Offshore Entities

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Offshore business entities take many forms. They include the International Business Company (IBC), Limited Liability Company (LLC), Limited Partnership (LP), Protected Cell Company (PCC) or Segregated Portfolio Company, as well as Offshore Banks, Trusts and Foundations. While investment funds are not business entities in themselves, in the offshore sector they too are often referred to as offshore business entities in the light of Mutual Fund laws such as in the Cayman Islands, which allow funds to be structured as limited partnerships, companies and unit trusts.

Offshore business entities can be described as the catalysts of international trade, and are pivotal to asset protection, international tax and estate planning. Every offshore business entity is designed to fulfill a specific asset protection strategy, while at the same time creating an environment that is either tax free or boosts tax savings.

The latter depends largely on the tax regime of offshore jurisdictions, some of which may grant offshore business entities full tax exemption, while others may establish a low tax regime. All in all, however, the goal is the same; that is, to project an investment and business climate that appeals to foreign corporations and investors, while encouraging international trade and investment, and creating an enabling environment for asset protection, international tax and estate planning through offshore business entities.

Popular offshore business entities are traditionally limited to non residents of offshore jurisdictions, but this trend has taken a different turn in rapidly emerging markets where offshore companies can be incorporated by both foreign and local businesses and residents. By allowing local residents and businesses to own offshore companies, domestic enterprise and expansion into alternative markets are encouraged among local businesses.

Access to offshore business entities in this way has significant economic impact in exports and employment. A level playing field that presents equal benefits to the local investor as to the foreign is also highly regarded among international organisations that concern themselves with offshore business entities and international tax competition matters.

Let’s give a brief review of some of the most common types of offshore business entities:

The IBC (International Business Company) and LLC (Limited Liability Company) are loosely referred to as offshore companies. They have similar structures and are both used for international trade, protecting assets and mitigating tax liability. The international business company is an offshore business entity with limited liability just as the LLC but differs in that shares must be issued and a board of directors is required. The Limited Liability Company or LLC does not issue shares and instead, contributions are made. As a result of this, LLC’s are considered to have members and not shareholders, and there is no board of directors. Management of this offshore company can be undertaken by the members or a non member can be hired to do the job.

Offshore trusts and offshore foundations are two offshore business entities that share quite a few similarities. They are both used as asset protection and estate administration tools, and are not taxed. Offshore trusts are however formed via a legally binding agreement whereas offshore foundations are established as legal persons. The legal owner of any asset that is placed in an offshore trust is the trustee (the person who is put to manage the trust), whereas an offshore foundation is owner of the assets that are transferred to it. Privacy laws help offshore trusts and foundations as offshore business entities to maximize their efficiency as asset protection vehicles. One of the cornerstones of the offshore sector is the high degree of confidentiality that offshore jurisdictions bind themselves to in protecting the interests of their offshore customers, provided that these interests are legitimate.

Protected Cell Companies (PCC) are one of the most innovative developments in the asset protection industry. The offshore business entities offer an alternative to other offshore business entities through cells which are designed to isolate/segregate assets and liabilities from each other and hence isolate risks. Protected Cell Companies are known as such in Guernsey and Jersey and in the Cayman Islands as Segregated Portfolio Companies (SPC).

Offshore banks find themselves at the heart of the offshore sector. Offshore banking facilitates the complex transactions that an offshore business entity undertakes in carrying out its business activities. As offshore business entities, offshore banks provide privacy, are not subject to foreign exchange controls and are tax free.

Offshore business entities are reliable asset protection and tax mitigation tools and once used rightly can produce very satisfying results. An offshore asset protection or tax minimization strategy can entail one of more offshore business entities, but proper sound advice must first be sought and some research into tax treaties could be of great value.

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