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Forming a company in a foreign jurisdiction half way across the world is perhaps as easy as it ever been, and recent figures suggest that offshore incorporation activity is returning to pre-recession levels thanks to rising investor confidence.So let's look at the basics of incorporating a company offshore. Introduction The word offshore has almost become synonymous with tax avoidance in the minds of the general public in the past few years. But this is largely due to vote-seeking politicians and a mainstream global media which either misunderstands, or doesn't want to understand, the complex world of international investments. While it is true that (legal) tax avoidance can be achieved by placing income and assets in an offshore company, and that tax minimization is a major reason for creating an offshore company, it is by no means the only reason why so many are formed, as described below. The sheer numbers of companies registered offshore demonstrates how integral offshore jurisdictions have become to the world financial system and global investment flows. The British Virgin Islands for example is home to almost 1 million companies. This is almost one-third of the number of active companies registered in the United Kingdom in December 2013 a remarkable statistic when one considers the difference in size between these two economies. Inevitably, the offshore world took a hit economically as a result of the global financial crisis. But figures suggest that offshore incorporation are heading back to their pre-crisis levels. From January to June of this year there were 38,416 new incorporations in the key jurisdictions, and the local registers of most of these territories have swelled since the end of 2012. As is to be expected, some jurisdictions are doing better than others. Hong Kong for instance, with its favorable tax and regulatory regime, is clearly benefiting from Asia rise as a major economic player, having recorded successive increases in company registrations for a number of years. Indeed, the number of local companies newly registered with the Hong Kong Companies Registry in 2013 hit a record high of 174,031, up from 150,165 in 2012, an increase of 15.9 percent. By the end of 2016, the total number of live local companies registered under the Companies Ordinance reached 1,162,931, up 118,287 from 1,044,644 in 2012. The 780 non-Hong Kong companies establishing a new place of business in Hong Kong in 2013 represent an increase of 13.7 percent from the 686 companies established in 2012. The total number of registered non-Hong Kong companies had reached 9,258 by the end of 2013. What Is Offshore? There is no hard and fast definition. But generally, most offshore jurisdictions have separate legal regimes whereby non-resident companies pay little or no tax and benefit from lighter regulation and stronger privacy protections, as long as they do not trade in the local economy. Nevertheless, the word offshore is often used to describe any country or territory sharing some of the characteristics of an offshore jurisdiction. Hong Kong is a good example. While we may have lumped it together with the world of offshore in our introduction, Hong Kong isn't strictly speaking an offshore jurisdiction because it doesn't distinguish between onshore and offshore companies as such. However, because Hong Kong taxes are comparatively low and it doesn charge tax on foreign income, it is often used by international investors in the same way as an ffshore jurisdiction. The same applies to other low-tax but nshore territories and financial centers favored by investors. Indeed, an offshore company in the widest sense of the word could simply mean a company incorporated in any foreign jurisdiction, and even some high-tax countries have special legislation in place conferring tax advantages on foreign companies. The holding company regime in the Netherlands for example is used by thousands of multinationals to save tax, while the UK new atent box is quickly becoming popular as a low-tax vehicle for intellectual property income. The Advantages of Forming an Offshore Company A major reason why any individual would want to form a limited company is that such a corporation typically has a separate legal existence from its owners. Combine this with the tax advantages of incorporating a company in a no- or low-tax jurisdiction and the benefits become obvious. Many offshore jurisdictions retain company laws allowing for the formation of International Business Companies (IBCs) which are usually for the exclusive use of non-residents and are for the most part completely exempt from corporate tax and other taxes that resident onshore companies may have to pay. While some offshore jurisdictions have abolished IBCs or similar sorts of company laws in recent years, it is often the case that the tax advantages have been extended to both resident and non-resident companies in order for that jurisdiction to remain attractive to foreign investors. An example of a country which retains IBCs is Belize. A Belize IBC is formed under the International Business Company Act 1990, and is specifically exempted from any form of income tax, capital gains or transaction tax. Any Belize IBC can conduct its business in any foreign currency it may choose, free of Belizean government regulation or restriction. Belize IBCs are often used to establish securities trading accounts in the United States, Canada and