Example uses for Offshore Companies

Modern Legislation dictates that offshore companies can carry out almost any kind of trading or asset holding activity - worldwide.

What follows is a sample of uses for an offshore company:

Trading Companies:

A trader – let’s call him George – sells handbags to market stall holders, big department stores and other retail outlets.

George buys from China at £10 and sells the handbags at £50 each, declaring a profit of £40 per handbag.

However, after setting up offshore - the offshore company buys the handbags from China at £10 and sells them to George’s UK company at £30. George sells them at £50 but his on-shore company has now only made £20 profit per handbag and is taxed accordingly.

The offshore company pays its duty in lieu of tax in its own jurisdiction (country) – for example – Gibraltar (including filing fees etc) is only £250 per annum regardless of the profit the company has made!

George could be selling trainers, consultancy services, electrical parts or widgets! The principles are the same.

Holding Companies:

Locating a Holding Company in an offshore jurisdiction where there are no income or corporation taxes and no requirement to pay dividends or capital gains taxes is attractive.

The offshore company can fund subsidiaries in other countries who could obtain local tax deductions on interest paid, can purchase properties in other countries than where it is registered and can accrue profits from loans made to subsidiaries.

Investment Companies:

Offshore companies incorporated in offshore jurisdictions can accumulate funds and invest them or make deposits anywhere in the world. Interest can be earned tax free (subject to local tax policies).

In the vast majority of offshore financial centre’s there are no capital gains taxes and there may be opportunity to invest in a high tax country efficiently, by virtue of double taxation treaties encouraging offshore investment.

Property Owning Companies

The ability to avoid Inheritance and Capital Gains taxes are major attractions when considering the use of an offshore company. Many property investment companies use offshore companies to hold their portfolios in order to protect their assets.

For example, if the property is owned by an offshore company and the beneficial owner wants to sell, they have two options – either sell the property from the offshore company to the new owners and the sale progresses as normal, with the deeds changing hands and being registered at land registry as normal. Alternatively, if the offshore company only owns one property, the beneficial owner can simply sell the shares in the company to the new buyer, therefore not incurring any stamp duty fees. This is particularly interesting to investors and developers.

For instance: An owner of a piece of land without planning permission, may wish to sell the land to an offshore company prior to obtaining planning, and before it is seen to increase in value.

The owner then obtains planning and sells the land via the offshore company to a developer, alternatively the offshore company may chose to build out the development. Either way, no capital gains tax is applicable.

We are pleased to assist arrangement of offshore funding for property purchase and other trading needs.

One simple example of this would be:

Frank wants to buy a few properties for investment. Planning to renovate them and then collect a rental income. After a few years he plans to sell them on and make a profit. However he is concerned about Capital Gains tax.

Our solution is easy – Frank invests in an offshore company. That company then in turn buys the properties and is the registered owner. The offshore company then employs Frank (direct or through Frank’s UK building company) to renovate the properties to a good standard.

The offshore company then rents out the properties, collecting the rents via a UK company (in order to comply with the “withholding tax” rules). Eventually the offshore company sells some of the properties, and providing the offshore jurisdiction has the right double taxation treaties, there are no requirements to pay capital gains tax!!

Shipping Companies:

Shipping Companies may own or charter ships, the profits of which can be accumulated tax-free. The use of an offshore shipping company can eliminate direct or in-direct taxation on shipping. The only proviso is that the offshore shipping company should be registered within the same jurisdiction as the flag under which the ship sails.

Insurance Companies:

A number of offshore financial centre’s allow the incorporation of insurance companies. This industry is respectable if controlled properly and can enhance the image of the centre. Again, in the right haven, no tax will be due on either premiums collected or investment income earned.