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Uses of Offshore Companies
The reasons for owning an offshore company will, of course, vary from person to person and we recommend that you obtain specialist tax advice before establishing your company. The tax and other advantages which can be gained will depend upon the country of residence of the beneficial owner and its anti-avoidance legislation. The following uses may be considered:-
When a person is domiciled outside a territory and owns assets located in that territory, for instance, property, then such assets may be protected against inheritance tax and higher rates of taxation by holding the assets through an offshore investment company.
Investment in property, stocks and shares, commodities and other assets. The offshore company will provide anonymity and tax savings. Funds accumulated can be invested or deposited throughout the world, although the funds are subject to the tax regimes of the countries in which the investments are located. There are countries with tax free bonds or bank deposits where interest is paid gross.
A person working overseas may be able to limit his tax burden by receiving into the relevant country a fixed level of remuneration and accumulate the balance outside. Similarly, designers, authors, consultants and entertainers may assign or contract with an offshore company the right to receive fees due under a contract for services.
The purchase or assignment of the right to use a copyright, patent trademark or licensed know how may be made to an offshore company. Such royalties income may be accumulated in the offshore jurisdiction without being subject to taxation in the country of the company's incorporation. However, it should be noted that the royalties may be subject to withholding tax at source. This is the case in the United Kingdom where the witholding tax is the basic rate of tax. Occasionally, depending upon double taxation agreements, the interposing of a second company, in another jurisdiction may reduce the rate of tax withheld at source.
An offshore company may act as a distributor or sales company accepting orders directly from the customer and arranging delivery of the goods direct to the customer from the manufacturer or place of purchase. In particular with respect to European Union customers, an Isle of Man company will be particularly suitable for the purchase of goods from one country and export on to another.
In view of the recent success of the United Kingdom Inland Revenue this type of situation is not suitable for one company to purchase its supplies from overseas and then to sell the same to one other customer in the United Kingdom. Such transfer pricing arrangements have been deemed illegal and in addition to fines the principals concerned, and their advisors, have been imprisoned.
Ships or yachts may be registered with the Registrar for British Ports and, in certain circumstances, earn tax free profits.
Captive insurance companies have been established by many national companies to insure and reinsure the risks within their business.
Many of the difficulties and expenses associated with the investment in overseas property, such as holiday villas, may be avoided through the use of an offshore company to hold the title of the property. Sales of the property at a future date can be dealt with quickly and easily by the sale of the company shares to the purchaser. This also saves legal fees and overseas transfer and value added taxes levied by certain foreign countries. Overseas property is further discussed in a separate section.
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