrictions that apply to companies.

Family wealth protection

Trusts are often used to safeguard family wealth by imposing conditions on the use and distribution of money and assets by present and future generations. Such arrangements may also replace a will in certain circumstances. Trusts can be used legitimately to avoid 'forced heirship' provisions affecting inheritance. Inheritance, capital gains and income taxes can all be minimised in this way.

Currency Traders Dump Bernanke

On January 31, 2006, Ben Bernanke officially replaced Alan Greenspan as Chairman of America's Federal Reserve Bank. At that time, the EUR/USD and USD/JPY exchange rates hovered around 1.20 and 118, respectively. For the first year of his tenure, Bernanke lived up to investor expectations and burnished his credentials as an inflation fighter by continuing a string of interest rate hikes begun by Greenspan. Fast forward to today, where the US economy is in tatters, inflation is raging, home and equity prices are slumping, and the Dollar has declined to $1.55 against the Euro and 100 against the Japanese Yen. Meanwhile, forex volatility levels are climbing rapidly, suggesting that the Dollar's troubles still havn't reached their climax.

Needless to say, currency traders- and a whole host of other investors and analysts- are furious with Bernanke. Many insist that he misled them, by downplaying the seriousness of housing jitters and insisiting stubbornly that inflation isn't a problem. Even now, he is lowering interest rates in order to spur the economy, but at the expense of price stability. As any experienced currency trader can attest, low interest rates and high inflation are a recipe for a weak currency. Reuters reports:

Bernanke "has sacrificed the dollar in an attempt to save jobs and U.S. business," said one analyst. "He had to do something, but at the same time he is only putting off the crisis. We will face tight credit for a decade and we will have stagflation."

The Yen Marches On

In recent periods of Dollar Weakness, all of the major currencies have been quick to capitalize- all but the Japanese Yen. After a while, it became clear that the Yen was being held down by carry traders, who sold Yen in favor of higher-yielding, more risky currencies. It was long believed that the only thing that would shake the Yen loose from its moorings was not a Japanese interest rate hike or economic growth, but volatility in capital and forex markets. Sure enough, the explosion of the credit crisis induced a rapid appreciation in the Yen. Yesterday, it crashed through the psychological milestone of 100 for the first time since 1995.

But can the Yen sustain this momentum? On paper, if the Dollar continues to fall, it seems the answer is 'Yes.' However, Japan's economy is extremely dependent on exports. In fact, 50% of its 2007 GDP growth can be attributed to exports. With the Dollar crashing, Japan's exports are becoming less competitive, and its exports to the US (estimated at $150 Billion) are in jeopardy. In addition, Japanese consumers are notoriously tight-fisted, so it's unclear who would pick up the slack if the export sector falters. This begs another question: will the Bank of Japan be forced to intervene in currency markets (like it did in 1995) in order to prevent its economy from dipping into recession? The Wall Street Journal reports:

Its big budget deficit makes a stimulus package more difficult. Intervention -- which Tokyo also tried in 2004 during a bout of yen strength -- would fly in the face of efforts by the U.S. and other nations to let markets decide currency values.

Bank Collapses, Dollar Plummets

Over the weekend, Bear Stearns, a prestigious American investment bank, hurriedly scrambled to find a buyer in order to avoid having to file for bankruptcy. While a buyer (JP Morgan) was ultimately secured, investors remained jittery, as the collapse of this magnitude is virtually unprecedented. When forex markets re-opened on Monday, the Dollar crashed against all of the world's major currencies, namely the Euro and the Yen. Furthermore, analysts are now beginning to view forex intervention as increasingly likely. It's still unclear whether the Bank of Japan or the European Central Bank (with or without support from the Fed) would spearhead any such intervention. At the breakneck speed at which events are unfolding, however, no one will be surprised if a plan is quickly cobbled together. The Wall Street Journal reports:

"Were such intervention to be seen, (the euro) could briefly trade down to $1.55, yet unless the (ECB) is prepared to back up such intervention with a rate cut, intervention will be futile," said [one analyst].

BOC to Cut Rates Further

Ironically, the faltering US economy has induced the Dollar to appreciate against many of the world's currencies. The reasoning is that countries whose economies are tied closely to the US will falter even more than the US during a recession. One of those countries is apparently Canada. As a result, the Bank of Canada has already moved to cut rates by 50 basis points in order to mitigate against a full-blown Canadian recession. All of the economic indicators are already pointing downwards and GDP growth is projected to be a paltry 1.8% in 2008. In addition, exports to Canada's largest trade partner, the US, have sagged noticeably, such that its current account recently slipped into deficit for the first time in nearly a decade. The Bank of Canada is busy plotting strategy, with additional rate cuts in the offing. It looks like the monumental run of the Loonie has finally come to an end. Bloomberg News reports:

Canada's dollar will probably remain within the range it has held since the start of the year because investors are still avoiding risk amid the unsettled U.S. economic outlook. It has traded within about 4 percent of parity with its U.S. counterpart, after surging last year as high as 17 percent.

Fed Rate Cut has Small Effect

On Tuesday, the Federal Reserve Bank lowered its benchmark federal funds rate by 75 basis points, its sharpest cut in decades. The markets initially reacted positively to the move, which was intended to shore up sagging confidence in the economy and financial markets. But the next day, most of the gains had been lost, as investors feared both that the recession has already begun and that the Fed is giving up on fighting inflation to battle the lost cause of the economy. In fact, as many analysts feel a recession is a foregone conclusion, the focus may soon turn to inflation, especially given exploding commodity prices and the sagging dollar. The New York Times reports:

"I'm disappointed," said an economist at Citigroup. "It's not as if we're trying to gauge policy priorities on a sunny day. I'd like to know how you're going to get inflation in an environment with suffocating financial restraint and pervasive slowing in demand."

USD: 0 for 3

In a recent commentary piece, the Market Oracle used the analogy of baseball to outline why this will be an "off year" for the Dollar, listing three reasons to support its claim. Consumer spending was listed first because it represents the largest component of US GDP. Since much consumption is financed through borrowing and since the credit crunch has forced banks to rein in lending, the Oracle reasoned that consumer spending will be especially hard hit. Next, there is the worsening employment picture. As its moniker implies, the "jobless recovery" that has characterized the US economy over the last few years did not add many jobs, and due to the economic downturn, jobs are now being shed. Finally, the Market Oracle has identified the Federal Reserve as a primary contributor to the decline of the Dollar. While the Fed is trying to shore up the economy, it is simultaneously enabling inflation. Thus, even if the battle is won and recession is averted, the Fed may still find that it has lost the war- on prices.

Brazil to Alter Forex Rules

In a thinly disguised effort to stem the appreciation of its currency, Brazil has announced sweeping changes to its rules governing forex. Rather than revert to outright intervention in the forex markets, however, Brazil will permit businesses to hold more foreign currency as part of their reserves. In this way, the Central Bank won't have to purchase Dollar-denominated assets directly. Instead, it is hoping that the natural attraction of US and other Western capital markets will be enough to drive private Brazilian companies to increase their holdings abroad. It is intended that this will act against the upward pressure on the Real, which rose 20% against the Dollar in 2007, and 5% already in 2008, and now threatens to drag down the economy. Dow Jones reports:

The strong real has made some Brazilian manufactured exports such as textiles and footwear less competitive. Meanwhile, it also has introduced a boom in imports resulting in a narrowing of the country's trade surplus.