The term offshore refers to a location outside of one’s home country. The term is commonly used in the banking and financial sectors to describe areas where regulations are different from the home country. Offshore locations are generally island nations, where entities set up corporations, investments, and deposits.

Companies and individuals (typically those with a high net worth) may move offshore for more favorable conditions, including tax avoidance, relaxed regulations, or asset protection. Although offshore institutions can also be used for illicit purposes, they aren’t considered illegal.

Offshore can refer to a variety of foreign-based entities, accounts, or other financial services. In order to qualify as offshore, the activity taking place must be based in a country other than the company or investor’s home nation. As such, while the home base for a person or company may be in one country, the business activity takes place in another. Put simply, going offshore provides services to non-residents.

In the simplest sense, offshore can mean any location abroad—any country, territory, or jurisdiction. But the term has become widely synonymous with specific locations that have become popular for offshore business activity, notably island nations like the Cayman Islands, Bermuda, the Channel Islands, and the Bahamas. Other centers in landlocked countries, including Switzerland, Ireland, and Belize, also qualify as popular offshore financial centers (OFCs).

The level of regulatory standards and transparency differs widely among OFCs. But they generally offer:

• Favorable tax laws, which is why they’re commonly referred to as tax havens
• Reduced risk and greater growth potential
• Significant cost savings for businesses
• Protection of assets, especially during times of instability
• Loose regulations
• Confidentiality

Going offshore is common for companies and high-net-worth individuals (HNWIs) for the reasons mentioned above. They may also choose to bank and hold investments in a specific country offshore if they travel there frequently. Supporters of OFCs argue that they improve the flow of capital and facilitate international business transactions.

• Do Offshore Companies Pay Tax in Singapore?
• Can Offshore Company Operate in USA?
• Do Offshore Companies Pay UK Corporation Tax?
• Types of Offshoring
• Do Overseas Companies Pay Taxes?
• Do Offshore Companies Pay US Taxes?
• How do Offshore Companies Save Tax?
• How can I Transfer my Offshore Money to Avoid Taxes?
• What are Some Pitfalls of Using an Offshore Company?
• Which Country is the Best for Offshore Company?
• What is the Difference Between Offshore and Freezone Company?

Do Offshore Companies Pay Tax in Singapore?

Singapore is one of the best countries in the world to incorporate an offshore company due to its strategic location, highly-skilled workforce and pro-business environment, making it ideal for entrepreneurs seeking to venture into the sizable Southeast Asian market.

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Singapore is one of the best countries in the world to incorporate an offshore company. Its strategic location, highly-skilled workforce and pro-business environment allow it to be the ideal regional hub for multinational corporations and entrepreneurs seeking to venture into the sizable Southeast Asian market.

Singapore has low corporate and personal income tax rates. It also has various tax incentives and tax relief measures. There is a territorial one-tier tax system with no capital gains or dividend tax. Its tax treaty network is extensive, enabling companies to reduce tax liabilities by avoiding double taxation in treaty countries where cross border businesses and investments are conducted.

Territorial Basis of Taxation

As Singapore follows a territorial basis of taxation, taxes only apply to income that is gained or sourced from, or received in Singapore. Foreign-sourced income received in Singapore that meets the conditions listed below is exempted from Singapore tax too:

1. The foreign income had been taxed in the foreign jurisdiction (known as the “subject to tax” condition). The rate at which the foreign income was taxed can be different from the headline tax rate;
2. The highest corporate tax rate (“foreign headline tax rate” condition) of the foreign jurisdiction is at least 15% at the time the foreign income is received in Singapore; and
3. The Comptroller (i.e. the person in your company, usually management-level, overseeing the accounting and financial reporting of a company) is satisfied that the tax exemption would be beneficial to the person residing in Singapore.

Single-tier Tax Policy

Singapore follows a single-tier tax policy which means once the income has been taxed at the corporate level, dividends can be distributed to shareholders tax free, protecting you against double taxation and avoiding paying taxes in both countries it is exposed to.

