Simply put, offshore entities, like Seychelles companies, are companies registered under specific offshore laws of one country or jurisdiction but are allowed to conduct all active trading activities only outside that country or jurisdiction. The term offshore company’ is often used generically for most corporations that are created to engage in business internationally, especially the International Business Company or IBC. Limited Liability Companies or LLC’s and Segregated Cell Companies are two other types of offshore companies that can be used for international trade.
Offshore companies are regulated by a series of acts under which they come into existence through legislation. While there may be a specific act for an IBC or LLC, other laws are usually implemented to supervise and administer diverse issues pertaining to the offshore sector. These include acts against money laundering and financial terrorism, for the establishment of tax information exchange treaties, and formation of financial service commissions and intelligence units which serve to protect the public from malpractice and ensure that regulatory measures are implemented.
Offshore companies are granted with the powers to engage in legal trade internationally. As an entity with a legal identity separate from its members and owners, and offshore company can enter contracts, sue, be sued, hold bank accounts and conduct all affairs related to the company’s business. Restrictions placed on offshore companies vary from one jurisdiction to another and may include rules pertaining to the use of an already existent or registered company name, a name that implicates any royal or state authority, chamber of commerce, or suggests business activity like banking or insurance for which offshore companies are not licensed to undertake under normal offshore company laws. To operate as an offshore insurance company or bank, an offshore company would have to be registered and duly constituted under the relevant offshore banking or offshore insurance act.
Offshore companies are considered resident based on the country in which operations are carried on. A bigger importance now gain actual residency of the beneficial owner, and more and more investors recently searching for best citizenship by investment program. The residency of offshore companies determine their tax burden and residency, as offshore companies are not taxed in their jurisdiction of incorporation because they operate only offshore and are consequently not subject to taxes in that jurisdiction. Due to the ability of an offshore company to operate anywhere, it is a legal requirement that upon formation, an offshore company be provided with a registered address and a registered office. This differs from the actual address of place of business and is provided by the agent of the offshore company in the jurisdiction of incorporation. The registered address and office of an offshore company facilitates the service of process and receiving email and letters which are forwarded to the offshore company’s domicile outside the jurisdiction.
Ownership of companies
Offshore companies can be owned by anyone as provided for by the relevant laws of the jurisdiction of formation. Normally, owners are required to be over the age of 18, physically and mentally fit, not be a former convict or bankrupt. To present, jurisdictions that incorporate offshore companies based on nationality, race or religion do not exist. Ownership rules for offshore companies are therefore non-discriminatory and are available to any natural or legal person capable of becoming an owner in accordance to legal stipulations. Offshore companies are owned by their beneficial owners and in most jurisdictions are required to have at least one director and one shareholder. A few jurisdictions require that an offshore company be incorporated with a minimum of two directors, with the possibility of reducing that number to one after the offshore company has been duly incorporated and registered. The legal ownership of an offshore company is not restricted to natural persons, extending the possibility of ownership by another legal entity or corporation. The directors of offshore are normally not required to be shareholders whilst shareholders do not have to be directors. However, shareholding and directorship can be undertaken by the same individual or corporation.
At the London 2009 G20 Summit, decisions were taken to reform and improve financial sector and systems as well as international financial institutions like the International Monetary Fund, the World Bank and Financial Stability Forum. Amongst this was the loud cry to crack down on tax havens due to their role in creating an ‘unleveled playing field’ in the international tax framework. Traditionally, offshore companies were fully exempt from all taxes imposed in the country in which they were incorporated. However, in light of efforts to establish a level playing field with regard to tax regimes, quite a few tax havens have imposed corporate taxes on offshore companies. Though these taxes are generally lower than those levied in non tax haven countries, individuals and corporations seeking to invest in, do business or set up an offshore company should seek advice on the countries that still maintain their zero tax regime for offshore companies in order to truly benefit from the privacy, confidentiality and tax minimization features of an offshore company.