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Why offshore?

Offshore company formation is generally much easier than onshore incorporation, due to lax legislation and business-friendly regulation. You can have your company in as little as a couple of days from payment to your offshore service provider (OSP).

This article is by no means exhaustive.

There are a few things you need to consider before start your offshore company:

What company form do you need?
How many persons will be involved in the company?
Which offshore jurisdiction is the best?
What extra services do you need? Offshore bank account, nominees?
Offshore Company Legal Form

The first two questions go closely together.
Companies formed in the most popular offshore jurisdictions, in particular Belize, Seychelles, BVI, and Anguilla, are IBCs, which is short for International Business Company. They are called BCs in BVI, but there is virtually no difference between an IBC and an BC.

IBC – International Business Company

An IBC is very similar to a private limited company in that it has a board of directors, shares, and a share capital, but the shares cannot be publicly traded.

IBCs are characterized by many if not all of these features:images (4)

Complete tax exemption. In lieu of taxation, an annual fee of usually 100 – 500 USD is charged.
Strict confidentiality; no company details go on public records.
No need to disclose ultimate beneficial owner (UBO).
Very little limitation on business activities.
Bearer shares or registered shares – neither of which goes on public records.
No requirements to perform bookkeeping and prepare accounts. No audits.
Minimum of 1 director and 1 shareholder, which can be as few as one person or one legal entity in total.
There are several hundred thousand IBCs registered throughout the world. It is the most common legal form for offshore companies.

IBC can often use a wide range of suffixes: Ltd, Limited, Inc, Incorporated, Corp., Corporation, S.A., et cetera. Not all jurisdictions allow this. The Seychelles is among the most lenient.

Private Limited Company

Not surprisingly, the second most common legal form is private limited or variants thereof. This includes local variants, such as:

Sociedad Anónima (S.A.): Panama, Costa Rica, Uruguay.
Aktiengesellschaft (AG): Switzerland, Liechtenstein.
Société Anonyme (S.A.): Luxembourg, Monaco, Switzerland, and Lebanon.
Private limited companies usually rely on non-residence or territorial taxation to be exempt from tax or apply a very low tax rate. Confidentiality is not as strict, with names of directors and in some cases shareholders often appearing on public record. This can usually be mitigated by using nominees or corporate directors and shareholders, where the corporate entity is an IBC.

These companies are usually required to perform bookkeeping and prepare accounts, and may be subject to audits.

Limited Liability Company

These are not particularly common in offshore jurisdictions but there are a couple of offshore jurisdictions where you can form an LLC:

Anguilla
Belize (Limited Duration Company, maximum 50 years)
Costa Rica (Sociedad de Responsabilidad Limitada)
Marshall Islands
Panama (Sociedad de Responsabilidad Limitada)
Saint Kitts and Nevis
USA (most famously Delaware)
SÀRL

There are a handful of other legal forms, the main one being Société à responsabilité limitée (French) or Sociedade anónima de responsabilidade limitada (Portuguese), shortened SÀRL.

Originally a French concept, SÀRL can be found in Switzerland, Monaco, Luxembourg, and Lebanon.

A SÀRL company’s liability is limited to the contributions of its members. Transfer of shares requires an agreement of half the shareholders, if the beneficiary is a third party.

GBC (Global Business Company) class I and II

This is a company legal form unique to Mauritius. GBC (Global Business Company) is formed in one of two classes:

GBC class I: these are resident companies. They pay a nominal tax rate of 0 to 3%, require at least one local director, and are required to keep accounts.
GBC class II: these are non-resident companies. There is no significant difference between GBC II and IBC.
Class I companies cost more to set up and maintain but they are granted access to Mauritius’ DTAs (double taxation agreement), which make them excellent tax reduction vehicles while still maintaining a high level of privacy.

Company Members

Offshore sole proprietorships are most often incorporated as IBC or private limited, where available with only one member.

There are ways around this.

Panama, for example, requires a minimum of three members in order to form a private limited (Sociedad Anónima). Many choose to either hire two or three nominees as members. Corporate directors can be used and one person can incorporate a S.A. in Panama with two or three other companies all belonging to the same person. Be warned though that Panamanian banks may find this structure off-putting.

The Best Offshore Incorporation Jurisdictions

The following are the most popular offshore jurisdictions and the common company legal form:

Belize – IBC
Seychelles – IBC
British Virgin Islands (BVI) – BC
Panama – Private Limited (Sociedad Anónima)
Hong Kong – Private Limited
Mauritius – GBC II
These six truly stand out in terms of number of offshore companies incorporated. A few years ago, the Cayman Islands and Bermuda and while there are still many companies there, they are no longer the largest in numbers of new offshore incorporations. The costs to incorporate in the Cayman Islands are significantly higher than other jurisdictions and Bermuda has moved away from tax exempt trading companies. The two may still have uses but they are becoming niche jurisdictions.

Below is a list of additional offshore jurisdictions where incorporation is popular:

Anguilla – IBC
Bahamas – IBC
Costa Rica – Private Limited (Sociedad Anónima)
Cyprus – Private Limited (non-resident)
Dominica – IBC
Gibraltar – Private Limited
Malta – Private Limited
Samoa – IBC
Saint Kitts and Nevis – LLC
United Arab Emirates (UAE):
Dubai
Ras al-Khaimah (RAK)
To see more jurisdictions, click here for a list of offshore jurisdictions.

Picking jurisdiction is not easy. It should be done together with a qualified adviser and after doing your own research.

Other Offshore Services: Bank account, Nominees

If you have visited a couple of OSP websites, you have no doubt noticed that they all offer miscellaneous services in addition to incorporation.

The first and most obvious one is bank account. I wrote another blog post titled “How to Open an Offshore Bank account” which details the process.

Nominees are persons (individuals or companies) which assumes director and/or shareholder roles in the company, in order to keep your name away of from the company records. This can be useful when incorporating in a jurisdiction which publishes names of directors and/or shareholders on public records. It can also be used in other jurisdiction as an additional layer of privacy. Note that using nominees make bank account opening on your own significantly harder, if not impossible.

Some OSPs offer virtual offices, which will be discussed in an upcoming article.

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