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The use of an Offshore Company, with careful use of the jurisdiction employed can be a useful vehicle in the tax planning of a business or an individual. However, it should be borne in mind that the use of an offshore company can have also have adverse tax consequences upon that individual or business depending on the individual or business's own tax residence situation. It is therefore essential that expert advice is taken before setting up an offshore structure.
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The following considerations need to be borne in mind when setting up an offshore company.
A Company can be acquired "off the shelf" or can be bespoke with the Client's own choice of name. In the latter case, the choice of name will be subject to that name being available. There may also be restrictions on certain words being used, such as "Royal", "Bank", "International" etc, and in those cases it will be necessary to prove to the Registrar that the use of such words is justified and not misleading.
The share capital is the maximum amount of capital available for issue in the form of shares. This can be set at whatever level the client wishes, but is often in set at for example, £1,000. Not all the share capital needs to be issued; a Company with authorised share capital of £1,000 may only issue ten shares of £1 each, leaving further shares to be issued in the future, perhaps to further investors in the company. Where the shares are to be issued to nominee shareholders, however, they will generally require all shares to be issued in order to protect their own position. Shareholders who acquire shares must either pay cash for the shares - which can be greater than their nominal value, or they may transfer property to the company in exchange for the issue of shares.
Depending upon the jurisdiction chosen, the share certificates can be either in registered form or bearer. The latter have the advantage of enabling the shares to be transferred simply by delivery, i.e. the mere handing over of the certificate. Against this are the risks that are inherent by the fact that possession of the shares means ownership of the company! Registered share certificates will indicate the owner of the shares, and in some jurisdictions where there are public records of shareholders this may be undesirable. In such cases, the shares may be held by nominee shareholders who will hold the shares on behalf of the true owners, and will acknowledge this by means of a Declaration of Trust.
It is necessary for all Offshore Companies to have a registered office within the country of incorporation where official documents and notices can be sent. It is not necessary for the company business to be carried out at this address nor for the company books to be kept there. Some jurisdictions may have additional requirements such as a resident agent or director. Michael Rhodes Legal Services can ensure that all local requirements are provided and complied with.
The Company Secretary is responsible for ensuring that all necessary documents and returns are completed as and when required, and that the Company complies with the company laws of the jurisdiction of the Company.
The Directors of the Company are the representatives of the Company and are often chosen for the reason that they reside in the jurisdiction of the Company. The use of directors resident in another jurisdiction can result in the Company being considered tax resident in the country where those directors reside. It is for that reason that third party directors are often used who are resident in the same jurisdiction as the Company.
Third party directors are often employees of trust and company formation companies in the jurisdiction concerned. They may also be nominee companies run by trust and company formation companies. The directors must be allowed to use their discretion in the management of the Company but would normally look to the shareholders for guidance and follow their wishes in the absence of some overriding legal obligation.
The shareholders are the legal owners of the Company and control the ultimate running of the Company as they have the power to remove the Directors, and pass resolutions as to how the directors are to act. The minimum number of shareholders will vary from jurisdiction to jurisdiction, but will often be a minimum of one shareholder. Similarly, some jurisdictions require a register to be kept of all shareholders whilst others will permit bearer shares to be issued. Where confidentiality and ease of transfer of shares is required, the shares may be issued in bearer form or registered in the name of a nominee, linked with a declaration of trust in favour of the beneficial owner.
Over the years, offshore companies have been used by the criminal fraternity as a means of laundering black money - money earned from practices such as drugs and arms dealing. Respectable Company and Trust Managers, not to mention the banks, insist on knowing who the true owners are of a particular company, and the source of any funds introduced into the company. They will also want to know the area of trading and the way in which the Company will operate.
The use of an Offshore Company enables efficient use of tax planning on death. A person's assets may be placed in the Company and accordingly upon the death of the owner, those assets are no longer owned by the Owner but by the Company. His assets have been replaced by ownership of the shares in the Company. This means that there is only one asset, namely the company shares, for which probate is required rather than having to register probate in respect of each individual asset. This can save considerable money in respect of legal fees, not to mention the time factor.
Further advantages can be obtained by the Company Shares being held through an Offshore Trust.
