Update 2019: The offshore company
The offshore company – revisited, reinvented and still required
In recent years, offshore companies are treated as a pariah, and the legitimate use of offshore structures has been defamed as aggressive tax planning, base erosion, and profit shifting. However, cross-border arrangements do not need the applause of the masses, but the recognition by experts and, as a consequence, offshore companies play more than ever a vital role for sophisticated tax planning and a tax-driven value creation chain optimization. Many offshore schemes remain hidden behind the curtain, in the wings, although they are perfectly legal and do not need to fear the daylight.
Seven steps to start, operate and maintain the offshore business
#1. The business purpose of the offshore company: Regularly, an offshore structure is just a part of a cross-border business concept which covers onshore structures as well. Therefore, the value-creation-chain has to be split into an onshore and an offshore segment.
#2. The offshore jurisdiction: The decision which offshore location to choose is not a “one size fits all” approach. No offshore jurisdiction is most preferable for each and any business purpose. Therefore, the best offshore location has to be identified on a case-to-case basis.
There are traditional criteria to select between the available offshore jurisdictions, based on a matrix of legal, tax and business aspects.
Offshore tax planning follows the traditional golden rules of tax planning: Profits follow risks, risks follow functions, functions follow assets and persons.
Some offshore jurisdictions implemented a substance requirement for the set-up of a corporation. This might include a physical presence, trained local employees, board meetings as well as expenditures to take place offshore as adequate for the scale of the particular business.
Apart from the above, the cross-border tax information exchange agreements (FATCA, CRS, etc.) and more have to be taken into consideration.
On the 26/03/19-blacklist of the EU, these countries are named and shamed as non-cooperative jurisdictions for tax purposes
American Samoa, Aruba, Barbados, Belize, Bermuda, Dominica, Fiji, Guam, Marshall Islands, Oman, Samoa, Trinidad and Tobago, United Arab Emirates, US Virgin Islands, Vanuatu
#3. The offshore service provider: To set-up an offshore entity is typically not a do-it-yourself task. The help and support by an offshore service provider are meaningful and unavoidable.
There is a wide selection of agencies, law firms, as well as middle-men and financial intermediaries. Experience shows an astonishingly wide range from the offshore magic circle law firm till the backyard print shop. Offshore service providers may be governmental licensed, e.g., to set-up a BVI company, or they act as middle-man.
#4. The offshore corporate structure: Offshore companies are typically not custom made. Their bylaws and corporate structure do not depend on the specific needs of the investor – offshore company formations are different from a highly regulated onshore jurisdiction where a simple company set-up might not be good enough for complex and high-value business activities. Although it depends on the specific jurisdiction, as a general statement all offshore companies have the same product on sale – one size fits all.
#5. The offshore participants: To set-up an offshore company usually requires shareholder(s), directors and executives. The topics and issues connected to the selection of nominees are highlighted at “The Offshore Nominee”.
#6. The offshore infrastructure: The offshore company needs a registered address, might have a physical office, and needs other infrastructure.
Substance requirements might result in the need to avoid any virtual office solution.
#7. The maintenance and risk management: The offshore company has to continue and preserve certain maintenance requirements. Also, the establishment of a risk management system is advisable.
Seven professional offshore services from Bangkok (and Hong Kong)
PUGNATORIUS Ltd. is the Bangkok-based specialist provider of transactional legal and tax advice on foreign investments in Thailand. Flag theory for the nomad capitalist: Go where you’re treated best.
The law firm has a long tradition and particular know-how to assist and advice offshore investors and cross-border transactions involving offshore jurisdictions on these seven offshore solutions:
- Offshore legal and tax advice
- Offshore company
- Offshore bank account
- Offshore investment and disinvestment
- Offshore nominee services
- Offshore FinTech
- Offshore search and rescue services
The scope of professional services is further explained at pugnatorius.com/offshore.