You can register an international trading business in many countries around the world, but the United Arab Emirates is a particularly attractive area for this. Opening an offshore in the UAE will be beneficial for both large and novice managers, since the country has the most favorable tax conditions and all conditions have been created for convenient doing business.
From this article you will learn:
- What is offshore?
- Why are offshore companies needed?
- Types of offshore companies
- 5 schemes for using offshore companies
- Advantages and disadvantages of offshore companies
- How to open a company offshore?
- Offshores and Russian legislation
How to write correctly: offshore or offshore
So, first, let’s figure out how to write it correctly: “offshore” or “offshore”? The word comes from the English “off-shore”, which literally means “outside the shore”. It seems that the correct spelling is “offshore”. But in accordance with the norms of the modern Russian language, the correct option is “offshore”, i.e. with one "f".
The basis for codification is orthographic precedent. Previously, everyone actually wrote “offshore”, as in “off-line”, but the language strives for simplicity and uniformity of spelling. Therefore, the spelling “offshore” and “offline” was fixed, like all borrowed foreign words with the prefix of-: office, offside, offset, etc.
By the way, the same spelling – “offshore” with one “f” – is recorded in the Big Explanatory Dictionary of the Russian Language, edited by S.A. Kuznetsova (2014 edition). So further I will write as correctly - offshore.
What is offshore
So, if we say what an offshore is in simple words, it is a territory (a state or a separate administrative unit) that provides tax benefits for company owners and provides conditions for conducting a relatively anonymous business. Tax benefits mean either a simplified taxation system or the absence of fiscal payments altogether (a certain amount is paid instead).
Therefore, offshores are sometimes called “tax-free zones,” “tax havens,” or “tax havens.”
The first offshore companies in the world appeared in antiquity, when merchants founded companies on the islands of the Mediterranean Sea to avoid taxation in Greek policies. For example, the capital of the Athens Maritime Union, Delos, is considered to be the first official offshore. Merchants from Phenicia opened their representative offices there and conducted duty-free trade. The provision of such tax breaks allowed Delos, where essentially nothing grew or was produced, to become the richest island of its time.
In the Middle Ages, the so-called “free” cities of the Holy Roman Empire - Livorno, Trieste, Swabia and many others - became offshore. In the 1960s, many US companies traded through Latin America to avoid paying taxes in their home countries, so the government had to relax tax laws.
The first offshore companies in the modern sense appeared at the beginning of the 20th century in Switzerland and the Netherlands. The concept of “banking secrecy” and “reliable Swiss banks” comes from this.
The concept of “offshore” came to Russia in the early 90s, when the office of the Swiss company Riggs Walmet Group opened in Moscow. For $5,000 (huge money at that time) she offered to register your business in a “tax-free zone.”
Today there are several dozen offshore zones in the world. I can’t give an exact figure, since the very concept of “offshore” and the categories of classifying a zone as offshore are quite vague. There are clear offshores and territories close to them in status, for example, free economic zones in Russia.
By the way, there is the concept of “offshore” - this is the opposite of offshore; this term refers to a company that does business in the same country where it is registered. And Sberbank, and the shawarma shop around the corner are examples of onshores.
What are offshore companies used for: goals and purpose
Offshore (derived from the English “offshore” outside the territory). A similar term refers to enterprises registered in uncontrolled territory. Through them, transactions are carried out between a domestic entrepreneur and a foreign seller. The term can be written with one or two “f”, this is not considered an error.
Thanks to simple transformations through an offshore intermediary, you can significantly reduce the duty. For example: we register a business in Cyprus, but conduct activities in Russia. As a result of simple actions, we legally reduce government fees. duties on profits.
Don’t confuse it with “onshore” – it’s the complete opposite. Onshore does not provide any benefits. This is a company that is registered and operates in the territory of one state.
Advantages
Offshores have their advantages. Among them:
- Reduced tax rate;
- Simplified accounting system;
- International status;
- Fast paperwork;
- Confidentiality of financial data;
- Legal security.
Such advantages attract not only legitimate businessmen, but also scammers. Therefore, offshore zones and their residents are always under increased control of Russian and international inspection authorities.
Flaws
There are also significant disadvantages of offshore zones:
- Mistrust from the state;
- Mistrust of large enterprises;
- Banking restrictions;
- Regular inspections and control of government bodies;
- Deoffshorization
The last point is the main drawback. After all, the Russian Federation forcibly limits the capabilities of foreign companies in order to stop theft in the country.
