Tax Haven: Your Guide to Forming an Offshore Company



Sadly, the terms "tax haven" and "offshore company" often have negative connotations.


Hearing these terms, the average person often assumes they refer to some kind of sketchy, underhanded business.


In contrast, an educated mind could be intrigued and eager to find out more. Especially if they’re in business for themselves, or feel they deserve the same opportunities for structure as, say, Mark Zuckerberg, Bill Gates or David Cameron. All of whom are big business for offshore jurisdictions.


It’s surprisingly easy to establish an offshore company in a tax haven. A quick Google search will reveal thousands of companies at your fingertips - willing and able to assist.



Tax havens can open up a number of possibilities.
Tax havens can open up a number of possibilities.

The Cayman Islands for example, are considered a tax haven as they have no Corporate Tax requirements. As a result, global corporations tend to use it as an offshore location. In fact, several Fortune 500 businesses have Cayman subsidiaries that they use to legally reduce their tax bills.




What exactly is an offshore company?



An offshore company is a company registered in a jurisdiction, which is generally different to where the beneficial owner resides. If you live in the United States and open a Private Limited Company in the United Kingdom, you operate an offshore company.


The biggest businesses in the world trade through a web of offshore companies - including Apple, Google, Starbucks, Amazon, and many more.


However, despite offshore companies being perfectly legal and widely used, many people still associate them with illegal or shady activity as a result of negative media coverage and “scandals” such as the release of the ”Panama Papers” in 2016.


The Panama Papers were a collection of confidential legal documents that were stolen form a law firm in Panama (Mossack Fonseca) then released by ”activists” to world media. The papers detailed the confidential business structures, often through tax havens, of some of the world’s wealthiest and most public figures. Many of whom were serving political figures and heads of state.


In our opinion, if it’s good enough for ex British Prime Minister David Cameron to earn ”consulting fees” through his tax free offshore company, while he makes sure others in the UK pay far more tax then he ever will, then it’s good enough for us!




What's so great about offshore companies?



Offshore companies can provide numerous benefits to both corporations and the economy, particularly when they are located in a "tax haven".


A tax haven refers to 'offshore jurisdictions' which are places where non-residents can obtain economic opportunities such as tax reductions, asset protection, banking privacy, offshore accounts, and the internationalisation of business structures.

Offshore jurisdictions can offer a more progressive economic environment and strict confidentiality laws.


This attracts foreign companies and entrepreneurs searching for alternatives to strict regulations and traditionally high-tax systems.

These tax havens are usually small countries, or island nations that receive most of their income through this sort of creative economic activity.


It could be argued that without being tax havens, they would cease to be economically viable, potentially breaking up entire communities or driving entire nations into poverty and dependence.


Big companies like those below also benefit from tax havens:

Nike - Nike has used Bermuda as a tax haven to store $10.7 billion in offshore assets. Nike only pays a 1.4% tax rate to foreign governments on its offshore profits, therefore has been able to keep virtually all their profits. By using a tax haven, Nike saved $3.6 billion in taxes.


Apple - Apple has gained $214.9 billion in offshore revenue by using Ireland as a tax haven. If Apple didn't have an offshore company in Ireland, it would've had to pay the US government $65.4 billion in taxes.


Facebook - In 2011 Facebook only paid $2.9 million pounds in tax on profits over $800 million by using a tax-saving method called the "Double Irish". This involves using both the Cayman Islands and Ireland as tax havens. It's rather complicated so we have explained a similar method better (look at the diagram below).


Google - Google also uses tax havens, shifting nearly $23 billion through a Dutch shell company (Google Netherlands Holdings BV) to Google Ireland Holdings which is based in Bermuda. This tax-saving method is comically known as a "Double Irish with a Dutch Sandwich" due to it's complexity.


No. We’re not making this up!


The ol’ ”Double Irish with a Dutch Sandwich” is just one tax structure favoured by those one who can afford it.


Companies like Google and Facebook have teams of bankers and lawyers working to minimise minimize their tax. The result is some very complicated (and yet paradoxically simple) structures.


The handy infographic below will simplify - after all - now it’s your turn!



Global Investor reveals Google uses a tax structure called the “Double Irish with a Dutch sandwhich” to avoid billions in tax.
Global Investor reveals Google uses a tax structure called the “Double Irish with a Dutch sandwhich” to avoid billions in tax.




How to set up an offshore company in 3 easy steps


Here is what you have to do to establish an offshore company. The information below has predominantly been retrieved from an article written by Offshore Protection.


  1. Offshore company selection- Choose a tax haven, type of company structure and company name

  2. Offshore company setup- Submit the fee, business plan (IF required) and all personal documentation (IF required)

  3. Offshore company incorporation- Open a bank account (IF you require one), add on any extra services, and understand your reporting obligation.

