Offshore Company Definition and How It Works

What is an offshore company?

The question often pops up from someone when he/she is reading news from an online magazine. In the past few years, the question is becoming more popular – mainly thanks to media that publishes breaking news about public figures who engage in offshore company setup and everything that comes with it.

For better or worse, people are now becoming more aware of the world of offshore. Unfortunately, not all (not many, in fact) information found on the Internet – including those coming from the mainstream media – is true to the core.

In this article, we'll try to clean up the mess created by the media and present you with no-nonsense, easy to understand mini-guide on offshore company definition and how it actually works.

Offshore company definition

Revisiting the question asked at the very top of this article, let's explain an offshore company in a simplistic manner.

In general, an offshore company is a company that is set up in a different country from the country of residence of the stakeholders, and it's usually meant not to do any economic activities in that particular country.

Man flying on computer from his country
An offshore company is a company that is set up in a different country from the country of residence

For example, suppose your business operates in Europe. Setting up your legal business structure in Hong Kong but maintaining your operational in Europe, as well as doing business activities in countries other than Hong Kong, allows your company to enjoy the benefits offered by Hong Kong (e.g., tax exemption for activities outside HK).

“But isn't it illegal?” you might ask. Fair enough, but here's the thing; it's a common misconception that offshore companies are said to be ideal for criminals, corruptors, and the likes to hide their money and avoid paying taxes. While it's true in some cases, in many other cases, people use offshore companies for legitimate purposes.

Similar to any other type of companies, offshore companies are governed by the laws of the jurisdictions where they are established, allowing you to do your business activities legally.

Let's talk more about the benefits by understanding the reasons why setting up an offshore company may be ideal for you.

Why set up an offshore company

Setting up an offshore company sounds complicated, but it worth the effort due to the benefits offered by having your company headquartered in an offshore jurisdiction. What are they?

Get tax benefits

The number one reason why people want to set an offshore company is the tax benefits of doing so. Indeed, tax is one of the biggest items in your business expenses' column. You naturally want to pay less taxes – legally.

Badge tax benefits
The number one reason why people want to set an offshore company is the tax benefits

Setting up an offshore company allows you to enjoy the tax benefits that are only accessible when your business is set up in an offshore jurisdiction.

Going back to the Hong Kong example, if you file for a company registration in Hong Kong, you can – by law – cut your taxes in the form of tax exemption since your business activities are done outside Hong Kong.

Protect yourself and your asset

Your offshore company, formed in a reputable and politically/economically stable jurisdiction, gives you much-needed business and asset protection. What kind of protection will you and your business get?

  • - Intellectual property (IP) protection: An offshore company makes it difficult for anyone else to claim the patent, trademark, copyrights and other IP assets of your company.
  • - Protection from lawsuits: Keep your assets away from potential legal issues.
  • - Wealth preservation: Preserve your wealth from excessive taxation, such as probate on inheritance.

Securing opportunities

There are countries that offer plenty of opportunities. In order to access those, you often need to form a business entity to meet the requirements. So, what are the opportunities available to you?

Offshore company how it works

By now, you should already have the big picture of what an offshore company can give you. Your next step would be getting started with the offshore company formation process.

The process itself can be challenging, but with the right help, the whole process can become less complicated.

Here is how it works:

1 – Consult an International corporation services provider

You could DIY the whole process, but unless you understand International laws and formation process, it's highly recommended to use offshore company formation services like us.

Read on to learn why.

2 – Choose offshore jurisdiction(s) and devise the right plan

This is where things can be tricky: Not only you should know how to best navigate the laws and regulations of a particular offshore jurisdiction, but you also need to know the tax treaties between jurisdictions.

As mentioned above, it's better to use a trusted corporation services provider. Providers like us know the ins and outs of offshore jurisdictions, including how to devise the right strategy for your business (e.g., should you involve more than one jurisdiction for your business set up? Where should you legally register your company and where should you open your bank account? Etc).

Since your need is unique, you need a customized offshore plan.

3 – Prepare the required documents

Once the plan has been finalized, enter the nitty-gritty; in a standardized know-your-customer process, you need to submit various documents, such as proof of address, existing bank account details, and so on.

Following the requirements closely will speed up the company registration process.

4 – Get your company registered

The whole process can take anywhere between 2 days and 3 weeks, largely dependent on your document validation process and the typical processing time of the offshore jurisdictions.

Man with clock
The process of registration of a company can take anywhere between 2 days and 3 weeks

While the whole process can be done entirely online, please note that certain jurisdictions like Hong Kong and Delaware, USA require you to be physically present to finalize the process (if want you want a bank account). Again, consult with your company formation service on this issue.

Takeaway

Offshore structures - companies and bank accounts – remain some of the best entities for protecting assets, maintaining your privacy, and seizing opportunities.

If you still have doubts, you can consult with us for free.