Today, there are over a hundred offshore jurisdictions, each of which has its own unique advantages.
But an offshore company operating “alone” will not always be effective. Very often, the maximum effect is brought by the use of a structure of several offshore companies.
When choosing suitable jurisdictions for the registration of offshore companies, which will form a chain, you should not be guided only by the tax rates of a particular country.
There are a number of other important factors:
- the general tax regime in the country,
- tax rates on various types of income (dividends, interest, royalties),
- the availability of tax incentives,
- the conditions for recognizing a company as a resident,
- requirements of local corporate legislation,
- the type of activity of the company,
- the actual location of the business,
- the existence of agreements on the avoidance of double taxation.
In some countries, the income tax rate may seem high at first. But the registration of a company in that country might be disadvantageous in terms of tax planning. For example, the income tax rate in Luxembourg (21%) does not look very attractive. Still, upon closer inspection, it turns out that due to the possibility of applying tax incentives, the rate can be reduced to 6%.
This means that, in some cases, the registration of a company in Luxembourg will be an effective solution (e-commerce, registration of intellectual property rights, patenting, refinancing of branches, etc.)
In the formation of an offshore chain, a special role is played by the existence of agreements on avoidance of double taxation, concluded with offshore countries. Regardless of the company's activity - international trade, investment activity or other - the use of two, three or more offshore companies carries a number of important features. The effect of using an offshore chain will depend on the source and destination of the movement of funds.
As an example of using multiple offshore companies, consider the following situation:
Mr. John Doe is a furniture supplier from China and is considering selling his products in Uganda. While he already has a Hong Kong company with which he successfully does business in Asia, he is not sure if this company will be effective in Africa. To solve this problem, the following offshore chain will be applicable:
Goods from China => Offshore Hong Kong => Offshore Mauritius => Deliveries to Uganda
This is a fairly simplified option for structuring a business using several offshore jurisdictions. This structure is not only efficient in terms of taxation, but also absolutely complies with the requirements of international legislation.
The most effective chains are usually implemented using Cypriot offshores. A prerequisite for this is the existence of Agreements on the avoidance of double taxation between Cyprus and many other countries.
To create an efficient offshore chain, low-tax and offshore jurisdictions are often combined. So what are the reasons for using a chain of multiple offshore jurisdictions?
- Accounting for each offshore company is maintained separately, which allows you to record income / expenses for each offshore in the most profitable way.
- Every offshore company has the potential to operate in new markets.
- More reliable protection of investments and assets is achieved when using multiple jurisdictions.
- Simplified accounting and reporting of the offshore company.
- A wide range of offshore products ranging from trading / holding companies to trusts and foundations.
- Numerous tax benefits provided by offshore companies, both individually and collectively.
Note that each specific case requires an individual approach when dealing with investment planning and tax optimization. There are no universal techniques for competently structuring such a business.
As world practice shows, the most relevant benefits are brought by the use of the following jurisdictions: Cyprus, England, Hong Kong, BVI, Seychelles and Belize.
Due to the presence of a wide network of partners and agents, Bizonaire specialists are always ready to offer their clients the most effective options for structuring a business. Have any questions? Contact us right away!