Kiraz Pte. Ltd. is a Singapore resident company. Its owner and shareholder, Mr. Malik, paid $70,000 in corporate income taxes and reported a net income of $430,000 for the year 2019 for Kiraz. In the same time period, Kiraz Pte. Ltd. declared and issued $30,000 of dividends to its shareholders. Mr. Malik, who owns 70% of Kiraz’s shares would receive $21,000 in dividends without being taxed again, and Ayse, who owns 30% of Kiraz Pte. Ltd.’s shares would receive $9,000 in dividends, also tax-free.

Low Tax Rate

Singapore has one of the most attractive corporate tax regimes in Asia. The corporate tax rate is set at a flat 17% and only those revenues which are derived from Singapore or remitted into Singapore are considered taxable.

Due to the tax exemptions available to companies, the effective corporate income tax rate is approximately 8.5% for profits up to S$300,000 and a flat 17% above S$300,000.  A newly incorporated company enjoys even higher tax exemptions, they enjoy 75% tax exemption on the first S$100,000, 50% tax exemption on the next S$100,000 taxable income for each of the first three tax filing years.

This is provided the company is incorporated in Singapore and has been a tax resident in Singapore. It also should have a maximum of 20 shareholders of which at least one is an individual shareholder holding at least 10% of the issued ordinary shares.

In addition to the tax exemptions, it may be worth noting that Singapore companies have been granted tax rebates ranging from 20 to 50% (subject to a cap) in the past 7 years of assessment as part of the government’s efforts to lower business costs and improve cash flow for companies. For instance, in Year of Assessment 2020, companies were granted a 25% tax rebate capped at S$15,000.

To illustrate, Alwan Pte. Ltd. is newly incorporated in 2020 and has $625,000 chargeable income in YA 2020.

Alwan Pte. Ltd. YA 2020

Chargeable income	$625,000
Less: Tax exemption (first $100,000 x 75% + next $100,000 x 50%)	($125,000)
Chargeable income after exempt amount	$500,000
Tax payable at 17%	$85,000
Less: Corporate Income Tax Rebate ($85,000 x 25%, restricted to cap of $15,000)	($15,000)
Net tax payable	$70,000

Can Offshore Company Operate in USA?

Most people know the United States of America as a leader in filmmaking, sports, technological advancements, and so on. But not many are aware that the USA is also a popular destination for an offshore company. From increased credibility to easier access to your products and services to a major consumer economy, there are several reasons to set up an offshore company in the USA.  

Setting up an offshore company in the USA lets you take advantage of the country’s excellent infrastructure, global reputation and attract more investors and venture capitalists. Additionally, the USA is a tax haven as it offers certain tax privileges to foreign investors. 

Businesses may also set up an offshore company in the USA if they want to gain easier access to the American market, one of the world’s largest consumer markets. 

And when you register an offshore company in the United States, you can set up a Limited Liability Company (LLC). USA LLCs are corporations where the partners are not liable for the liabilities of the company.

If you’re considering setting up an offshore company in the USA, there are a few things you should be aware of first. It doesn’t matter whether it’s offshore drilling companies or software development firms. 

Key requirements for offshoring in the United States include:

1. Registration With the Federal Government

You may need to register your offshore corporation with federal government departments, depending on the nature of your business. 

For example, when importing food, pharmaceuticals, or medical devices into the USA. You’ll have to register the business with The Food and Drug Administration. 

Or if your offshore company works for the US military, you must register it with the Directorate of Defense Trade Controls, part of the US Department of State. 

You’ll need to do your research regarding which federal US departments to register your company with. 

2. Registration With the Internal Revenue Service

According to the Foreign Account Tax Compliance Act (FATCA), foreign financial institutions need to register with the IRS (Internal Revenue Service) and report the identity of their US account holders. 

A foreign financial institution can be a bank, brokerage, trust, mutual fund, hedge fund, or an insurance company that offers life insurance or annuities. And account-holders may be either individuals or foreign companies. 

So if you set up an offshore company in the USA and open bank accounts in your country of residence or outside of the USA, you may need to register with the IRS. 

