Introduction to Offshore Companies

Introduction to Offshore Companies

By Mr. Laith Damer
Edited by: Ms. Dalal Jebril


It is no secret that the world has become a platform for wide and unrestricted business interactions between countries; this ongoing process has become an indispensable part of our daily life. Along with this 21st century phenomenon – if we may name it so-, trade liberalization, new types of companies, and increased competition are some of the numerous newly aroused aspects between countries, entities or individuals that strive to find themselves a spot or mark a footprint in the fierce game of monopolizing the world’s best known markets.
Having said that, “Offshore Companies” is considered one of the most distinguishing, innovative, and commonly used terms in the modern global dictionary of the profitable business pathways. They are also regarded as one of the most recent and fast growing types of companies acknowledged worldwide. Many of the legislation applied on these companies are still being developed, to widen their scope of work and better serve investors in benefiting of their national economy and the international one as a whole.

An Offshore Company is a very flexible legal entity registered according to the rules of a particular country or jurisdiction, performing its business outside the country or jurisdiction in which it is registered. It is exempted from all or most of taxes in the country of registration. i.e. a country would allow the registration of a company and offer them certain tax freedoms in exchange for an annual license fee.

Below is a brief introduction about offshore companies in general, their advantages and disadvantages for those who are considering - or might consider- registering an offshore company.

A. Types of Offshore Companies:

A. Share-Capital Companies; the reason behind such a name is the fact that these companies issue shares. Once the initial cost of a share (capital and premium) has been paid, the shareholders have no further obligation to the company. The shares may be subjected to the rules of the company, could be sold or transferred, yet the shareholders have the right to enjoy the profits of the company or any proceeds of liquidation.

B. Company Limited by Guarantee; these types of companies are used primarily by non-profit organizations, a Guarantee Company usually does not have a share capital, instead its members are guarantors not shareholders who have the right to approve or disapprove to pay up to a pre-specified maximum limit in the event that the company becomes insolvent. They may acquire certain rights against the company, such as the right to divide; these rights will be set out in the rules of the company.
Membership may terminate on death.

C. Protected Cell Companies; some jurisdictions permit cellular companies, where particular assets and liabilities are segregated into "cells", in a way that the assets of one cell cannot be used to satisfy the liabilities of another.If one cell becomes insolvent, creditors only have recourse to the assets of that particular cell and not to any other.Cell companies are particularly used for umbrella mutual funds or unit linked insurance bonds.


Like anything on this planet of ours, Offshore Companies have their positive and negative aspects which can gear the investor’s mind whether to register an offshore company or not; so, if you actually consider registering such a type of companies, below is a list of the pros and the cons of Offshore Companies that may help you make a decision;


Conducts Business without Corporate Taxes: Tax havens (a place where certain taxes are levied at a low rate or not at all) allow the formation of offshore companies that have no tax or reporting responsibilities;

Conducts Business as an International Entity: Offshore companies have the same rights as an individual person and can make investments, buy and sell real estate, trade portfolios of stocks and bonds, and conduct any legal business activities provided these activities are not practiced in the country of registration;

Keeps Company Dealings Confidential

Protects Investments in other Foreign Countries; Offshore companies can loan funds to corporations in foreign countries. Investors may set up, but not directly own, an offshore company that loans funds to a development company set up in another country and charge interest rates that will lower tax obligations and protect the long term ability to repatriate investment funds. This can be especially important when working in countries with strict exchange controls and high tax profiles;

Minimizes Tax Exposure when Dealing with International Transactions: An offshore company can buy or lease products from one country and then sell or lease them to a company in another country so the profits of the transaction are accumulated in the offshore company where there is no taxation on profits;

Maximizes Profits from Intellectual Property Rights, Franchising and Licensing: An offshore company can franchise or license intellectual property rights in other foreign countries allowing the profits to accumulate in a tax free environment;

