Offshore Basics

The phrase “going offshore” refers to the process of creating a business or asset protection structure in one or more of a specific group of jurisdictions, the “offshore jurisdictions.” Each of these jurisdictions has, through its’ internal laws and regulations, created an environment of no or low taxes, personal privacy, stability and a sophisticated financial infrastructure.

Offshore jurisdictions offer a business friendly legal infrastructure which offers all of the commonly used business vehicles (ie Corporations, Trusts, Foundations, Limited Liability Companies, Partnerships etc.) in order to provide the maximum efficiency and flexibility in organization of world class international business structures.

By far the most popular offshore vehicle is the International Business Corporation (“IBC”.) An IBC is a legal corporation established under an offshore country’s internal corporation laws with some key differences that distinguish it from a domestic corporation.

  • Generally, an IBC may not conduct business in the jurisdiction of its incorporation beyond its internal corporate banking, management and compliance;
  • IBC’s may not own real property;
  • IBC’s enjoy the benefits of territorial taxation ie. they are not subject to taxation on income derived from sources outside their home jurisdiction. Since an IBC is not authorized to conduct business internally, it is effectively tax exempt in its home country.

IBC’s are the foundation of any offshore tax minimization and asset protection strategy. With the implementation of the European Unions Saving Tax Directive (“STD”) the use of offshore IBC’s have grown dramatically as the STD exempts income paid to corporations.

Another popular strategy is the use of an offshore non IBC type corporation in order to take advantage of a favorable double taxation treaty between the country of incorporation and the country where the profits are generated. This system allows the profits generated to be attributed to the offshore company in its home jurisdiction and taxed, per the treaty, at the more favorable rate, resulting in significant savings. This approach is commonly used where a company is engaged in ongoing business in a jurisdiction with unfavorable tax policies and/or rates. By utilizing an offshore company incorporated in a jurisdiction with a double taxation treaty, the negative impact of the primary country’s tax regime is minimized or eliminated altogether.

One of the primary reasons many astute clients go offshore is to take advantage of the increased privacy offered by most offshore jurisdictions.

The majority of offshore jurisdictions have strict civil and criminal penalties for the unauthorized disclosure of client/customer information. These jurisdictions also have a very restrictive policy on the accessibility to information by foreign governments and creditors.

This commitment to personal privacy is in stark contrast to the diminished privacy rights of individuals and company’s in the USA and UK. Even the European Union is eroding individual privacy in favor of governmental exchange of information for a variety of non criminal purposes.

What this means to you is: your information and affairs will remain confidential so long as you are not engaged in criminal activity (remember offshore jurisdictions do not consider tax matters to be “criminal” in nature so the financial dealings of persons and company’s remain protected from purely revenue related tax inquiries.)

To further enhance their privacy many individuals utilize nominee services to keep their name off of any official records.

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