However, non-profit organizations are exempt from these reporting requirements.

Additionally, foreign financial institutions that register with the IRS must withhold 30% of all payments to foreign payees, including US taxpayers who are subject to federal income tax. 

Non-compliant foreign financial institutions could face an IRS investigation and penalties levied by the US government.

3. Registration With the State Government 

An overseas corporation may establish a US subsidiary, but the subsidiary must register in the state where it’s headquartered — in other words, where it does business.

The subsidiary will pay federal and state income taxes on money it earns, including capital raised by issuing shares or contracting for loans. However, some US states don’t require foreign companies to pay the state tax rate, including Wyoming, Delaware, and Oregon. 

Additionally, if a foreign company partners with a US-based company and forms an offshore company or LLC, the business is subject to state-specific registration requirements. 

Do Offshore Companies Pay UK Corporation Tax?

For UK permanent tax residents setting up an overseas company, these tax advantages are likely to be minimal due to increased anti-avoidance legislation, essentially making the company transparent for tax purposes so that the individual is taxed on the company’s profits. In addition, where overseas companies are controlled and managed from the UK then they are generally treated as UK residents, therefore fully subject to UK tax.

For temporary UK residents and non-domiciled individuals, an overseas company can help to keep a UK business from becoming UK tax resident when the individual does, ready for when they move back overseas.

There are several benefits that may be obtained by running your business through an overseas company, including:

• The reporting requirements in overseas jurisdictions may be significantly reduced in comparison to the UK requirements. This may result in lower set-up and maintenance costs.
• Non-resident companies in some countries are not required to publish financial information or the details of directors and shareholders, giving confidentiality and anonymity to these individuals. Most offshore financial jurisdictions will only reveal this information to a third party if criminal or terrorist activities are suspected.
• There may be tax advantages to an offshore company. Offshore companies are only subject to UK tax on their profits arising in the UK. Even UK source dividends paid to an overseas company should be free of tax.

Types of Offshoring

There are several types of offshoring: Business, investing, and banking. We’ve gone into some detail about how these work below.

Offshoring Business

Offshoring is often referred to as outsourcing when it comes to business activity. This is the act of establishing certain business functions, such as manufacturing or call centers, in a nation other than where the company is headquartered.

This is often done to take advantage of more favorable conditions in a foreign country, such as lower wage requirements or looser regulations, and can result in significant cost savings for the business. Companies with significant sales overseas, such as Apple and Microsoft, may take the opportunity to keep related profits in offshore accounts in countries with lower tax burdens.

Offshore Investing

Offshore investing can involve any situation in which offshore investors reside outside the nation in which they invest. This practice is mostly used by high-net-worth investors, as operating offshore accounts can be particularly high. It often requires opening accounts in the nation in which the investor wishes to invest. Some of the advantages of holding offshore accounts include tax benefits, asset protection, and privacy.

Offshore investment accounts are generally opened in the name of a corporation, such as a holding company or a limited liability company (LLC) rather than an individual. This opens up investments to more favorable tax treatment.

The primary downsides to offshore investing are the high costs and the increased regulatory scrutiny worldwide that offshore jurisdictions and accounts face. This makes offshore investing beyond the means of most investors. Offshore investors may also be scrutinized by regulators and tax authorities to make sure taxes are paid.

Offshore Banking

Offshore banking involves securing assets in financial institutions in foreign countries, which may be limited by the laws of the customer’s home nation—much like offshore investing. Think of the famed Swiss bank account— that James Bond-like account that puts rich people’s money out of reach of their own country’s government.

People and companies can use offshore accounts to avoid the unfavorable circumstances associated with keeping money in a bank in their home nation. Most entities do this to avoid tax obligations. Holding offshore bank accounts also makes it more difficult for them to be seized by authorities.

For those who work internationally, the ability to save and use funds in a foreign currency for international dealings can be a benefit. This often provides a simpler way to access funds in the needed currency without the need to account for rapidly changing exchange rates.