Europe, either directly or through Belizean intermediaries. Other uses include the holding of title to real estate in jurisdictions other than Belize, and the collecting of commissions, royalties or dividends. There are restrictions on what a Belize IBC can do however, and they are prohibited from carrying on business with persons resident in Belize, owning an interest in real property situated in Belize, except lease property for office purposes, carrying on banking business, carrying on insurance or reinsurance business, and carrying on the business of providing registered agents/offices for companies. Such restrictions are fairly typical of IBC legislation across the world, although they do vary. Wealthy individuals also use offshore companies for asset protection because of the enhanced privacy that ensues from interposing an offshore corporate entity between the asset and its owner. An IBC can be used for the purposes of asset protection, but this is where the offshore trust comes into its own, sometimes used in conjunction with an IBC. The Nevis International Exempt Trust is particularly suited to the task of asset protection, because, as well as being exempt from all forms of Nevis taxation and exchange controls (provided the transactions take place with non-residents only), there is no registration requirement other than for the trust name, the name of the trustee and the registered office address. The Foundation is the civil law equivalent of a common law trust, and while the two types of entity differ in certain key ways, they are often used to achieve the same outcomes, principally estate and wealth planning and asset protection. Panama is a good example of a Foundation jurisdiction. There are several other reasons as to why someone might want to form an offshore company. For instance, career expats or globe-trotting entertainers, sports persons and entrepreneurs often find that establishing a company in one or more offshore territory to receive income earned in several other countries is the most convenient and rewarding way to manage their financial affairs. Others may use an offshore company to hold assets and investments, perhaps as part of their retirement solution. However, many onshore countries still have favorable company laws allowing individuals to set up companies with minimum fuss and with little state interference, and it is often the case that if no trade is performed there then the company will not be liable for tax. Although the United States government is at the forefront of the international push for more corporate transparency, some US states remain among the best places in the world to form a company if anonymity is a requirement, and Delaware is arguably the best of all. And as regards tax, as long as a foreign corporation or trust does not produce income that is ffectively connected to the US, generally it won have to pay US income tax. Cyprus is a good example of a jurisdiction which is no longer offshore but which has become a popular holding and trading company base because, even though it has a worldwide system of tax for residents, non-resident companies typically pay no income tax as long as no income is generated in the jurisdiction. Cyprus also has a large network of tax treaties, so it is a useful base for investors looking to avoid double taxation. And as a member of the European Union companies can take advantage of certain EU legislation to minimize tax, such as the parent-subsidiary directive. Other jurisdictions have invested heavily in telecommunications infrastructure, and combined with low taxes and flexible company formats these have become excellent bases for e-commerce and e-gaming operations. Offshore company structures are also commonly used by the insurance and captive insurance sectors, the shipping industry and mutual and hedge funds, with many jurisdictions having specialized in one or more of these areas over the past 10 to 20 years. In a nutshell, the five main reasons for offshore company incorporation and formation are: - To save tax – an offshore company can form part of an overall taxation reduction strategy for certain individuals or entities.  Combined with an offshore bank account or trust for example, an offshore company can save an individual tax…or when such an offshore corporation is set up in a low or no tax nation, it can be used to enable a business to realsie profits in as tax efficient way as possible. To have greater ease of operation – many offshore centres make it very easy for companies incorporated locally to trade if they do not transact locally and they are not involved in banking or financial services for example.  The latter type of company usually require specific licenses and greater regulation.  But for straightforward business types, an offshore company can be far easier to manage than an onshore one. For offshore asset protection – again, where an offshore company is established as part of an overall strategy for wealth preservation with the likes of a trust for example, it is the perfect entity for enabling individuals to achieve asset protection offshore.  Assets can be owned by the company rather than directly by an individual, and the company can be placed in trust for example. To achieve a higher level of anonymity – a number of overseas centres offer the option of having nominee directors for the establishment of a company and others also manage to keep the names of directors and shareholders off public record.  