Reasons for using schemes for withdrawing money abroad.
A little history and why countries use deoffshorization
The original idea is great. Any entrepreneur could legally run his business and pay almost no fees to the treasury. This is beneficial for private business, but extremely unpromising for the state. If enterprises stop paying duties, a crisis will begin in the country.
FACT: Russia ranks 2nd in transferring money to foreign companies. Over 800 billion dollars (5*10^13 rubles) were transferred over 20 years from the territory of the Russian Federation. Imagine how the economy would develop if the money remained in the state.
Unfortunately, the mafia has been in power in the Russian Federation for a long time. It is not in her interest for the country to prosper, because in a rule-of-law state it is impossible to steal in large quantities. Therefore, taxes on small and medium-sized businesses have not been reduced for a long time. Entrepreneurs have no choice but to use offshore companies.
The Tax Justice Network's research and report on oligarch fraud has shocked the world. The USA, Germany and other countries began to check the reports of foreign businesses. V.V. Putin ordered a detailed analysis, but apparently no results were found.
Thus, deoffshorization makes it possible to limit the activities of businessmen and force them to replenish the state treasury.
Deoffshorization
Tax revenues are the main source of income for the state, and offshore companies deprive it of financial stability. In this regard, laws are introduced to limit the capabilities of foreign figures.
For example, in Russia there are the following restrictions:
- providing a tax return;
- information about contractors and subcontractors;
- additional payment of duties;
- transaction control;
- foreign dividends are subject to an additional rate;
- property received from foreigners is used as profit;
- banking restrictions.
Unfortunately, these were forced measures. Domestic fraudsters once withdrew huge amounts of stolen money through offshore companies, so the Russian Federation had to introduce legislative restrictions.
How does offshore work?
To understand what offshore is, I’ll explain how it works. Let's say you have a company, but you don't want to pay taxes and don't want anyone to know that you are the CEO. That's why you go offshore.
And here’s another interesting article: What is devaluation and how does the devaluation of the ruble occur in Russia
There you open a company, appoint a nominee director (someone local aborigine, and the latter may not even know that he is the director of some Prime Start Inc.). They also open an offshore account for you in a local bank, through which you conduct all your transactions.
The offshore zone provides extensive infrastructure for business: branches of international banks, trusts, insurance and legal companies, business centers, hotels for business meetings, accounting, auditing, financial companies, etc.
For VIPs (clients who have 100-500 million money) additional services are provided within the framework of private banking. Services, if anything, are financial, and not what you thought.
For offshore zones, registering companies is beneficial, as it allows for an influx of money into the economy. This is how impoverished island states (as well as Latin American countries) gained access to capital and were able to boost their economies. For example, Cyprus, which is one of the most famous offshore zones in the world, was able to earn $4.3 billion in 15 years.
Classic “offshore schemes”
The popularity of transferring business to offshore zones is associated with the ease of use of these companies in various areas of activity. Regardless of whether the trade sector or consulting is chosen, the company’s work can bring significantly more profit than with traditional registration on the territory of the Russian Federation.
The profitability of a business depends on the competent use of offshore opportunities.
Typical schemes for using offshore companies look like this:
- The “offshore” company is the founder/shareholder of another organization. Under the terms of dividend payments, the second legal entity can be located and conduct business in any country in the world.
- Trade in the field of import/export. Despite the presence of a markup on goods sold, the organization does not pay taxes, since the main business is localized outside the “registrar state”.
- Investment sphere. Raised funds can be invested without restrictions in any line of business (own or third-party).
This also includes shipowners and aircraft fleet owners. Transferring such companies to offshore makes it easier to enter the international market and obtain cheap loans for the purchase of new ships and aircraft. When working in the service sector, horizons for reducing taxes open up for an enterprise, even in “offshore” conditions like Cyprus. The level of work performed can be significantly reduced by taking into account the costs of a particular company.
Types of offshore zones
The IMF offers the following classification of offshore companies:
- Classic ones are small island states that, for a moderate fee (from 5 to 50 thousand dollars), offer to register a business on their territory to operate in another country. There is no need to pay taxes - instead, a fixed annual fee is paid, which does not depend on profit and turnover. There is usually no need to submit reports either. Examples: Virgin Islands, Bahamas, Caymans.
- Low tax zones. These are offshore companies, where the income tax rate is significantly lower than in other countries. For example, in Cyprus it is 12.5%, in Switzerland – 12%, and in Malta it is even 5%.