Do Overseas Companies Pay Taxes?

A major effort to overhaul the global system of corporate taxation is underway. Many experts and policymakers contend that the current rules are inadequate for an increasingly digital economy, and that they allow multinational companies to shift profits to avoid paying taxes, thereby starving governments of revenue needed for public investments. At issue is both the amount of tax corporations pay, and which countries have the right to tax them.

Some countries have unilaterally imposed new digital service taxes, which Washington has pushed back on, arguing such measures unfairly target U.S. tech firms. Meanwhile, the Joe Biden administration has been pushing for a new global minimum corporate tax in an effort to end the “race to the bottom” of tax-cutting.

In October 2021, a group of more than 130 countries reached a compromise on a new model for corporate taxation that includes a 15 percent minimum tax, as well as rules that will redistribute some tax revenue from big multinationals, including U.S. tech giants. The deal marks a historic shift in corporate taxation, but domestic political hurdles remain. At the same time, some critics say the proposed measures don’t go far enough.

International taxation is governed by thousands of bilateral tax treaties between countries that began proliferating in the 1920s under the auspices of the League of Nations, the predecessor of the United Nations. Although there is some multilateral cooperation on tax issues, there is no global body with the authority to tax companies, a power that governments generally view as a fundamental sovereign right.

Both the UN and the Organization for Economic Cooperation and Development (OECD), a group of mostly advanced economies, provide model tax treaties that are used as the basis for many of the bilateral deals. World Trade Organization (WTO) rules can apply in cases where taxes are found to be subsidizing exports or discriminating against imported goods. 

Do Offshore Companies Pay US Taxes?

Companies of the United States with untaxed profits deal with those U.S. companies whose offshore subsidiaries earn profits that are retained in foreign countries to defer paying U.S. corporate tax. The profits of United States corporations are subject to a federal corporate tax rate of 21%. In principle, the tax is payable on all profits of corporations, whether earned domestically or abroad.

However, overseas subsidiaries of U.S. corporations are entitled to a tax deferral of profits on active income until repatriated to the U.S., and are regarded as untaxed. When repatriated, the corporations are entitled to a foreign tax credit for taxes (if any) paid in foreign countries.

Retaining such profits offshore may be regarded as a tax strategy. Many corporations have accumulated substantial untaxed profits offshore, especially in countries with low corporate tax rates. In recent years it has been estimated that untaxed profits range from US$1.6 to $2.1 trillion. The Wall Street Journal noted that the “[u]ntaxed foreign earnings are part of a contentious debate over U.S. fiscal policy and tax code.” The profits earned abroad and retained there are subject to a foreign exchange risk, besides other financial risks.

The downside of a strategy of retaining profits offshore is that corporations may want or need to pay dividends to shareholders, or to make investments in the United States, besides other reasons. The alternative may be to borrow funds in the U.S., or access the funds retained offshore in the form of inter-company loans.

How do Offshore Companies Save Tax?

A tax haven, or offshore financial center, is any country or jurisdiction that offers minimal tax liability to foreign individuals and businesses. Tax havens do not require businesses to operate out of their country or individuals to reside in their country to receive tax benefits.

A few of the benefits of an offshore company include low tax, location of your business, confidentiality, minimal accounting, auditing, property ownership, asset and lawsuit protection.

Low Tax

One of the main benefits, and possibly the most talked about one is tax!

All business owners are always looking for ways to reduce their taxes as this area of a business can become the biggest burdens. Generally, offshore companies are tax-exempt or pay little tax in the country of incorporation. For example, many beneficial owners use offshore companies as holding companies, to receive dividends.

Companies can also benefit from importing or exporting within an offshore location. An example of this includes receiving orders directly from the customer and the purchased goods being sent from the manufacturer. This would enable the profit from the trade to be either tax-free or low-tax. When choosing the right location be aware of the tax and choose a location with good shipping facilities.

Many of these countries appeal to shareholders/ directors due to their low administration costs – CFS work hard to keep all costs reasonable and extremely competitive. This allows our clients to concentrate on the more important aspects of their business.

