Offshore: what it is and how it works (in simple words)

In the media and business circles every now and then there is talk about offshore companies. For most people this term is not completely clear, but to understand this concept is not difficult. In simple words, we are talking about companies that are not subject to the jurisdiction of the state in which they operate.

What is the essence and advantages of the offshore

Any company pays duties and taxes to the treasury of the country where it is registered. In order to reduce these rates or to avoid any fees altogether, businessmen formalize a company in offshore zones. Bermuda, Seychelles, Cayman Islands and Bahamas, as well as Malta, Singapore, Panama, Cyprus and a number of other states offer such opportunity to foreign businessmen on favorable terms.

The advantages of registering in an offshore zone are many:

• the procedure is simple and fast;
• low taxes;
• the real owner can remain anonymous;
• it is possible to take advantage of cheap loans due to minimal taxation.

Another attractive factor is that the government, on whose territory an offshore company works, does not go deep into its activities. Taxes all the same go to the budget of another country, which explains the lack of interest.

What enterprises and for what purpose are registered in offshore zones

To register an offshore company its owners are pushed by the desire to reduce tax burden, increase profitability of business, close all commercial information. The founders may not be satisfied with the conditions of the state where their company operates, and they go offshore.

Most of the structures are related to export and import, financial and consulting sector. Offshore zones are attractive for investment, registration of air and water transport, banking licensing, insurance.

How offshore schemes work

An offshore company establishes or becomes a shareholder of another legal entity that can operate anywhere in the world. In commerce, this allows for a mark-up on goods without paying taxes to the treasury of the state where the main business is conducted, as the underlying business is outside the registrar country.

Investment companies attract cash flows and invest them without any limits in a variety of businesses, both their own and partner businesses. Owners of ships and aircraft more easily enter the international market thanks to offshore registration, receive favorable loans for the purchase of new vehicles, etc.

Disadvantages and difficulties of offshore

Before registering a new company or transferring an existing one offshore, it is necessary to weigh the pros and cons. The main problem can be wrong choice of foreign jurisdiction.

The Ministry of Taxes and Levies forms the so-called «black lists». Registration in the listed offshore zones will lead to the refusal of banks in loans and other difficulties. Usually such a list includes the region due to the concealment of data on financial transactions, behind which there are often shadow structures and the implementation of criminal schemes.

In many respects, the company's reputation depends on the right choice of offshore. If a business is registered in Hong Kong, Singapore, Great Britain or Switzerland and other stable zones, it will be more trustworthy on the part of the banking system, potential partners and clients.