Note re offshore banking; with the emergence of Blockchain technologies, many individuals and companies are embracing non-traditional banking such as accepting crypto currency for payment. In this case, a traditional bank account may be avoided (which is helpful as many banks still require you to go to the country personally to open the account).


Global Investor explores how easy it can be to create your own offshore company
Global Investor explores how easy it can be to create your own offshore company


1. Offshore company selection


In order to decide what structure and jurisdiction best fits your requirements, you will have to ask yourself a few questions.



Structure:


Firstly, what is the purpose of your company? Depending on how you want your company to function, there are different offshore structures such as, a Trust, Foundation, Limited Liability Company (LLC), International Business Company (IBC) etc.



Jurisdiction:


It’s important to choose the right country for your offshore company.


In a previous blog, we explored the Top 20 Global Tax Havens. Have a look through that, and choose one that fits.


As discussed in this blog, tax havens provide numerous benefits. For this reason, it is wise to choose a tax haven as the country for your offshore company. Which tax haven you choose will depend on their laws and regulations.


It's important to consider whether or not the offshore country has any tax agreements.


  • Tax Information Exchange Agreements (TIEA) - Are a form of reciprocal tax information sharing signed between member countries (Offshore Protection, 2022).

  • The Common Reporting Standard (CRS) - Now has 108 countries (as of 2020) who have signed, agreeing to share tax information of non-residents amongst member countries. Here are some non-CRS countries you could consider.

  • Controlled Foreign Corporation (CFC) - These laws govern how corporation are treated as a tax entity.


Now of course for the obligatory disclaimer. This is NOT financial advice or to be interpreted as such. We are not financial advisors, nor do we want to be. It's highly recommended that you consult a professional at this step to ensure you choose the right jurisdiction and structure.




2. Offshore company set up


Having chosen your offshore country jurisdiction, the next thing you have to do is draw up an Articles of Association which will create a legal document for the formation of your company. Or use a handy template provided by the company you choose to assist you. There are millions on Google.


This step is crucial in ensuring the success of your offshore company. The company by-laws - as outlined in the Articles of Association - will determine the responsibilities of the Directors/Shareholders and will create an internal structure for the business.


If the company is set up properly, it will secure your assets and protect your privacy in case of legal or financial duress.


For those who wish to remain anonymous, some jurisdictions allow the use of nominee shareholders or nominee directors who will appear on legal documents and accounts essentially as third party actors. However, the beneficial owner will still maintain direct control of the company whilst remaining unaffiliated.


When you want maximum privacy, a second Limited Liability Company (LLC) or International Business Company (IBC) can be used as a corporate director and shareholder so that no individual's identity remains on the corporate registry.



Filing Documents:


Company registration usually requires the following;


  • Name of director(s) or beneficial owner

  • Copy of passport

  • Proof of physical address

  • Processing and governmental fee


Depending on the company and jurisdiction, there may be a few minor pieces of documentation - such as a more comprehensive Due Diligence or Know Your Customer (KYC forms, or a more extensive background check) - that has to be completed before the registration can be finalised.


However, most people choose to avoid this by choosing a jurisdiction that doesn’t require this level of disclosure.


This process usually takes between a few days to 1-2 weeks again depending upon the jurisdiction.




3. Offshore company incorporation


Once the offshore company registration documentation and government fee is sent to the relevant company registry (again, you can do this simply through an agent as part of your formation package deal), you need to incorporate your offshore company.


If the registration isn't successful, it's normally because the documentation was insufficient; however, this rarely occurs.


If the registration is successful, you will receive corporate documents - incorporation documents describing the details of your newly formed company - in 6 to 8 weeks following the registration. The company registry number will have been issued between a few days and 1-2 weeks after registration.


 

Take Away:



Many successful people, and their corporations, use offshore tax havens. They’re the most effective way - without breaking any laws - to reduce your tax bill.


If it’s good enough for them - it’s good enough for us. Consider establishing an offshore company for yourself. It’s less scary than you think and far more profitable!


You don’t have to be Google anymore.


You’d be surprised at the number and nature of businesses registered in legal Tax Havens. Accountants, Consultant Surgeons, small business owners, sports people, IT professionals and exporters, to name a few, are enjoying more privacy, and less tax, in a variety of jurisdictions they’ve never visited.


Although it's relatively easy to set up an offshore company, there are some areas that should be handled by an expert. For instance, choosing the correct structure and jurisdiction for your company.


Working with professionals like GLOBAL INVESTOR, on structure, can be fast and cost effective. If we can’t help you directly of course, we’ll introduce you to a member who can.


Send any questions you have to success@globalinvestorgroup.co.uk - I'd love to hear from you, so don't hesitate to get in touch. Don’t forget to subscribe here for more insights.