Location of your company/business

If you are a small company and your trading premises are not the most ideal location, incorporating offshore could be your answer. Having an overseas / Offshore Company gives the impression that your business is located overseas, and having a registered office that is worth shouting about.

If you are not sure where you should form your Offshore Company, you are able to seek business/tax advice and they should be able to assist you with making the best decision. When you are aware of the location, we can assist you with forming your Offshore Company.

Company Confidentiality

Some Offshore jurisdictions do not disclose the Company Directors and Shareholders on public records, therefore keeping the identity of the officers confidential. Some examples of these jurisdictions are Seychelles and Belize. Clients have a number of reasons for keeping the directors’ and shareholders’ identities confidential. A client has recently requested to keep their details confidential from their competitors so that the competitor couldn’t see that they had setup an Offshore Company. This has helped them a great deal with moving their business forward.

Another way to keep the identity of your offshore company confidential would be to use nominee Directors, Shareholders and Secretaries. This will then show the nominee’s details and not your own.

Keeping Accountancy and paperwork to a minimum

Ongoing yearly accounting and auditing is kept to a minimum as with some jurisdictions they do not require an audited financial report/accounts.  Keeping your time precious and enabling you to focus on your company.

Offshore Companies owning property

Advantages for offshore property ownership include avoidance of many taxes, including inheritance tax, income tax, capital gains tax and much more.  CFS recommends that legal advice is always undertaken before committing to any property owner.

Here are some of the other benefits:

• Seeking asset protection – Due to the laws in offshore locations, offshore companies are often used to hold assets due to the level of protection they hold.
• Lawsuit protection – Due to the level of protection this offers, offshore company formations become more attractive due to the level of security and privacy.

How can I Transfer my Offshore Money to Avoid Taxes?

The famed “Swiss bank account,” or James Bond-like accounts that place rich people’s money out of the grasp of their own country’s government, the IRS, for example, comes with strict Swiss privacy laws. This privacy is the reason for their popularity.

In the past, Swiss banks didn’t even attach names to accounts. However, Switzerland has agreed to turn over information to foreign governments on their account holders, effectively ending any tax evasion that could have come with having an unreported, or hidden, account.

Tax evasion was not the only reason to hold a Swiss bank account. There are plenty of legitimate reasons to hold money out of your home country. First, there’s the tax treatment. In many countries, you can earn money tax-free. How would you like to put your money to work in another country, earn capital gains and pay zero taxes to that country? That’s technically possible when you move your money offshore.

Even the United States allows the practice. In recent years, the United States has become one of the world’s favorite tax havens. Nevada, Wyoming, and South Dakota now hold a large amount of foreign money, but the reason is not primarily for favorable tax treatment.

One of the main advantages of keeping foreign money in the United States, Switzerland, and other developed nations is its stability. People living in nations with political and economic upheaval fear that their money, as well as their lives, could be in danger. What if the economy collapses? What if there’s a civil war? What if their government comes after them for some reason? If their money is kept overseas, it’s harder for their own government to seize it. 

Overseas bank accounts also give account holders more opportunities to invest internationally and serve as a currency hedge against a possible collapse in their home currency. Less important but notable is that due to currency exchange rates, in other countries, an investor might be perceived as a high-roller, As such, that person might receive the benefits that come with being wealthy, although this might not be the case in the United States.

Note that you are not off the hook for U.S. taxes if you earn or hold money abroad. The IRS requires that Americans file the IRS FBAR form and report any money exceeding $10,000 in the aggregate that is held in foreign accounts. There is a foreign-earned income tax exclusion for the money you earn abroad, but the rest is taxable.

What are Some Pitfalls of Using an Offshore Company?

1. Withholding Tax

It is important to understand that most countries have what is called a withholding tax on rental income.

The agent or the tenant is normally obliged to deduct this tax and pay it over to the local tax authority. In practice, this sort of informal withholding is collected by the property owner having to pay the withholding tax over to the local tax authorities when filing their annual local tax return.

