Offshore holding company.
Your Guide to Offshore Holding Company?
An offshore company is defined as a business entity (such as Limited Liability Company or LLC) that is set up in a different country than that of the principals’ home country or a commercial enterprise that conducts business only in jurisdictions other than the country where it has originally been registered.
An ‘Offshore Company’ refers to offices that are based beyond the principal representatives’ home country. Moreover, an ‘Offshore Company’ is defined in 2 ways. From the stance of the foreign investors, the commercial enterprise is established in a foreign country, and not their home country; and from the perspective of the company’s location, the enterprise can only transact out of the jurisdiction of the country where the company has been incorporated.
An offshore holding company is the technical owner of another enterprise that is based in a separate country; to take advantage of favorable corporate legislationin foreign countries, the investors set up offshore companies. Usually, an offshore holding company will be the majority shareholder of the holdingcompany, thus, offering the benefits of having headquarters in the country of its registration.
Foreign investors look to establish off-shore businesses in other countries because of favorable laws that are not prevalent in their home country. Besides, there are several benefits todoing so – including tax benefits, asset protection, and unique business opportunities.
In all, global companies look to invest in offshore enterprises for reducing taxes, enjoying the benefits of greater flexibility, and safeguarding their assets. Establishing an off-shore company is the best available alternative to avail the given benefits. Thus, investing in off-shore companies seems attractive to a large percentage of the business community.
A business entity that is set up in a country’s free trading zone is described as an offshore holding company. Some popular countries for holding off-shore business are Ras Al Khaimah (RAK) and Panama. Both countries have a stableeconomy, favorable business laws, and maintain confidentiality, of the International Business Houses (IBCs). Also, Panama has a Private Interest Foundation that makes the environment business-friendly for foreigninvestors.
In Panama and RAK, the offshore company becomes a holding one upon acquiring a business in a country other than the country of its filing. Also, the offshore company has to be only on paper to protect the home-based business and principals. Companies are required to be only legal entities. Having only a mailing address is sufficient to ascertain the offshore holding company’s ownership of the businesses in the other countries.
On the other hand, countries welcome investors who are interested in setting up offshore companies for their financial gains by way of mandatory filing and agent expenses. In some cases, countries are poor in natural resources and hence, make the business environment-friendlyfor foreign investors to set up off-shore businesses or allow them to hold real estate within their jurisdiction. By doing so, countriescan increase their Gross Domestic Product (GDP).
Nonetheless, bear in mind that free zone companies and offshore ones are not the same, even though they are similar in certain ways. Both can hold bank accounts in the country of their registration; are registered by the Free Zone authorities, andthe investors get 100% ownership of the businesses without a local partner or sponsor. Yet, free zone companies are allowed to conduct business in the country where they are originally filed; while offshore ones do not have the permission to do so.
Advantages of Offshore Holding Company
There are several advantages of investing in a Holding Company as seen in the following details.
As an investor, you need to take measures to protect your assets from finance-related and legal issues. Nonetheless, by holding a company in Panama or RAK, you can avail the option of transferring the ownership of your other companies that are based anywhere in the world to the offshore one. Also, you become the owner of the holding company. Thus, the revenues go from your primary business to the holding companies and eventually reach you.
Asset protection is another benefit that can be availed by setting up an offshore company. For instance, in cases of legal pursuits, you stand to lose your assets. However, if the holding company is the owner, your assets are safeguarded because there is a legal wall for your assets’ protection.
In fact, some of the most successful commercial enterprises have holding companies to safeguard their assets.
Also, with the objective of passively holding shares in other companies, offshore companies are established; there are several applications of the same. Normally, offshore companies do not run businesses, yet they can be incorporated intoa wide array of businesses.
The most lucrative aspect of offshore holding companies are the tax advantages. If registered as per the stipulated norms, the withholding of taxes during dividend payouts to the holding company can be minimized. Thus, the shareholders can avail the benefits of reduced taxes.
In fact, setting up an offshore company at RAK is highly advantageous because the investors enjoy a tax-freeincome.
Besides, offshore setups are favored by businessmen because they come with privacy advantages. Business owners who are not interested in being attached to a specific business can avail the offshore company option to be used only for a holding company because, normally, offshore businesses are set up in jurisdictions that do not have shareholders, directors, or owners.
Overall, offshore holding companies are associated with lowered taxes and confidentiality clauses. Thus, a considerable percentage of entrepreneurs establish offshore businesses.
However, as a foreign investor, you cannot avert the tax regulations of the countries where your business is operatingbut can reduce your taxes by following the statutory laws that govern offshore holding companies of the proposed country. Also, registering in offshore jurisdictions can be hassle-freeand highly rewarding, thereby, facilitating faster growth of the businesses.
In recent times, RAK in the United Arab Emirates has become a preferred destination for offshore companies. This is because businessmen can enjoy tax-free income; also, the corporate laws in RAK are in favor of offshore companies.