Creating an Offshore Company?

Forming a company outside of the borders of the United States that does business solely or primarily within the United States is a common practice. This practice is known as “offshoring” or forming a company “offshore”. This begs the questions: What are the reasons or advantages for doing so? How do you do it? And what does it cost?

In this article, we address those various questions.

What are the Reasons for Offshoring a Company?

The process for offshoring a company is fairly simple. Most foreign jurisdictions where offshoring is popular have very relaxed business regulations. The primary considerations when offshoring are:

Which foreign country provides the desired benefits? 

The most common nations for offshoring a company are Belize, Seychelles, the British Virgin Islands, Marshal Islands, St Kits and Nevis, Anguilla, Panama, Mauritius, Bermuda, Cayman Islands, Bahamas, Costa Rica, Uruguay, Luxembourg, Monaco, Switzerland, Lebanon, Cyprus, Malta, Dominica, Gibraltar, Somoa, United Arab Emirates, Sweden, and Hong Kong. 

All of these countries offer the ability to form a business entity with many of the desired benefits. The desirable attributes of the company are discussed below.

What type of company to form?

There are two popular forms of business entity for offshoring:

International Business Company - In most of the jurisdictions regularly used to offshore a company, the type of business entity formed is a “International Business Company” (IBC). This business designation does not exist within US jurisdictions. The IBC may use popular designations, such as Ltd., limited, INc., Corp., etc. The IBC is very similar to a corporation within the United States. It has shareholders, a board of directors, and officers. Just one person can hold all of these roles. There are numerous limitations, however. The IBC shares cannot be listed for sale on a public exchange or sold publicly in over-the-counter transactions. These entities have some very important features that make them attractive. Unlike the US C-corporation, these companies are tax-exempt and the company ownership is not publicly listed. The secrecy of ownership allows the company to conceal who is the ultimate beneficial owner. The ownership if shares (whether registered shares or bearer shares) are not listed as public record. There is no annual reporting, mandatory bookkeeping, audits, or other regulations.

Private Limited Company (PLC) - The second most popular type of business entity for offshoring is the private limited company. The companies are generally exempt from taxation or are subject to a very low tax. While recording keeping may be relaxed, the names of the owners of the PLC generally appears on public records. Unlike the IBC, the PLC may be required to make annual filings, perform bookkeeping, and conduct company audits. The private limited company also generally requires more than one member.

• Note: Some countries have an entity very similar to a limited liability company. This is rarely used, as it does not allow for the anonymity of the IBC.

What steps are required to bring the company into existence?

Generally, forming the business entity in the country is fairly simple. It simply requires a bit of paperwork with the state business authority. It will require a passport for foreign identification, a named registered agent and office, a nominee shareholder, and a nominee director. The nominees are used to keep the names of the true owners hidden. The nominees can be individuals or companies, but they can be hired locally to serve this function. There are a few administrative and filing fees associated with creating the entity. Also, the annual fee required to form the company varies between $100 and $500 annually. It is generally better to associate with a local business firm to carry out the process. These firms will generally take all necessary steps to form the business entity for anywhere from $500 - $2,000.

• Note: Forming a business entity is relatively simple. The more difficult task is to open a bank account as a foreign individual. It is far more difficult in all jurisdictions if you use nominees rather than your real name for the business filings. The process is far easier if you have a local agent or are able to provide personally identifiable information to accompany the business bank account. The reason for this difficulty are the US regulations in place to crack down on illicit money laundering through offshore tax havens. The primary regulations are the Foreign Account Tax Compliance Act and the the IRS’s Common Reporting Standards (CRS). These regulations require banks doing business with the United States to implement automatic exchanges of financial information (AEOI) with other nations.

Related Topics

• Business Entities (Intro)
• Why is studying business entities important?
• Considerations When Forming a Business Entity
• Holistic (Detailed) Overview of Setting Up a Business Entity
• What are Business Entities?
• What is a Closely-held vs Publicly-held Business?
• What are the main types of business entity?
  
• What are the primary characteristics of business entities?
• What is Creation of a business entity?
• Where to Form a Business
• Incorporating in Delaware
• Forming an LLC in Nevada or Wyoming
• Creating a Company Offshore
• Promoter
• Promoter Liability
• De Jure Corporation
• Ultra Vires
• Brassplate Company
• What is Maintenance of a business entity?
• What is Continuity of a business entity?
• Business Continuity Planning
• Buy Sell Agreements
• Shotgun Clause
• Winding Up
• Dissolving a Foreign Qualification
• What is the Ownership structure of a business entity?
• Joint Stock Company
• Parent Company
• Subsidiary Company
• Wholly-Owned Subsidiary
• Operating Subsidiary
  
• Holding Company
  
• State-Owned Enterprise
• Mutual Company
• Conglomerate
• What is Control of a business entity?
• What is Personal liability of owners of a business entity?
• Entity Theory
• Piercing the Corporate Veil
• What is Compensation of business owners?
• What is Taxation of a business entity?
• What is Sales & Use tax?
• What are payroll and self-employment taxes?
• What are the major characteristics of a Sole proprietorship?
• Uniform Partnership Act
• Uniform Limited Partnership Act
• Partnership Agreement
• At-Will Partnerships
• Responsibilities of Partners to the Partnership
• Silent Partner
• Funding the Partnership
• How are Partners Compensated
• Splitting Equity in an Industrial Partnership
• Terminating the Partnership
• Types of Partnerships
• What are the main characteristics of a General partnership?
• Tort Liability of General Partner
• What are the main characteristics of a Joint venture?
• What are the main characteristics of a Limited partnership?
• Family Limited Partnership
• Master Limited Partnership
• What are the main characteristics of a Limited liability partnership?
• What are the main characteristics of a Limited liability company?
• Forming an LLC
• Articles of Organization
• Operating Agreement or LLC Agreement
• Why You Need an LLC Agreement
• LLC Compensation of Members
• LLC Taxation
• Converting to an LLC
• What are the main characteristics of a Corporation
• Articles of Incorporation 
• What to include in the Articles of Incorporation
• Corporate Bylaws
• Exiting the Corporation
• Dissenter's Rights
• What are the requirements to be an S Corporation?
• Non-Profit Organization
• NonProfit Business Entities
• Private Foundation
• A Detailed Explanation of the Sole Proprietorship
• Taxation of Sole Proprietorship
• A Detailed Explanation of the General Partnership
• 50/50 Partnerships: Never a Good Idea
• Publicly-Traded Partnerships
• A Detailed Explanation of the Limited Liability Company
• A Detailed Explanation of the Corporation
• Keepwell Agreement (Letter of Comfort)
• Personal Service Corporation Definition
• A Detailed Explanation of the Non-Profit Entity
• Public Limited Company (UK)