WHAT DOES “OFFSHORE” MEAN?

“0ffshore” is a term that defines the organisational and legal status of a business entity. As a rule this status relates to the requirement that any business activity should be conducted outside the country of registration. In this case the entity is exempted from all or most taxes in the country of registration.

WHY MIGHT I WANT TO REGISTER AN OFFSHORE COMPANY?

Individuals and companies use offshore jurisdictions for different reasons but the following are often important motivations:

• Tax minimisation;
• Protection and enhancement of assets;
• Risk management;
• Cost reduction;
• Simplified regulation
• Political and/or economic instability
• Markets globalization
• Confidentiality
• Avoidance of bureaucracy and excessive regulation

Generally, both individuals and corporations are usually seeking a safe place to protect their assets and investments and optimise their tax planning

WHAT ARE THE LEGAL CONSIDERATIONS FOR STARTING AN OFFSHORE COMPANY AND/ OR OFFSHORE BANK ACCOUNTS?

It is completely, 100% legal to have companies, accounts, funds, reserves, liabilities, assets etc. almost anywhere in the world. However, when you do not declare assets or profits that should be declared according to your domestic tax code, you are subject to penalties and fines or even more. The key elements are whether the assets and profits are ‘reportable items’ in that current year. Setting up offshore is not illegal; however, withholding information about your offshore investments is illegal.

WHICH IS THE BEST OFFSHORE JURISDICTION?

Clients often ask us which offshore jurisdiction is the best for company incorporation. The answer depends on the intended use of the offshore entity and the client’s own personal or business reasons.

There are more than 50 jurisdictions worldwide providing offshore company legislation, so selecting the most suitable jurisdiction requires careful consideration. There are a number of factors to consider, the first being the political and economic stability of the jurisdiction in question. Furthermore, its corporate legislation should be able to guarantee confidentiality and complete privacy.

You also need to consider statutory compliance requirements, exchange controls, banking facilities, double taxation avoidance treaties, etc. Not to mention the costs of incorporation and professional services in the desired offshore centre. Always take professional advice; we work with and can offer advice to many professional advisors like tax advisors, accountants and solicitors as well as individuals.

A more detailed analysis of how to select a jurisdiction can be found in the subsequent chapters of this brochure. However, we always encourage clients to take an appropriate professional advice before setting up an offshore structure.

WHAT HAPPENS IF THE COMPANY IS NOT RENEWED ON ITS ANNIVERSARY?

Not renewing the company’s licence does not mean that company will be automatically struck off the register. The Registrar will write to the client with notice that renewal is due. If you definitely do not want to renew and want to avoid this procedure, then it is advisable that the company is properly closed down by being struck off.

If client decides not to renew, the registered agent will make notifications accordingly. It is highly advisable that the company applies to be formally struck off the Register, which is the simplest way of being removed provided you satisfy certain conditions. Charges for a strike off application will apply.

Clients can restore the company if they change their mind, but fees for doing so will apply. Also, this is usually more expensive than to open a new company.

WHAT IS THE LEGAL FRAMEWORK OF AN OFFSHORE COMPANY?

The ongoing primary attraction of incorporation is to limit the liability of investors. Limited liability legislation was first introduced in the nineteenth century to distinguish the liability of a corporation as a legal entity from the liability of its owners, thus limiting the losses of shareholders to the amount of the share capital which the owners had paid or undertaken to pay. Because a company is a legal entity distinct from its shareholders and directors, profits received by the company will generally be taxed at the rate to which the company is subject in its country of residence. Thus a resident of a high tax country may set up a company elsewhere which is subject to a low or zero rate of tax.

HOW TO INCORPORATE AN OFFSHORE СOMPANY?

Once a jurisdiction has been chosen, incorporation procedure starts with the nominating of a suitable company name.

The name should not be similar or identical to an existing name. The Registrar will refuse a name if it is already held by an existing company. Certain words such as “bank”, “insurance” and “trust” may only be used if the company is specifically licensed to engage in the activity concerned. In some jurisdictions there are other restrictions, for example the use of the word “international” in the Isle of Man is permitted only for companies with a paid-in capital not less than GBP 100,000. Normally it is the responsibility of the incorporator to choose a name that does not cause confusion.

