Any offshore company is, first of all, a legal entity often created not for profit, but for reliable legal registration of existing assets and their safe storage.
However, one can earn money using offshore companies.
For example, offshore companies are sometimes used to establish investment and hedge funds in specific zones, in order to manage assets and generate profits. Offshores are also used to create online casinos and bookmakers in relevant offshore jurisdictions, where this activity is officially permitted.
There are some very expensive and complex ways to earn money by opening businesses or insurance companies in offshore zones. However, such tools are used as part of large holding projects and require very serious financial investments.
In general, offshore companies help save money. Optimization of taxation is the mechanism that allows you not to earn with the help of offshore companies, but rather to minimize the loss of earnings. Thus, using offshore companies gives you stability and confidence in the safety of your property, as well as peace and security for your business.
Money withdrawn to an offshore organization is returned to your country in the form of direct investments or loans from foreign companies. Although many companies use offshore for legal purposes, some use schemes to obtain illegal profits, hiding behind legal methods. Here’s a list of thing you better not do:
Withdrawing money as payment for services
This scheme is quite popular, because it allows to significantly reduce income tax and transfer profits to the account of an offshore company.
Offshore Ownership
Panama is a famous offshore zone that has the largest merchant fleet. By registering vessels in such countries, you can get services for registering a fleet at a low price and not pay taxes for trading and passenger transportation. So, you can minimize the tax burden.
Getting loans
A company or individual can take a loan from their offshore business, which in fact, is not actually taken. The interest on this loan can be constantly paid to the accounts of the offshore company. To ensure that this scheme does not cause tax inspectors questions, scheme makers usually take loans in European offshore companies.
Speculative resale
A company can act as an exporter of goods. At the same time, it will sell the goods to its offshore business at the lowest price and pay a small tax for this profit. The offshore company, in turn, will sell the goods at a global price to a third company. The profit will remain on the offshore account.
Leasing operations through offshores
When one needs to buy equipment or vehicles on lease, they can use an offshore company and a friendly company in Europe. Thanks to the purchase of goods by a European organization and their resale, the trade margin is sent offshore.
Conducting joint trading or investment activities
It is possible to conduct activities at the level of a simple partnership with a European company, transferring money as a contribution to the partnership. This profit is sent to an offshore company that provides the partnership with some kind of consulting services.
Own an account in a foreign bank
If there is a need to simply withdraw money abroad, the company can open an account with a foreign bank and transfer any amount there, like an operation between its accounts. Further operations with this money are not reflected in the documentation, and for those who check it, they simply lie with a foreign bank.
Reinsurance through offshore zones
The company insures some unlikely risk for a large amount, these costs are taken into account in accounting documents. As a result, the entire insurance amount is on the accounts of the offshore.
100% prepayment
When concluding a transaction with an offshore company for some services or work, 100% prepayment is made. It is obvious that the work will not be completed. Money is transferred. After some time, the company sues to demand money from the offshore and wins the case. The money is not returned and is regarded as a bad debt in the other country.
Minimization of taxes for intellectual property
In the event of registering a trademark or intellectual property with an offshore company, one can reduce income tax. To do this, all contracts for the use of this property must be concluded through this company. All income derived from such activities will be deposited in the accounts of the offshore company.
Risks when transferring money to offshore under false pretenses
All illegal methods of withdrawing money through offshore companies are based on imitation of economic activity due to the complication of the cash flow movement scheme and the participation of shell companies. This is done to reduce or even evade taxes.
Therefore, the tax authorities carefully monitor any major operations with offshore companies from the "gray" list, which mainly includes island states with zero taxes and complete confidentiality of clients.
If the regulatory authorities suspect that the company is operating through schemes, its actions can be regarded as tax evasion, which leads to large fines or criminal prosecution.
That’s why we suggest legally deriving profit from your business and not evading taxes, otherwise, you might face some nasty consequences!
