How to Start Your Offshore Journey? Opening an Offshore Company in 3 Steps

Questions to Ask When Setting up an Offshore Company

Establishing yourself offshore has never been more popular, as many people are seeking alternative resources and ways to save money, protect their privacy and assets in times of uncertainty.

Setting up an offshore company is simple, straightforward and can be completed in a matter of days with just a few basic personal details.

This article is to take you through how to set up an offshore company: from selection, registration, all the way to the formation process in order to break the commonly held idea that a company formation process is a burdensome affair with lots of difficulties and pain along the way.

Below we've outlined a few questions that are important to ask yourself as you begin to decide where to have your offshore company set up, the type of entity you would like to form and how you would like to structure your new company.

How to Set It Up

Creating an offshore company can be broken down into three steps. These days most company formation processes can be completed online with minimal documentation and fees in as little as a few days.

Open in 3 Steps

1. Offshore company selection - Choose your offshore company jurisdiction, type of company, and company name

2. Offshore company Setup - Submit fee, business plan and all personal documentation and KYC forms

3. Offshore company incorporation - Add on any extra services, bank account opening and understand your reporting obligation

1. Selection

The first task it to choose what jurisdiction and offshore vehicle structure is right for you. While not all jurisdictions and offshore structures are created equally and similar in benefits, there are many similarities and overlaps, without as much difference and variances as one would expect.

However, it is important to ask yourself:

• What is the main function of the entity?

Is it for Asset Protection, Charity, Estate Planning, Charity, Business, Investment, Holding Company, etc. Depending on your needs there are different offshore structures whether that is a Trust, Foundation or IBC, LLC etc...

Due to the continually changing nature of the offshore industry, especially when it comes to offshore tax laws, it is important to have up-to-date information, as local tax laws are increasingly changing due to global corporate pressures.

• Where in the world would you like to incorporate?

While there are formation vehicles all over the world, it is important to consider:

• Do you want to visit the destination and have easy access to it?
• Do you want to live in close geographical proximity?
• Is the jurisdiction right for my business?

While these are more practical questions. They are equally important to consider as many business owners or individuals like to keep things close to home.

1.1. Tax and Transparency Laws

The next set of questions is likely going to take some research as tax laws are different for each country. To make sure you are tax compliant it's important to speak to a qualified accountant or lawyer to make sure you are not missing anything.

• What are the tax laws in the offshore jurisdiction?
• Does the offshore jurisdiction have any tax agreements? Think: Double Taxation Agreements  (DTTs) or bilateral agreements
• Does the offshore country have any Information Exchange Agreements (TIEAs)?
• Does my country of residence have Controlled Foreign Corporation CFC laws? This will determine your reporting requirements and obligations to your country of residence.
• Is my country of residency a signatory of the Common Reporting Standard CRS? This will determine the level of privacy you will be able to achieve

Certain countries have reciprocal tax agreements such as DTTs that can help reduce the amount of taxes an individual must pay. While DTTs can help you save on taxes, CRS and TIEA do not.

Tax Information Exchange Agreements like the TIEA are a form of reciprocal tax information sharing that are signed between member countries. While there are still many offshore jurisdictions that are not signatories the number is quickly dwindling as more and more countries are being co-opted by the OCED to sign onto greater transparency measures.

The Common Reporting Standard (CRS) has been signed by over a hundred countries (108 as of this writing(2020)) effectively sharing tax rates and tax information of non-residents amongst member countries.

Controlled Foreign Corporation or (CFC) laws govern how corporations are treated as a tax entity. Every country has its own specific CFC laws and regulations which may or may not affect your company operation and structuring. Some countries have very strict CFC laws that essentially treat foreign corporations as local entities for tax purposes.

All of the above considerations are important as they will influence the company or business structure, location and corporate vehicle that would be used.

Though to a large extent, wherever your primary residence is, will largely determine your tax structuring and whether or not certain privacy services can be used as a means to remove the person from the corporate entity so as to maximize confidentiality, asset protection and privacy.

That is why it is so important to speak with an offshore specialist. Without such specialized knowledge, there is the risk of forming the wrong entity in the wrong jurisdiction, with the wrong corporate structure.

Forming a complete holistic offshore legal plan helps to ensure that all of the pieces are organised and that the offshore strategy fits with you the goals of the company.

1.2. Foreign Entity with a Bank Account

If you are starting an offshore company merely as a holding company for intellectual copyright for instance, then the following questions would not need to be asked. However, if you are entering into any type of financial transaction with clients or customers then you need to ask?

