There are many ways to call a company you set up abroad: an offshore company, a foreign company, a non-resident company, or an overseas company. All these terms bring a lot of confusion as the readers start doubting whether these are the same things from a legal point of view or whether they have differences that should be considered. Let’s look at the terms to clarify things and eliminate any misconceptions that arise in connection with them.
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Difference between a Foreign Company and an Offshore Company
Offshore and foreign companies used to refer to different kinds of legal entities, hence all the confusion we have in the present-day media. However, these notions can be used interchangeably as the situation is different. Let’s look at the details.
In the past, offshore countries were mainly island nations that provided considerable tax benefits, enhanced privacy (verging on anonymity), and fewer administrative responsibilities. Many of these jurisdictions relied heavily on providing company registration and account opening services to foreigners, which made up the lion’s share of their GDP.
Today, anonymity is a thing of the past, as present-day technologies and requirements made it impossible. And we are talking about a reasonable degree of privacy. In that case, it may also be achieved in midshore and onshore jurisdictions, so the offshores lost their exclusivity in this regard.
As for taxes, you can take advantage of low or zero taxes in many jurisdictions that offer benefits to non-resident companies. Nevis, Belize, or the Marshall Islands are no longer the only opportunity to save on taxes as even the United States incentivizes foreign legal entities! And if you are looking for zero corporate tax rate, you can find it in midshores and onshores if you know where to look.
A popular solution in the present-day business environment is to establish a company in an onshore jurisdiction with elements of an offshore company, thus taking advantage of a solid onshore reputation and offshore benefits (enhanced privacy for business owners (shareholders), lower tax rates, and flexible company administration conditions).
You may call your offshore company a foreign company and vice versa. Many entrepreneurs prefer the term foreign company to avoid negative associations related to offshores (though tax evasion, aggressive tax optimization schemes, money laundering, and so on are no longer possible even in offshore jurisdictions; the latter still have this flavour about them).
There is one aspect that needs to be taken into account. Each country (as well as major international regulators, like OECD and FATF) has blacklists and graylists of offshore countries which impose some restrictions on them. Local banks cannot open accounts for companies registered in such jurisdictions, or they may be subject to additional taxes if they decide to repatriate their profits.
Make Use of Your Offshore/Foreign Company in the Best Way
You can set up a company back home, which may sometimes be easier than dealing with a foreign country and its laws. Why do entrepreneurs set up companies abroad, then? Let’s see the main reasons why you may opt for a foreign company:
- You want to conquer a specific foreign market, and you decide to incorporate your company there.
- You can engage in a particular business, like trade or insurance, and choose a reputed financial centre to establish an offshore company.
- You may run an international holding company that manages the funds of several
- Offshores are still second to none when it comes to asset protection. You can form a trust in a jurisdiction like Nevis to protect your money against being taken away by creditors, fraudsters, or former spouses or lost as a result of a major economic upheaval.
- A trust or an offshore company is a much more convenient instrument for inheritance planning than an ordinary will. First of all, inheritance taxes may be very high in your country, while keeping your assets in a foreign jurisdiction may help to reduce the rate to zero. Second, you can make up a trust deed determining how the inheritance assets will be distributed, when, and to whom.
- There are profitable investment projects that you cannot participate in if you keep the funds in your home country. Registration of a foreign company gives access to multiple investment projects worldwide, enabling you to create an excellent diversified portfolio.
- If you need a second passport (or want to change your current legal or tax residency), starting a business in a foreign country or investing in local real estate will make you eligible for citizenship (or at least a residence permit) in countries that offer citizenship-by-investment programs.
As you see, tax optimization should be mentioned here. You can pay reasonable tax rates in many countries outside of offshores – all you need is to choose a jurisdiction that best suits your needs. And we can help you with the choice free of charge.
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