Authorised share capital can be as high as the client chooses. However, in most jurisdictions annual flat rate taxes are levied in respect of the company’s total share capital. In this case we recommend that a company be incorporated with the highest authorised share capital to qualify for the minimum registration and annual maintenance fees. There are two main types of share: registered and bearer. In the case of registered shares the share-holder’s name appears on the certificate. With bearer shares the owner holds a certificate, which states that “the bearer” owns the shares in question. Owners of bearer shares enjoy greater confidentiality but less security, because if the bearer share certificate is lost it is extremely difficult to prove ownership of the company. In many jurisdictions the details of registered shareholders are not publicly disclosed. Therefore for greater security and confidentiality we recommend that registered shares be issued and that nominee shareholders be appointed.

Registered office and agent, company secretary and other domiciliary requirements vary in different jurisdictions. A registered office need not be a place where actual business is conducted, but it is a place at which all official notices may be received. Most offshore jurisdictions’ legislation requires that the office must be run from premises in the country of incorporation. There is an additional requirement in a number of jurisdictions to employ a registered agent to act as the company’s official representative in the country of incorporation. In some offshore jurisdictions it is a legal requirement to appoint a company secretary who is responsible for making sure that the company is in good standing and all the necessary returns are made to the Registrar and Government.

The Board of Directors of the company in some jurisdictions may be formed with a minimum of one, two or even three directors. To prevent a situation whereby the company is deemed to be resident in a high tax country where the directors reside, we strongly recommend using professional nominee directors who reside in a fiscally neutral overseas jurisdiction. As a client is effectively giving over control of his business to a third party, it is very important that he deals only with a reputable offshore services provider.

Company Express Group has over 20 years’ professional experience. We have successfully incorporated and managed thousands of companies. We are able to meet all company formation requirements and provide our clients with top quality offshore services.

WHY OPEN AN OFFSHORE BANK ACCOUNT?

There are a number of reasons for opening a corporate or personal bank account in an offshore jurisdiction. An offshore account gives a higher level of freedom, security and profitability. Many offshore countries guarantee bank secrecy. In some, bank secrecy laws are so strict that it is a crime for a bank employee to disclose any information about a bank account or its owner. Currency control in offshore countries is considerably less rigid than in high-tax countries. Moreover, offshore bank accounts are able to avoid the high service costs that have become a part of domestic banking. Offshore banks normally offer very attractive interest rates. Offshore credit and debit cards afford a certain level of privacy since all purchases are debited to the offshore bank account.

At the same time, some offshore banks are financially stronger and better managed than even major domestic banks. This is the case because an offshore bank must maintain a higher ratio of liquid assets to accumulated debts.

For the above mentioned reasons it could indeed make sense to operate a bank account in an offshore jurisdiction where it is safe from domestic fiscal authorities, creditors, competitors, ex- spouses and other who might wish to appropriate your wealth.

WHAT ARE REQUIREMENTS FOR OPENING A BANK ACCOUNT?

Banks normally require you to provide them with certified copies of a company’s certificate of incorporation, bylaws or Memorandum and Articles of Association, plus the resolution of the directors to open a bank account. All banks also require evidence of beneficial ownership in the form of certified copies of passports and the relevant resolutions by the Board. Banks have to know their customers’ business and therefore we will require clients to provide us with detailed plans for the new company’s operations. As a condition for opening a new account, most banks require that an initial deposit be placed, and some banks may insist that significant minimum balances be maintained.

In order to prevent money laundering, banks require the following information on each beneficial owner, director, account signatory and all other persons able to exert control over the company before we can process an application to open a corporate bank account:

• A character reference addressed to the bank where you wish to open an account, from another bank. The reference should state that the person has been known to the referee for a particular period of time and is considered trustworthy and a suitable person to operate a bank account;
• Notarised copy of the person’s passport;
• Original telephone or utility bills evidencing residential address;
• A description of the company’s intended investment and/or trading activities including geographical spread;
• An indication of what the company’s first year’s turnover will be;
• An initial deposit to fund the new bank account, commensurate with the bank’s policy.