- Separate economic zones. These are not offshores in the traditional sense of the word, but separate entities within countries. For example, the state of Delaware in the USA provides tax benefits to IT companies, Ireland offers a simplified system for registering ETFs, and special tax regimes apply in the British Isles of Man and Jersey, as well as in Gibraltar.
By the way, interestingly, in Russia there is an analogue of offshores - free economic zones, which are located in the Moscow region (Skolkovo), in Tatarstan (Innopolis), in the Kaliningrad region, in Crimea and a number of other territories. Companies registered there may not pay income tax for 6 years.
Who came up with the offshore scheme?
It turns out that the ancient Greeks came up with this cunning scheme. This happened after Athens introduced a 2% tax on the import and export of goods. The introduction of taxation forced traders to avoid the capital. They began to place their capital on small neighboring islands, where there were no taxes.
Many centuries later, in the late 20s of the 20th century, the first law on offshore companies was adopted in Panama. The first offshore company for a US citizen was registered in the country.
Purposes of creating an offshore company
So, why do companies register offshore:
- tax minimization - in an offshore you can not pay taxes at all or at a minimum rate (for example, 12.5% in Cyprus is better than 20% in Russia);
- optimization of customs duties - for example, BMW and GM import equipment into Russia with the help of a Cypriot subsidiary under the guise of increasing the authorized capital (and this equipment is not subject to duties);
- leaving the control of the state - the Federal Tax Service and other authorities will not be able to request information from an offshore bank about the affairs of a foreign company;
- concealment of information about the real owner - a nominal founder and nominal directors are registered instead;
- capital protection - if something happens, you can safely bankrupt a company and withdraw money to your accounts (in Russia, when a company goes bankrupt, the money in the accounts is seized and used for settlements with creditors);
- increasing the scope and geography of presence - offshore registration makes the company international and opens access to international lending;
- simplified company registration process;
- the ability to choose the desired form of organization - corporation, trust, holding, etc.;
- lack of exchange controls.
Offshores are used for different purposes, for example:
- optimization of export-import activities - this allows you to reduce costs and reduce the cost of production;
- organization of real estate trusts - companies can purchase and sell real estate around the world with minimal taxes;
- registration of brokers, financial and investment companies - for example, all brokers in the Forex and binary options markets are registered offshore, as this allows you to optimize costs and avoid liability if something happens;
- organization of a holding company - confidentiality allows you to hide the real size of the company, and preferential tax legislation allows you to exchange loans with subsidiaries without paying fiscal contributions;
- making investments in various areas using preferential taxation.
And here’s another interesting article: How to calculate the dividend and total return of a stock: formulas and coefficients
In addition, offshore accounts are often opened by businessmen who have decided to retire. Well, or divorce your wife - after all, offshore accounts are not divided.
Opening an offshore account
Any account that was opened abroad can be called offshore. A legal entity or an individual can open a foreign account.
Most often, individuals withdraw their money to protect themselves from instability or bank collapse. Standard opening package:
- two passports - foreign and Russian;
- a questionnaire filled out in accordance with all the rules, including information about the purpose, planned turnover and operations that will be carried out;
- documentary evidence of the legality of funds;
- contact information, including all information about the applicant.
The list for each bank can be supplemented. All documents must be translated into the language of the country in which the account is opened and notarized.
Note! Submitted documents are carefully checked. The whole procedure takes 1.5-2 months.
The service can be provided remotely. Cost varies from 200 to 500 dollars*
Unbearable taxes and mandatory payments force organizations to try to reduce the burden by any legal means.
If an offshore bank account is opened for a company, the following package of documents is provided:
- documents confirming the activities of the organization;
- company charter;
- complete information not only about the owner, but also about all the founders;
- documentary evidence of the source of funds.
Failure to provide at least one of the required documents may raise a lot of questions, and the company may be suspected of laundering funds through an offshore company.
Disadvantages of registering offshore
But not everything is so good when registering a company offshore. The disadvantages of this method must also be taken into account:
- a blow to the image - partners, clients and the government understand that the company has opened an account offshore to evade taxes, and may stop doing business with it (due to loss of trust or simply “because”);
- there are opportunities for abuse by management and nominees;
- changes in legislation - the same Cyprus has repeatedly raised the tax rate (from 8% to 12.5% over the past 10 years), so an offshore company can at any time cease to be an offshore company and will have to get out;
- It becomes more difficult to attract financing, both through loans and issuing bonds (are you more likely to buy bonds from a factory in Russia or a financial firm in the Seychelles?).