This means that those who transact through such a company can keep their affairs private. To benefit from favorable local legislation relating to reporting – the amount of company information and accounting data that needs to be submitted and held on file is far reduced in the majority of offshore centers which goes hand in hand with point 2 above towards making an offshore company that much easier to manage and run day to day. Forming an Offshore Company It is a relatively straightforward process to form an offshore company. Indeed, while in days gone by the incorporation process could take days or weeks to complete, in some places a company can be formed within 24 hours, with many corporate registries having gone online in the past few years. Inevitably though, since the OECD stepped up its campaign against money laundering and tax avoidance, the due diligence requirements needed to establish a company overseas has increased, especially in the ax haven jurisdictions. The increasingly common presence of now your customer rules mean that corporate service providers need you to identify yourself when setting up an offshore company, usually by providing them with a notarized copy of your passport and other documents to show proof of address. Requirements as regards company officers, shareholders, minimum capital, meetings and the filing of accounts vary from jurisdiction to jurisdiction, but in offshore territories they tend to be minimal. It almost all cases, initial registration and annual renewal fees will have to be paid to the local government (which are usually levied instead of direct taxes), and these also differ from one place to another and depending on the type of company formed, although they tend to start at around USD250. It is also important to choose the company name carefully, as it must be unique; and some jurisdictions prohibit the use of certain words, for example Chamber of Commerce Government and University In spite of the advent of new fast track company registration procedures, rarely would an individual set up an offshore company without the help of an adviser or corporate service provider expert in the local legislation, and usually the most convenient way to register a company is to obtain the services of a CSP who will file all the necessary documentation on your behalf, and provide additional services such as acting as a nominee. Government fees are usually included in the overall incorporation/ongoing package. For instance, these are the main characteristics of a Belize IBC: There is no minimum paid up capital requirement, and capital may be expressed in foreign currency; An IBC may issue bearer shares and shares of no par value; but bearer shares must be held in the custody of a local registered agent; Subscribers may include an individual, a corporation or a Trust; A company may have nominee shareholders using local licensed registered agents; There is a minimum of one director, who can be an individual or a corporation; A secretary is not required (but can be useful); Each company must maintain a Registered Agent and a Local Registered Office using licensed individuals or companies - these are the only details about an IBC that are available on the public file; There are no requirements for an IBC to file details related to shareholders or directors or for the filing of audits or accounting reports; No meetings are required of directors or members; There are no exchange controls for an IBC; Foreign companies may continue (re-domicile) as Belizean IBCs, and vice versa. Choosing the Right Jurisdiction With almost 200 countries to choose from, this is not an easy one! In addition, superficially company and tax legislation in one offshore jurisdiction can seem not so very different from a handful of others. This is especially so with common law jurisdictions, many of which have modeled their company and trust legislation on English law, and have to a degree copied each other. So the jurisdiction in which you ultimately choose to form a company will depend heavily on how you plan to use it, how much tax you will save and whether the rules and laws in place on the ground will let you achieve your goals. You must also consider whether the laws in your own country will allow you to use your offshore company for its intended purpose, as an increasing number of countries are putting in place anti-avoidance laws designed to make it difficult to achieve tax minimization in such a way. There are a few other things to bear in mind however when doing your research. For example, will the professional infrastructure be good enough, and how easy (or difficult) will it be to communicate with advisers in the foreign jurisdiction? How much will it cost to set up and maintain the company? And is the jurisdiction a stable one politically and economically? Please keep in mind at least the following considerations: level of local protection and legislation set up and on going costs local infrastructure upon which you may have to rely taxation and reporting requirements Ultimately though, this is a choice that should only be made with sound and impartial advice from an expert. Conclusion So there are clearly benefits to be had from owning a company in a foreign jurisdiction from the point of view of taxation, privacy and access to foreign markets. Plenty of pitfalls await those who don do their own due diligence and do not seek out the best advice when considering how to form the optimum corporate structure to suit their needs.