Offshore Company: Everything You Have to Know

An offshore company is a company incorporated in a jurisdiction other than the one where its owners live or where most of its business is run. A designer in Germany who owns a Seychelles IBC, or a software founder in Brazil who trades through a Hong Kong company, both own offshore companies. The term describes location, not legality: an offshore company is a normal legal entity with its own certificate of incorporation, shareholders, directors and obligations.

This guide explains what an offshore company is, why people set one up, the real advantages and the drawbacks that are often left out. If you have already decided to go ahead, read what to check before setting up an offshore company and then our step-by-step registration guide.

What is an offshore company?

Offshore companies are also called international business companies (IBCs), non-resident companies or foreign companies. Most are set up in jurisdictions that designed their company law for international business: simple incorporation, a small number of officers, no requirement to live in the country and low or no tax on income earned abroad.

An offshore company can trade, invoice clients, hold shares in other companies, own intellectual property, sign contracts and hold bank or payment accounts in its own name. What makes it "offshore" is simply that its place of incorporation differs from where its owners are based.

Why own a company outside the country where you live?

People rarely form an offshore company for a single reason. The most common motives are:

• International clients. A company in a neutral, well-known jurisdiction can be easier to contract with across many markets than a local sole trader registration.
• Tax efficiency. Many offshore jurisdictions use a territorial system, taxing only income earned inside the country. That does not remove your obligations at home, as explained below.
• Simple administration. One director and one shareholder are often enough, and filings are lighter than in most onshore countries.
• Holding structures. An offshore holding company can own subsidiaries, investments or IP in several countries under one roof.
• Location independence. Founders who move often, such as digital nomads, can keep one stable company wherever they live.

Advantages of offshore companies

Privacy

In many offshore jurisdictions the names of shareholders and beneficial owners do not appear on a public register. That privacy is not secrecy: the information is held by the licensed registered agent and, increasingly, filed with the registry in a non-public register. Regulators, tax authorities and banks can access it when the law allows. What it does protect you from is casual public lookup by competitors or strangers.

Asset protection

A company is a separate legal person. Assets it owns belong to the company, not to you personally, and shareholders are generally liable only up to the capital they invested. Holding business assets through a properly run company can separate them from personal risks and keep business risks away from personal property. Moving assets into a company to defeat existing creditors, however, can be reversed by courts and may be unlawful.

Legal and operational simplicity

Offshore company laws tend to be short and practical. A Seychelles IBC, for example, needs only one director and one shareholder, who can be the same person and live anywhere. A Marshall Islands non-resident corporation follows company law modelled on Delaware, which many lawyers and investors already know.

Speed and low running costs

Incorporation is usually a matter of days, and the main annual costs are the government fee and the registered agent. With WeForm, a Seychelles IBC starts from USD 550 and typically takes 1-4 business days, and a Marshall Islands corporation starts from USD 900 with incorporation in 2-3 business days.

Disadvantages of offshore companies

Banking takes more preparation

Banks and payment institutions apply enhanced checks to companies whose owners live elsewhere. Expect detailed questions about your business model, clients, source of funds and expected transaction volumes. We cover this in the difficulties of opening a bank account.

Proving ownership can be slower

Because ownership records are not public, you often need certified or apostilled copies of the register of members, a certificate of incumbency or similar documents whenever a bank, partner or authority wants proof of who owns the company.

Bringing money home can be taxed

Low tax in the country of incorporation does not mean low tax overall. When profits are paid to you as salary or dividends, your country of residence will usually tax them. Many countries also have controlled foreign company (CFC) rules that tax a resident shareholder on the undistributed profits of a low-taxed foreign company. Belgium, for instance, does not give its usual participation exemption on dividends from companies in jurisdictions it considers low-taxed.

Where the company is managed matters

Many countries treat a company as tax resident where it is effectively managed and controlled, not where it was incorporated. If you run an offshore company day to day from Switzerland, the Swiss authorities can treat it as Swiss tax resident, and holding two board meetings a year abroad does not change that. The UK applies a similar "central management and control" test, and its off-payroll working (IR35) rules apply to contractors regardless of where their company is registered.

Reputation and regulation keep changing

Offshore centres have adopted economic substance rules, beneficial ownership registers and automatic exchange of financial account information. Rules that applied when you incorporated may change, so a structure needs reviewing every year or two.

Is it illegal to have an offshore company?

No. Owning a company in another country is legal in almost every country. What is illegal is using one to hide income from your tax authority, launder money or evade sanctions. Under the OECD Common Reporting Standard and the US FATCA rules, banks in participating countries report accounts held by foreign residents to their home authorities, so offshore accounts are not invisible. The practical rule is simple: declare the company and its income where you are required to, keep proper accounting records and take advice from a tax adviser in your country of residence before you start.

Other risks to weigh

• Jurisdiction risk. Political and economic stability differs between offshore centres. Choose one with a stable legal system and a good standing with banks.
• Distance. You will rely on a registered agent for filings and documents, so the quality of that provider matters.
• Normal business risks. Market, credit, currency and reputational risks do not disappear because a company is incorporated abroad.
• Director responsibility. Being the sole director of an offshore company still carries legal duties. See seven responsibilities of a corporate director.

Where WeForm can help

WeForm forms companies in six jurisdictions, fully online with remote identity checks and electronic signing: the United Kingdom, Hong Kong, Seychelles, the Marshall Islands, Costa Rica and the IFZA free zone in Dubai. Every package includes the registered office and agent for the first year, government setup fees and an introduction to supported banks and payment institutions. Compare options on all jurisdictions or start your application.

FAQ

What is an offshore company in simple terms?

A company registered in a country other than the one where its owners live or mainly do business. It is a normal legal entity with its own documents, officers and obligations.

Is owning an offshore company legal?

Yes, provided you declare it and its income where your tax residence requires and you do not use it to hide money or evade tax.

What is another name for an offshore company?

International business company (IBC), non-resident company or foreign company. The exact legal form depends on the jurisdiction.

Does an offshore company pay no tax at all?

It may pay little or no tax in the country of incorporation, but you and the company can still owe tax in the countries where you live and where the company is managed. Get advice from a local tax adviser.

Can an offshore company open a bank account?

Yes. Expect thorough due diligence. WeForm packages include an introduction to supported banks and payment institutions; see our banking services.