Well, another disadvantage is attracting unnecessary attention from regulatory authorities. It is only formally that the Central Bank and other regulators do not monitor offshore companies; in fact, such companies are under special supervision, and regulators are looking for even the slightest opportunity to “develop” such a company.
How to open an offshore company yourself
To do this, you should contact the consulate or authorized body of the selected state to clarify all the nuances of opening a company. In most countries, registration follows the same procedure and includes:
- checking the selected name (up to 5 days);
- collecting and sending the registration package of documents;
- waiting for registration and receipt of documents for the enterprise (up to 18 days).
Remote submission of documents is possible. Often, only a copy of your passport is enough for registration.
The most popular offshore zones
There are a lot of offshore zones around the world. The most popular jurisdictions are the following.
Switzerland - the shortcomings in the form of a fairly high income tax of 12% and the need for mandatory reporting are more than compensated for by reliability, a guarantee of confidentiality and safety of funds.
Cyprus is the most popular offshore zone for businesses from Russia, Germany, Turkey, Greece, Italy and Eastern European countries. Profit rate – 12.5%. It is mandatory to submit reports.
The Virgin Islands are a British territory located in the northeastern Caribbean Sea. You don't need to pay taxes, you don't have to submit reports. The amount of the annual fee depends on the form of business organization. It is considered a “black offshore”; a reputable company is unlikely to open a company in such a place.
The Cayman Islands is another quiet tax haven, completely similar to the one above. With the same reptation.
Seychelles - similar.
Malta has the lowest income tax, only 5%. Registration fee and annual fee are $5,000.
Luxembourg is any offshore for investment banks, trusts and financial companies. There are 200 investment banks alone registered there! The income tax, however, is high - 29%, but this is the only tax. In return, reliability and 100% confidentiality are offered.
Ireland – there is a simplified system for registering investment funds, so many hedge and mutual funds, as well as ETFs, are registered here.
Panama - the absence of taxes, the need to submit reports and other bureaucracy make this country a popular offshore, especially among Forex brokers and pseudo-trust management companies. If your broker is suddenly registered in Panama, it’s better to run away from him. And if you lost money, order a chargeback. Refunds through a bank from a fraudulent broker are possible!
Hong Kong is a real paradise for IT companies. Income tax is only 16%; only a financial report is required from reporting documents. Therefore, many corporations in Asia and even the United States at one time moved their headquarters to Hong Kong.
Countries providing offshore zones
You can formulate a brief definition of what offshore means. Offshore - in simple terms - is the most famous tax method that allows companies owned by foreigners to be exempt from taxes.
Islands with free zone
The conditional division of countries where it is possible to carry out offshore registration activities is carried out according to the following categories:
- small states or islands with low economic performance, but a good level of political development. These include the Bahamas, Belize, Cayman Islands and many others. For these territories, offshore companies mean a complete lack of control by the state under the only condition - the tax must go to the treasury annually. The tax laws of these countries do not require any reporting. Complete confidentiality is guaranteed by the government of the given state;
- countries with so-called increased respectability - Cyprus, Switzerland, Hong Kong - are more demanding in terms of the necessary financial reports. A huge plus is that an offshore company opened in them provides serious tax breaks. State control is strictly maintained; all documentation must be completed taking into account the rules and characteristics of a particular country.
Large offshore companies
Please note! Opening an offshore account is a legal service and should only be carried out by trusted companies with many years of experience.
Offshores and legislation
Naturally, other countries are aware of the existence of offshore companies, but they have to put up with it. At the same time, some are loyal to them, for example, Great Britain. She found a way out: the state simply taxes the income of a citizen who receives income from business abroad. As a result, using an offshore company only helps to defer the payment of tax, but does not in any way avoid it.
Other countries, for example, the USA, Germany, France, Russia, are actively fighting offshore companies. In the USA, for example, sanctions are applied to such companies, which makes the use of offshore companies unprofitable. And when returning to its jurisdiction, such a company receives tax preferences. For example, Apple was taken out of offshore.