Another type of withholding tax is usually due when you sell your property.

The property purchaser is obliged to withhold, 5% or 10% of the purchase price. This is handed directly over to the tax authorities in the country where the property is situated.

Examples of this include Spain where the purchaser must withhold 5% and the US where the purchaser must withhold 10% of the purchase price.

In both situations, the only way to get the money back if your capital gains tax is less is to file a local tax return.

Offshore Companies do not avoid withholding taxes either on income or capital gains.

The other factor that is often missing in the advice that people are getting in these standard solutions is the UK tax perspective.

They can sometimes avoid Inheritance taxes.

The one tax they are usually good at avoiding is local wealth taxes because these are applied only to individuals.

However, the cost or running an Offshore Company is often as much as the annual wealth taxes!

2. Don’t forget the UK Tax Perspective

It is all very well if your company can avoid local taxes supposedly, but you need to understand the UK tax law as well.

Offshore companies can create many UK tax problems – remember this!

There has been a long history of attacks on the use of offshore companies. After all, if it was so simple to use offshore companies, then the use of onshore local standard UK companies wouldn’t be such a regular occurrence!

3. The Anti-Avoidance Rule

When using an offshore company, it is also vital to understand that there is an anti-avoidance provision, which is now called section 739 of the Income and Corporation Taxes Act of 1988.

This is an anti-avoidance rule going back to 1936.

The objective of the rule is basically to look through any transaction where a person transfers their rights or their money to a person based outside the UK.

This can involve the transferring of rights or money to a company, trust or an individual with the objective of avoiding UK income tax.

This means that even if you set up an offshore company, then the rental income that is coming through that offshore company could still be taxable on you in the UK using this anti-avoidance rule and therefore be subject to UK income tax.

In other words, the offshore company will have no effect whatsoever for UK income tax purposes.

4. Charging of Capital Gains to Shareholder

There is also a parallel provision for capital gains tax which is section 13 of the Taxation of Chargeable Gains Act 1992.

This provision creates a “look through” if an offshore company sells a property for instance, and realizes a capital gain and a UK shareholder has at least a 10% interest in that company.

The legislation will attribute a corresponding proportion of the capital gain the company makes to that individual.  In other words, a “look-through”.

Even if you simply put the shares in the name of your wife and your children, it will not work because the legislation will “look through” that and charge the tax on you.. 

Every UK resident shareholder will end up getting a tax bill when the offshore company sells the property.  The effect is there will be no tax benefits whatsoever for UK capital gains tax purposes from using an offshore company. 

5. Central Management & Control

Another very common and key problem with offshore companies is a concept of English tax law that is known as central management and control.

This is an approach that the HMRC are using more and more.

If an offshore company only has UK directors and it is run from the UK then HMRC will argue that the company’s residence is actually in the UK for tax purposes. This is because its central management and control is in the UK and therefore it should be taxed like a UK company.

This means that if the company receives rental income then it will be charged to UK corporation tax.

There has been a case on this issue of company residence, the “Wood and another v Holden” case, which has just been decided (on 26 January 2006) in the Court of Appeal in favor of the taxpayer. However, as things currently stand we do not know whether the HMRC are taking the case to the House of Lords.

The basis of this ruling shows that if a company is genuinely run from abroad then it will not be resident in the UK, but the strategies used by the company to achieve this are unlikely to be practical for the average property investor.

Which Country is the Best for Offshore Company?

Offshore company formation provides a wealth of benefits including Privacy, Asset Protection Trusts, Minimizing tax liability, Protection against lawsuits, Flexibility in business laws, Operational Ease, etc. 

After all, it provides a lot of benefits to corporations and to the country itself. However, all countries don’t contribute equal benefits; some stand out. Below are the 5 best countries to set up an offshore company.

1. Hong Kong

Hong Kong, while a part of the People’s Republic of China, has a legal system that follows the English common law. It provides the greatest offshore company incorporation benefits among all other Asian countries, from offshore company registration to taxation.

