What is Offshore Company
Beginning early in the 20 Century, many countries set up legislations to allow none resident entities to establish limited liability or international business companies to conduct business outside their jurisdictions. There countries in general are called offshore jurisdictions. These companies in general are called offshore companies. The offshore sector has grown ever faster in response to the globalization trend and it is estimated now that more than half of the world wealth is offshore.

General Characters of Offshore Companies
Most of offshore companies enjoy favorable tax treatments. Offshore companies in general do not have to pay any taxes to the local government but only a fixed annual government fee.

Bank accounts under an offshore company’s name can be opened any where in the world with most of the international banks, such as HSBC, Standard & Charted Bank and BNP Paribas, etc.

Offshore jurisdictions in general have no foreign exchange controls which allow offshore companies to remit funds in and out of the countries freely.

Offshore companies enjoy high degree of confidentialities as companies’ information such as directors and shareholders’ details are often protected by local laws.

Use of Offshore Companies
International Trade
The movement of goods across international borders offers many opportunities for the use of offshore companies. Offshore companies are often interposed in between buying company and selling company to
1. Keep the buyer and seller’s identity confidential
2. Centralize procurements to reach scale of economics
3. Accumulate profits in tax favorable jurisdictions
4. Act as commission agencies

The recently developed ecommerce often conduct their trading business or consultancy services to overseas cotractors or foreign clients via offshore companies.

Financial Holdings and Investment Activities
Offshore companies are often used for variety of corporate financing and investment activities, some of which are indicted in the followings.

1. To invest into foreign based subsidiary or associated companies
2. To mix of profits and losses from subsidiaries to lower the effective tax rates
3. To obtain financing from instritutions that are themselves free of high taxation and therefore lower the financing costs
4. To hold foreign real estate
5. To hold equities or bonds quoted on overseas or domestic stock exchanges

Taxations on capital gains arise from the disposal of particular investments or on dividends payments or on interests received may be reduced or even be exempted through the use of an offshore company incorporated in a low or zero tax jurisdiction.

IPO Planning
Companies who plan to go IPO overseas often use offshore companies. For example, companies wish to be listed on Hong Kong Stock Exchanges must be incorporated either in Hong Kong, Cayman Islands, Bermuda or P. R. China. And different rules and requirements apply for China registered companies. Proper structure is essential to the success of an IPO.

Special Projects
Offshore companies are often used to establish separate legal entities to hold projects, to form joint ventures, or to use of offshore funds to invest domestically. A separate legal entity can effectively minimize risk exposure and insert layer of protection to the established business.

Licensing
Offshore companies may own Intellectual property such as patents, copyrights, designs, computer software, and technical
know-how. The rights can be licensed to companies around the world and the royalty payments can be accumulated offshore. International franchises can be similarly structured through an offshore company.

Offshore Banking
Bank accounts can often be opened under the name of an offshore company either onshore or offshore which enable the company to deal with foreign currencies with more flexibility.

Utilising Double Taxation Treaties
Offshore companies are often used by companies wish to conduct business in a country where there is no double taxation treaties with their home country. An intermediary offshore holding company in a jurisdiction where there is a suitable treaty enables the company to benefit from double tax treaties and add more flexibilities as to where the company wish to re-invest its foreign source income and when to remit foreign earned profits back to its home country where tax credits will be given.

Professional Services
Professionals and professional firms to offer their services internationally often use offshore companies to reduce their tax liabilities.

Employment Vehicle
Multinationals often use offshore company as a vehicle to hire overseas employees and to reduce their tax liabilities.