• Do I need a personal or corporate bank account with my company?

Opening an offshore bank account in many places does not need to be done in person and can be completed online.

However, the offshore banking industry has changed dramatically in the last few years and in many places, it is required to have a local company formed in the jurisdiction, requires more extensive background checks or more documentation.

While that is not always the case, it is becoming more common in places like Singapore, Panama, and Hong Kong where there are more restrictions, higher price tags and more due diligence.

Still, there are offshore jurisdictions like St Vincent, Nevis, or Andorra that do not require a local company and can be opened virtually without any in-person requirements.

Another important question:

• Do you have a virtual or internet-based business?
• Are you going to need a merchant account or payment processing?

If you are an online eCommerce site or are a company that needs to take online credit payments then setting up a merchant account or a similar payment process application is another piece of the offshore puzzle that needs to fit.

And Lastly:

• Do you require any corporate, management or secretary services for your company?

There are a number of associated corporate services that can be coupled with your offshore structure, such as: professional management, nominee services, secretarial services, mail forwarding, re-invoicing, virtual offices etc...

2. Setup

Once you have picked your offshore jurisdiction and company formation drawing up Articles of Association creates a legal document for the formation of the company.

The company-by-laws will layout the responsibilities of the Directors/Shareholders and create an internal structure for which the business operates.

The importance of a properly structured offshore company setup is obvious. Though often carelessly done, a company setup structure is especially important to properly secure assets and protect the privacy of the individuals in case of legal or financial duress. 

This becomes essential if there is a complex arrangement of companies or businesses, trusts, of foundations existing in a multi-jurisdictional arrangement with many directors, and owners.

2.1 Structuring

If a beneficial owner wishes to remain anonymous, in some rules and jurisdictions its is possible to use nominee shareholders or nominee directors that act as third party actors whose name and details will be recorded on the legal documents and accounts, however, they will remain fully under the purview of the beneficial owner who still maintains direct control of the company, yet remains unaffiliated. 

For entrepreneurs, investors, or individuals looking to maintain privacy, the use of a second LLC or IBC as a corporate director and shareholder can be used so that no individual's identity remains on the corporate registry.

While most offshore jurisdictions still have very strict privacy and banking secrecy laws, like the Cook Islands, and Nevis, there are many countries like the US and many parts of Europe that require individuals to declare and foreign ownership of a corporation, thus making your obligations to declare any companies and assets an obligation required by the country where you live. 

If you are lucky enough to live in a country that does not have CRS or any overly restrictive CFC laws, then you may be able to have a purely tax free entity that for all intents and purposes can remain anonymous.

Due to the change in many countries' transparency laws foreign governments, if you live in a country that is a signatory of the CRS then your government will have greater access to your foreign corporation information. However, these records would only be available to YOUR home government, and would not be apart of the local public registry. It just depends on the level of privacy and confidentiality that you are seeking. For most individuals, this is not much of an issue. However, if you are looking for complete anonymity and you live in a CRS member country, the only way to remain anonymous is to move to a tax haven or low tax country that is not a signatory.

2.2 Filing Documents 

Company registration requirements consist of: 

• name of director(s) or beneficial owner
• copy of passport
• proof of physical address
• processing and governmental fee

However, depending on the company and jurisdiction there might be a few more minor pieces of documentation such as more comprehensive Due Diligence or Know Your Customer (KYC) forms, a more extensive background check, that will need to be completed before the registration process can be finalized.

In some jurisdictions, requirements for opening an offshore bank account have become tighter and can require banking or professional reference letters, and a copy of a business plan.

This process usually takes a matter of days upwards of 1-2 weeks depending upon the jurisdiction and if there are longer background or due diligence checks.

3. Incorporation 

Once the appropriate offshore company registration and government fee are received together with all the necessary documents the application is sent to the relevant company registry. If the registration is not successful it is usually because the documentation is insufficient or they require a more thorough background check. However, in most cases more extensive checks are not required and offshore companies are formed without much trouble.

If successful, hard copies of the incorporation documents, or scanned versions detailing the specifics of your newly formed company along with a notice documenting any future annual fees that might be required by the jurisdiction. 

Corporate documents are usually received 6-8 weeks following company registration although the company registry number will already have been issued after the successful application usually within days to a week or two upon successful completion of the application.

Are You Ready to Incorporate Overseas?

Setting up a company offshore while it can be completed in just a few steps does take some research and someone who has walked this path before. Offshore company registration though simple, is not easy. Making sure you pick the right structure, in the right country for your business requires some careful deliberation.