It has low offshore company incorporation fees and a corporate tax rate of 0% for those operating outside Hong Kong. If you’re operating within its jurisdiction, though, you’re liable to pay 16.5% of the company’s profits in taxes.

Residency is also not required for offshore company registration. However, offshore companies will have to get a secretary and register an office address in the country.

One of its biggest advantages, though, is its location.

Being in close proximity to China means you can access the mainland with more ease. It also provides exclusive China market access through the Closer Economic Partnership Arrangement and it provides better logistics for the Asian market.

Businesses have a high degree of freedom in conducting business as well. Corporations will be able to do business activities anywhere in the world.

2. Panama

Panama, known to the world through the Panama Papers leak, is still a viable country for offshore company incorporation despite the scandal. Contrary to popular belief, it isn’t only for hiding illegal assets as the media has painted it.

What makes it appealing to companies is that it provides excellent asset protection. Businesses can protect their assets against seizures and lawsuits. It’s also free from the regulations in their home country.

Plus, it has fewer government regulations. Companies don’t need notice or approval from the government to distribute dividends, issue their shares, and more.

It has a corporation tax of 0% for revenue not coming from within the country. There are other tax processes here that will benefit offshore companies. These are better discussed with an offshore company formation agent.

Panama corporations also have flexibility; they can do the same activities as in the US, EU, and Canada. They can purchase and own real estate and other types of assets, like cars, yachts, jewelry, and such.

3. Bahamas

Its tax system and investor confidentiality are the biggest advantages of the Bahamas. The country provides tax exemption for 20 years for offshore companies and shareholders. Companies only have to pay a set annual fee regardless of their profit gains and margins.

It also has an International Business Companies (IBC) Act of 1990. This act prohibits information sharing to other countries. In turn, it protects the privacy of offshore corporations in Belize.

Company accounts or figures remain anonymous. Companies in this country don’t have to publish their accounts and balance sheets.

Other than that, the Bahamas only requires one shareholder and one director for corporations. It takes only a few days for the offshore company setup, and you won’t have to worry about permits, licenses, and such.

It also offers a flexible business structure, allowing you to use it for asset protection, estate planning, and so on. You have restricted activities, though, but these are quite reasonable. The Bahamas doesn’t permit bank, gambling, insurance, and adult activities.

4. Cayman Islands

The Cayman Islands is one of the most popular destinations of offshore hedge funds and offshore companies. The main reason is the 0% corporate tax rate. There are no capital gains, profit taxes, income taxes, withholding taxes, and such.

Apart from that, its offshore company registration and renewal fees are lower than in other countries. The country is white-listed by the International Financial Action Task Force and by the OECD, too. It follows international tax regulations, unlike other tax havens.

The Cayman Islands offers privacy to its companies, as well, as the public can’t view the Register of Shareholders or the Register of Directors and Officers. All other business documents are private, including the company accounts and meeting minutes. You don’t have to register these documents to the government.

The government is pretty stable, too, which is a must for offshore corporations. It has a strong economy thanks in part to offshore corporations and its banking system. Speaking of banking, offshore corporate accounts don’t also have to deposit authorized capital in a bank or in an escrow.

5. Cyprus

Cyprus’ position in the EU makes it an ideal country to put an offshore company in if you’re planning to enter Europe. It’s has been a member since 2004, and it’s a member of the Eurozone as well starting in 2008.

When you build a business here, you’ll get an Intra-Community VAT number. This is a legal requirement for companies to do business with other EU countries.

You’re not restricted too much, too, as you have flexibility in the company structure. There are also no minimum capital requirements, unlike other countries in the EU.

It has one of the lowest tax rates, as well, although it’s not as popular as other tax haven countries in the Caribbean. To be specific, Cyprus has a tax rate of 12.5%, one of the lowest in the EU.

Another advantage of this country for investors is that Cyprus isn’t a part of the Automatic Exchange of Information (AEOI). What this means is that when you open an offshore bank account here, you don’t have to share your bank account information.

What is the Difference Between Offshore and Freezone Company?

