The word ‘offshore’ often refers to small island states that offer various advantages to foreigners wishing to make investments there. The word can also refer to any country (not necessarily a small island state) that offers special benefits to foreign investors. Probably the most important advantage is the opportunity to pay less in taxes by establishing an offshore company and/ or opening an offshore bank account. Several years ago, offshores boasted another important advantage too. Namely, the information about your offshore company/ bank account was concealed from literally everybody including the tax authorities of your home country. However, thanks to the global de-offshorization campaign this advantage is unavailable any longer. Even though the offshore company information is kept secret for the public, the fiscal authorities and other government bodies can have access to it on an official request. In any case, the tax incentives that offshores offer make many entrepreneurs register companies in offshore jurisdictions just like in register company singapore.
Small insular countries often do not have sufficient natural resources to rely on. This makes them look for some additional sources of income. Some island states are lucky to be located in the areas where summer lasts forever and thus, they develop their tourist sectors. Many of them also try to attract foreign direct investments by offering financial services and legal guarantees to those foreign nationals who register companies or trusts on their territories.
How do the tax incentives that offshores offer help them to make profits? At the first glance, if a foreign company pays nothing or little in taxes in the country, it does not actually make any significant contributions to the national budget. This is partially true but having a small piece of the pie is better than having nothing at all.
Foreign investors registering companies in offshore jurisdictions do bring some money to their national budgets. The company registration itself comes at a price even though the price is not very high. Besides, the company Registration Certificate has to be extended every year, which means that every foreign company registered in an offshore jurisdiction pays an annual registration extension fee.
In addition to that, many offshore countries have surrendered to the pressure on the part of international organizations such as FATF and OECD, for example, and started to require that foreign companies have some tangible assets in the countries usually referred to as ‘economic substance’ or simply ‘substance’. The requirements are not extremely tough: in some offshore jurisdictions, you have to rent a company office while in some others a registered legal address and a virtual office will be enough. Please also bear in mind that in some cases, you also have to hire a local company Director and/ or Secretary and sign a service agreement with a local accountant.
The rent of a registered legal address does not cost very much. The rent of office space costs a bit more but not too much either. You also do not have to pay a full salary to the company Director/ Secretary/ accountant if you have to hire one, two or all of them – only a couple hundred dollars per month. We do not mean to say that a person living in an offshore country can survive with this sort of monthly income. The matter is that your local company Secretary, for instance, is going to be a ‘professional’ company Secretary. This means that he or she will be providing secretarial services to several foreign companies registered in the country. Now, when several employers pay small sums of money to one person, he or she can certainly get by.
If your offshore-registered company opens a corporate account in a local bank, this will also be an important contribution to the economic development of the country. When the bank has a larger amount of money, it can maneuver in the financial market with greater ease. It can make more profits. It can pay higher salaries to the bank officers.
As you can see, you will be making contributions to the economy of the host country if you register an offshore company even though you will be paying very little in taxes. Your contributions may not be so great but as we have noted above, something is better than nothing.
Probably the main reason to register an offshore company is the opportunity to economize on taxes. The corporate tax in Italy, for example, is between 23% and 43%; in Germany, it is between 14% and 45%; in Great Britain, it is between 20% and 45%. There are countries where corporate tax rates are even higher. If you compare these figures to the corporate income tax rate in some offshore countries, you will want to register an offshore company in all likelihood: it is 0% there. Because you will have to pay nothing in taxes, your offshore investment returns can be much greater than the ones that you can get onshore.
As you do not owe anything in taxes to the local government, then why should they bother with obtaining financial and accounting reports from you? If they made you submit the reports, it would actually entail additional costs for them because some government official would have to read and register your reports. So, why bother with reports if you are paying nothing in taxes anyway? Relaxed reporting requirements is one more important advantage that offshore jurisdictions offer to international entrepreneurs.
Another benefit that you can gain from establishing an offshore company is more of a political benefit rather than a financial one. Investing in local business can make you qualified for the so-called ‘economic citizenship’ of some offshore countries. In simple words, you can ‘buy’ a second passport while simultaneously enjoying all the business advantages that are available in offshore jurisdictions. The claim that it is necessary to have dual (or triple) citizenship needs little support today. Watch the evening news and you will realize that the world has ceased to be a stable place to live. Having a ‘Plan B’ is a must if only you can afford it.