In the past, businesses and wealthy families made it a common practice to set up offshore companies, and then move their assets offshore, in order to prevent paying high taxes on their gains. These days, thanks to globalization, this practice of setting up off-shore companies has become increasingly popular, even with medium sized businesses.
Is it Legal to Form an Offshore Company?
The first question that almost always comes up with the topic of creating an offshore company is whether it’s legal or not. Most offshore companies created do not carry out business in their host country where the business is incorporated. The business is merely taking advantage of the countries favorable tax rates.
In its landmark decision of Gregory v. Helverling in 1935, the Supreme Court made a ruling that businesses have the right to seek out measures in order to minimize their tax liability as long as it's within the boundaries of the law. For instance, while it is perfectly legal to form a company in offshore locations to avoid national tax on the company's gain, it is illegal to withhold information on the income of the offshore company in their reports
What is needed to Form an Offshore Company?
Generally speaking, the following are needed to form such company:
1. Registered Office - the official address of the company in the country of jurisdiction.
2. Certificate of Incorporation - proof of company's existence and that it has not been struck off or liquidated.
3. List of Directors and Members - shows the name of those who are behind the operation of the company as well as its legal owners.
4. Company Secretary - responsible for ensuring that all legal procedures are strictly followed.
5. Articles of Association - details the internal processes of the company, its objectives, and the rights of all its members.
6. Statutory and Financial Book Records - regularly maintained minutes of meetings should be made available to the public and its financial records should be regularly audited.
7. Shadow Directors' Information - information on the people who hold or controls majority of the company's stock but do not openly participate in its governance.
8. Registered Agent - the entity who is responsible for incorporating the company in the country of jurisdiction.