Offshore companies and free zone companies have become extremely popular in the UAE for various reasons. It is important that you understand the key differences between these two (2) types of entities based on your business needs before making any decision to proceed with the formation of your company in the UAE. They offer different business models and rationales.

We have outlined four (4) key differences between free zone and offshore companies in the UAE to help you make your decision:

1. Location of Doing Business

• Free Zone Companies

Free zone companies established in the UAE are permitted to carry out any business activity in the free zone and to an extent within the UAE (depending upon the flexibility offered in the legislation). These companies are typically exempt from any income or corporate taxes and can be owned by any foreign national without the need for a UAE national shareholder to own any shares.

Read Also: How Entrepreneurs Help Build Democracy in Service-oriented Business

These free zone companies are also required to register with the Federal Tax Authority for the Value Added Tax (VAT) collection and payments as per the UAE laws. There are only a handful of examples where a free zone may be declared as exempt from the collection and payment of the VAT.

Some of the free zones in the UAE also require the companies to meet the annual filing and reporting requirements.

• Offshore Companies

Offshore companies in the UAE such as RAK offshore companies are only permitted to carry out business activities outside the UAE. These are typically international business companies established to carry out international business activities by shareholders.

Offshore companies are also considered as important vehicles for holding assets such as shares in other companies, intellectual property, trademarks and patents. Unlike the business activities that can be carried out by offshore companies only internationally, these assets can be owned by offshore companies inside the UAE.

Some shareholders consider forming offshore companies to hold real estate properties. However, the location of the real estate asset is carefully considered keeping in view whether the offshore company in a particular jurisdiction may be accepted to hold real estate property in that jurisdiction. For example, the real estate properties in Dubai are only permitted to be owned by RAK offshore and Jebel Ali companies. Ajman offshore companies are not permitted to own any real estate properties in Dubai.

2. UAE Residence Visas

• Free Zone Companies

Free zone companies are permitted to obtain UAE residence visas for their shareholders as well as employees. Free zones offer different packages allocating quota for the issuance of the UAE residence visas for each company established in the free zone. These visas are typically issued for a period of three (3) years each and renewed upon expiry at the end of the three (3) year period.

• Offshore companies

As offshore companies are not permitted to carry out any business activity (other than holding assets) inside the UAE, it is not possible to obtain UAE residence visas under any offshore companies in the UAE.

3. Cost of setting-up

• Free Zone Companies

The cost of setting up a free zone company typically ranges from AED 11,500 to AED 70,000 depending upon the free zone in which the company is being incorporated. This cost is heavily influenced by the location and reputation of the free zone and the type of activity being carried out by the company.

In some free zones, the cost of setting-up is also determined by the number of UAE residence visas allocated to the company license. The yearly renewal charges payable to the free zone also vary depending upon the same factors.

• Offshore Companies

Offshore companies in the UAE are substantially cheaper to incorporate and maintain. The price for setting up offshore companies in the UE ranges from AED 10,000 to AED 18,000 depending upon the place of incorporation of the offshore company. The yearly maintenance cost payment to the offshore jurisdiction and the registered agent ranges from AED 5,000 to AED 8,000.

4. Place of Incorporation

• Free Zone Companies

There are around 45 free zones in the UAE where anyone can incorporate a company depending upon unique the requirements of the business. Each of the seven (7) Emirates in the UAE has a number of free zones to choose from. Any foreign nationals can own 100% shares in the free zone companies.

• Offshore Companies

There are only three (3) jurisdictions that offshore the formation of offshore companies in the UAE. These jurisdictions are:

1. RAK International Corporate Centre (RAK ICC)
2. Jebel Ali Free Zone
3. Ajman Free Zone

Two of the above jurisdictions are free zones which offer free zone companies as well as offshore company formations. RAK ICC is the only jurisdiction that specializes in the formation of offshore companies. For this reason, RAK ICC is highly specialized in this area and is widely considered to be the best offshore jurisdiction in the UAE.

Offshore companies can only be incorporated through registered agents as none of the offshore jurisdictions offer any direct contact with the shareholders.