Offshore companies are a familiar subject of international economic relations. Still, they are surrounded by an aura of mystery and even danger. Businessmen are afraid to deal with offshore companies and are not aware of the benefits of using them. We decided to write a guide which will help you understand all the possibilities for using offshores.
Economic effect:
- Offshore registration is much easier than opening a company in your own country.
- Offshore service does not require time, the presence of the client and any significant financial injections.
- Funds withdrawn from their country are accumulated in an offshore company.
- The taxation of the company is reduced.
- The funds are held in a foreign bank in a reliable and stable jurisdiction.
Export schemes
In this scheme, the offshore acts as an intermediary between the exporting company and the foreign buyer. Depending on the aim pursued, the value of the exported goods may shift. Price reduction leads to a decrease in the amount of income tax payments.
Import Schemes
Under the import scheme, the offshore also plays the role of an intermediary between a foreign seller and a buyer. It is also possible to lower or raise prices. With an increase in prices, income tax is reduced. With a decrease in prices, customs duties become cheaper. In applying the import scheme, it is necessary to find a “middle ground” that allows you to maximize the benefits of paying income tax and customs payments.
Agent schemes
When using an agent scheme, it is necessary to take into account such things as the presence of a VAT number and the nature of the jurisdiction where the offshore company is registered. It is also necessary to evaluate the response from the tax and customs authorities.
The following structure is used in trading schemes: an agent agreement is concluded between 2 foreign companies, according to which the principal is an offshore BVI or a cheaper option, and the agent is a company registered in a respectable jurisdiction with high taxes. These jurisdictions most often include the UK.
The classic offshore gives an order to an agent (a company from a respectable jurisdiction), who, after executing the order, transfers all the profits to the principal. The principal's remuneration for participating in the scheme is small, usually it ranges from 0.5% to 5%, although the establishment of a different rate is not prohibited. From these revenues, the agent pays taxes, timely submits all the necessary reports..
The undoubted advantage of the agent scheme is the fact that for all counterparties the partner is a company from a prestigious jurisdiction with a spotless reputation. It is important to demonstrate that the classic offshore company from a prestigious jurisdiction does not belong to the same beneficiary. For this, there is such a thing as “nominee service”.
Getting a loan from an offshore company and paying interest
2 foreign companies participate in this scheme, one company is registered as a classic offshore (BVI, Seychelles, Belize, etc.), the second company is registered in a country with classical taxation and with a signed double tax treaty.
The foreign company must confirm the status of a tax resident (having a permanent establishment in this foreign country). This status will allow you to not levy source tax when paying interest on a loan. In accordance with the concluded agreement on the avoidance of double taxation, the rate of payment of tax from the source on interest is usually 0%.
Production scheme
This scheme uses 1 offshore company, usually registered in Hong Kong, England or Scotland. An offshore company purchases raw materials in your country and transfers it to a local production company for processing for a minimal fee. At the end of production, the offshore company transfers the processing result to the local trading company on the basis of an agency agreement. The local company, as an agent, sells finished products to end consumers, while listing all the revenue of the offshore company minus its minimum remuneration (1-5% of the products sold).
The offshore company in this scheme acts as a management company, while all procurement, production and marketing activities take place in your country. Only cash flows cross the border.
The local manufacturing and trading company receives a minimum income and therefore makes a minimum tax payment. Thus, on completely legal grounds, funds are deposited in foreign banks.
We hope this guide helped you learn more about what really means doing business offshore. If you have been thinking about delving into the business yourself, the Bizonaire team is right here to help you!
