Before knowing what is offshore, it is important to identify the origin of the name, offshore is a word of English origin, which in literal translation means “off the coast” or “in another territory”.
Offshore is a term used to refer to companies or enterprises located in a different territory from that of the owners. This commonly happens when entrepreneurs wish to escape a high tax burden.
What is offshore and how it works
Most of the great changes in the contemporary world have not been made by political agents, but by entrepreneurs; it was entrepreneurs who made smartphones and many other technological innovations.
Some countries, in order to reduce social inequality, decide to increase the country’s taxes, which ends up driving away some entrepreneurs, who do not want to pay higher taxes.
An offshore company is different from a multinational, because it generally does not need to have its headquarters or economic activity in the country where it was opened, or in the entrepreneur’s country of origin, which is why this business modality may be called an extraterritorial company.
Is Offshore illegal? What Benefits?
An offshore company is not illegal, although it may seem so because of some recent events, such as the Panama papers, which culminated in the movie The Laundromat.
This type of business is usually located in countries that are considered to be tax havens, which are also used by criminals to launder money and hide illicit assets.
Despite the suspicions surrounding this type of business, opening and using an offshore company is completely legal.
In fact it is a tool that can be used for good or evil, just like cash, which can also be used for money laundering.
The main benefits that people seek when looking for offshore companies are privacy, security as to their assets, and tax reduction.
What is the difference between offshore and onshore?
It sounds a bit weird, but in addition to offshores, there are also onshores.
Onshore companies have stricter tax obligations and also have a well-developed financial sector, almost a multinational.
While offshores have greater privacy, tax benefits and even exemption from auditing and some tax obligations, depending on the category, some even allow their members to be anonymous.
What types of offshore
Many high-income families have the custom of opening personal and family offshore holding companies, to manage international investments, and have more privacy. There are several ways that offshores are divided up, some of them are:
LLC – LIMITED LIABILITY COMPANY
The LLC is an American type of limited liability company that does not require a visa or residency in the country to be formed.
The LLC is formed by one or more partners, and it is not necessary for the partners to be present in the country. The partners in this category of company do not have personal liability when it comes to liabilities.
Management can be done by one of the members or partners, or can be assigned to an outside executive.
INTERNATIONAL BUSINESS COMPANY (IBC)
This business framework is an organization that is prohibited from carrying out any main business activity in the country in which it is created.
The entrepreneur must be focused on international business, has no strict rules for filing accounts, and is not taxed, so it is also the most widely used type among all offshores.
This type of partnership is a choice that some people make for asset protection. The clearest difference from the others is that the location of this company needs to be offshore.
The word trust has in its meaning, the custody and management of the assets, interests, and property of others. It is created by means of a transfer of an amount in assets, which must be made by the settlor (interested person) to another person called Trustee (responsible for administration).
The trustee is responsible for managing the assets, according to the settlor’s guidelines, and this management can be terminated and transferred later to the settlor himself, or to a chosen beneficiary.
The settlor can define the level of independence that the trustee can have in the management of the estate, which can be limited, and called fixed trusts, or have a greater independence, and be called Discretionary trusts.
In the second alternative, the cost is much higher, because it is a category that requires a very high level of trust in the trustee, who must be hired only in the country where the company will be incorporated.
Many countries usually increase the tax burden in order to collect more taxes and achieve social justice, but many millionaires and billionaires do not want to pay these taxes.
This whole situation generates a flight to these countries, which are considered to be tax havens, generating a very large tax economy.
Other people, besides avoiding high taxes, also want to protect their assets, because some countries do not have great legal security, making their assets very vulnerable. For this and other reasons, it is very important to know what offshore is and understand how it works.
Regardless of the objective, before this whole process a good tax planning must be done with an accountant or specialist, to check the feasibility of this strategy, and, if feasible, to continue with an adequate professional follow-up.
Take advantage and also find out how to open a company in the USA.
Have you thought about opening an offshore company? Leave a comment and share your opinion and ideas with us and our readers!
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