In Russia, there is now active deoffshorization of business (however, with varying degrees of success). A whole set of laws and regulations has been adopted regulating the activities of companies registered abroad, but doing business in Russia, for example:
- Federal Law of December 10, 2003 No. 173-FZ “On Currency Regulation and Currency Control”,
- Federal Law of July 13, 2001 No. 115-FZ “On combating the legalization (laundering) of proceeds from crime”,
- Directive of the Central Bank of the Russian Federation dated August 7, 2003 No. 1317-U “On the procedure for authorized banks to establish correspondent relations with non-resident banks registered in states and territories that provide preferential tax treatment and (or) do not provide for the disclosure and provision of information when conducting financial transactions (offshore zones)",
- Order of the Ministry of Finance of the Russian Federation dated November 13, 2007 No. 108n “On approval of the list of states and territories that provide preferential tax treatment and (or) do not provide for the disclosure and provision of information when conducting financial transactions (offshore zones).”
And here’s another interesting article: How to buy foreign shares in Russia: a complete guide
In international practice, there are so-called “black lists” of offshore zones . I have already indicated examples: the British Virgin Islands, the Cayman Islands, the Seychelles, the Isle of Man, Panama and a number of others. If a company is registered in such a region, serious partners will not work with it.
There are international organizations that are taking measures to de-offshorize companies, money laundering and money laundering, for example, the Financial Action Task Force (FATF) and the Organization for Economic Development and Cooperation (OECD). They include dozens of countries, and together they fight against the illegal circulation of money and the financing of criminal and terrorist organizations.
Investor risks when working with an offshore company
We got to the most interesting part. What is the risk of an investor who transfers his funds to the trust management of an offshore company :
- complete loss of funds in a fictitious bankruptcy;
- lack of full support and complete arbitrariness in relation to money (capital can be drained, outright taken, or not allowed to be withdrawn to their bank accounts);
- lack of leverage over a company in Russian jurisdiction - sue and complain if something happens, fly to Panama or Cyprus, and it’s not a fact that it will work out;
- lack of regulatory measures - no one controls offshore companies, and you will not be given guarantees that your broker actually brings transactions to the market, and the management company actually manages capital and is not a financial pyramid.
So it is better to avoid such companies and choose reliable Russian or foreign brokerage and management companies that have been proven over the years. And if you get caught, you can try to withdraw the money back through the chargeback procedure.
On the other hand, organizing a company offshore allows you to optimize some costs and make your business more efficient . Therefore, many Russian brokers have their own subsidiaries in Cyprus, through which they bring clients’ transactions to the European or American market. Ireland, although formally offshore, is quite respectable, and the simplified system for registering hedge funds allows you to create your own management company without unnecessary costs and bureaucracy, which ultimately results in the ability to pay clients more money.
Now you know what offshore is. Use this knowledge in your work when choosing specific managers and tools. Offshore is not always a bad thing if you choose a reliable and successfully operating company. But if you contact a shell company registered offshore, no one can guarantee its reliability. Good luck, and may the money be with you!
Rate this article
[Total votes: 1 Average rating: 5]
Frequently asked questions (FAQ)
Beginning entrepreneurs are often troubled by questions, the answers to which will be given below.
Question 1. Where to start when deciding to go offshore?
Many Russian companies, if they want to open offshore companies, can turn to intermediary companies . A very convenient option that will allow you to save time and conclude an agreement taking into account all legal concepts. However, this service is quite expensive.
If an interested entity decides to independently create an offshore company, then each jurisdiction will offer the interested party a complete list of necessary documents and a list of all proposed terms of the offer agreement.
Question 2. How to buy an existing business?
There are many companies selling ready-made offshore companies. For example, on the Worldwide Incorporation Services you can always choose the option that suits you.
Question 3. What is deoffshorization?
Deoffshorization – reducing the impact of the offshore factor on the Russian market.
Today, most large and small businesses use assets from abroad in their work. Russian government agencies are interested in high taxes, so they are trying to reduce the number of offshore companies in our market.
Question 4. Liquidation of a company using an offshore company?
Liquidating an LLC using an offshore company is a profitable way to eliminate or reduce debts to credit institutions. If you approach this method from the legal side, then it is completely legal.
The positive aspects of this method:
- rapidity;
- legality;
- complete lack of audit.
Question 5. What is a beneficiary?
The beneficiary is a legal (sometimes physical) entity that is considered the owner of the company transferred to the jurisdiction abroad.
The transfer of legal rights occurs only when it is necessary to hide the real owner of the enterprise.
The fate of the company owner’s capital depends on how reliable the beneficiary is. The beneficiary receives some compensation for his services as an intermediary. This can be either a percentage of the profit received or a fixed rate.