Protects the Continued Existence of Multinational Companies: By moving their domicile from countries with poor economic or political stability to a more stable tax haven, individuals can ensure the continued existence of his/her company;

Protects Assets: An offshore company can avoid high levels of income, capital and death taxes that would otherwise be payable if the assets were held directly;
Simplifies the Transfer of Assets and Properties Held in Several Countries: The sale or probate of properties in different countries can become complex and expensive. If these are collectively held by an offshore company, ownership can be transferred by company shares rather than transferring the actual properties owned by the company;

Owns or Leases Ships or Pleasure Craft: International companies may own or lease ships or aircrafts or other pleasure crafts and pay no taxes on income; (l) Simplicity - except for regulated businesses, such as banks or other financial institutions, some jurisdictions make it relatively simple to set up and maintain offshore companies.


Due to restrictions imposed on some offshore companies, their activities can be constrained creating some disadvantages that might lead you to think twice before registering an offshore company; most of these disadvantages are listed below;

Offshore companies are forbidden from conducting business or retaining employees in their jurisdiction.
There are some restrictions on the type of business which an offshore company can engage in. For example, general prohibitions against offshore companies engaging in banking business, insurance business or operating.
Certain amount of due diligence required because of the confidential information in connection with offshore companies. For example, to open a bank account in the name of an offshore company, to comply with relevant anti-money laundering regulations, the bank will normally require documents verifying the identity of the signers on the account to be notarized and may require one or more professional reference letters from an attorney, accountant and/or banker who has known you.
Certain countries have "anti-tax haven" legislation which makes it difficult to conduct business in those countries using an offshore company. For example, capital markets regulations in France prohibit using offshore companies as bond issuing vehicles.
Where a shareholder of an offshore company dies, it is usually necessary to have the will admitted to probate in the offshore jurisdiction as well (or, if intestate, to have the letters of administration re-sealed in that jurisdiction), which can add to cost, delay and inconvenience in administering the deceased's estate.

Offshore Jurisdictions:

Many countries in the world offer tax benefits to offshore business. Some of those countries are very popular and have an inherent image of offshore tax havens - like British Virgin Islands, Panama, Cayman Islands or Belize. There can be no standard reply as to which is the best offshore jurisdiction because it depends upon the intended use of the offshore company and upon the personal and business circumstances of the owners and upon the various tax regulations in force in the countries where the offshore company will engage in business. Some jurisdiction gives more benefits for the offshore companies, for example:

In Cayman Islands the offshore companies can be obtained from the Cayman Islands’ Government an undertaking that, in the event of the imposition of income, neither the company nor its shareholders will be subject to capital gains or inheritance taxes for a set period of time from date of incorporation (usually 20 years). The fee for this undertaking is around CI$500 (US$609.76).

In Antigua and Barbuda the offshore companies enjoy a fifty year tax exemption. This exemption applies to most forms of income, dividends, interest and royalties paid by and to foreigners. Antigua and Barbuda is a member in Madrid Protocol according to Madrid Agreement that tackled upon the International Registration of Trademarks, adopted at Madrid on June 27, 1989; this system is an international one designed to obtain trademark protection for a number of countries using a single application.
Protection can only be obtained for countries which have joined the system.

British Virgin Islands (BVI) are a British Overseas Territory, which provides an outstanding political stability. The country also maintains a low international profile and a clean reputation. US dollar is the official currency in the BVI - therefore, by definition; there can be no currency controls and no artificial manipulation of money supply by the local government.

These countries have small territories and small populations and the amount of the official fees in addition to the annual renewal fees for all the offshore companies provides millions of budget revenue without ever burdening the country’s infrastructure. There‘s also money settling down and turning over in offshore banks, insurance companies and investment funds in addition to the professional charges paid by all those offshore companies to the local Registered Agents;
All in all, a successful offshore financial sector not only brings up personal profit, but also provides jobs, career opportunities and income for a whole lot of people in their hosting countries.

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