Thanks to James Bond movies and a couple of spectacularly corrupt institutions over the years, offshore companies get a bad rap. But there are good reasons to consider using them, and most companies of any serious size eventually get advised to set one up.
Broadly defined, any company that exists in one place legally but does most or all of its business elsewhere is an offshore company. But most know them as financial entities built on the balmy shores of the Caribbean, where regulations are light and taxes limited. They needn't have much capital, have many named directors or even conduct much business for long periods. No muss, no fuss, until your company needs what they can offer: flexibility.
Here are some reasons you might need to consider establishing a beachfront operation for your growing firm:
- Your business is getting hard to explain
- Taxes are eating up the business
- Your company has its own investment arm
- You need to appear older
Your business is getting hard to explainThe reason most big U.S. companies — particularly credit-card providers and banks — keep a Delaware office is because Delaware asks fewer questions, so it's easy to open complex financial units, known as special purpose entities or vehicles, and run them. Countries with reputations as offshore financial havens ask even less.
Taxes are eating up the businessLots of companies start up offshore units for their purely financial units in order to carry out large international deals — buying and selling assets and securities or doing normal trade transactions — without incurring a monster tax bite every time money changes buckets.
Your company has its own investment armOffshore companies can normally buy and sell securities like an individual with very little government oversight. If you hold a lot of cash, managing that money will cost you unless you do it offshore.
You need to appear olderBizarrely, there is a subset of offshore companies known as "shelf" companies. They are corporations that were formed by others but never used. If you buy one, your own legal history will be the length of that shelf company — useful, if ethically challenged — when seeking credit or bidding on public contracts
- Generally, two kinds of people seek offshore status: Really rich people trying to avoid taxes as they age and the tax man comes knocking, and companies doing regular and complex international trade or financial transactions. Proceed carefully if you do not fit these descriptions.
- Despite what it might look like on the Web, setting up an offshore entity is not as simple as filling out a Web form. Get a lawyer involved, and your accountant.
- In some cases, going offshore can mean more scrutiny. Governments are tightening the screws in the hunt for terror financing. Be sure the jurisdiction you choose has a good relationship with the United States and a track record of cooperation.
- If what you really need is to shield assets while not getting involved in too much paperwork, consider forming a limited liability company, known as an LLC, instead. That you can do in the United States, cheaply and quickly.