In order to quantify the benefits of registering an onshore versus an offshore company, it is necessary to understand the characteristics of each type of company. Both company types offer specific advantages which can be suitable to a business, based on the projects an investor has in a given country/region.
The most important distinction between an onshore and an offshore company is given by the place where the company chooses to set up its operations. This is a crucial aspect as it has relevant consequences related to the taxation of the business or the compliance with the local corporate regulations.
In a rare interview with Harvard Business School that was published online earlier this month, (it has since been taken down) value investor Seth Klarman spoke at length about his investment process, philosophy and the changes value investors have had to overcome during the past decade. Klarman’s hedge fund, the Boston-based Baupost has one of Read More
As a general rule, the onshore company defines a type of business that is registered in a specific jurisdiction that does not offer a preferential tax regime. More importantly, the onshore company is incorporated with the purpose of conducting its business activities in the country where it was established as a business entity.
Another important characteristic of any onshore company is that it must conduct the accounting procedures as stipulated under the legislation of the country where it operates and it must also submit regular tax returns. This type of company is taxed following the tax system applicable for corporate entities; for example, in Europe, companies based in Spain are required to pay a corporate tax of 25% on their yearly income. However, a lower tax rate can be applied to newly founded businesses (of only 15%) if certain requirements are met. Across the continent, the level of taxation related to the corporate income tax varies greatly, from 9% to 34.4%, so investors should first verify the tax advantages prior to investing in a specific country.
On the other hand, the offshore company provides a wide range of tax benefits; for example, numerous types of taxes that are applicable to businesses incorporated in a specific country do not apply for this structure – this can be the case of the corporate income tax.
Besides this, the registration of an offshore company is simpler than in the case of an onshore company and, in numerous countries that allow the registration of this company type, there are also no capital requirements. Countries such as the Cayman Islands, Belize or Seychelles are known at a global level for their attractive policies and minimum registration requirements (very few accounting procedures, minimum reporting, confidentiality policies and others). At the same time, if an offshore company was set up in a country, it can’t enter business activities in that country.