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For a company to be referred to as a corporation, it has to be incorporated. This legal process of forming a corporate company or entity is what is known as incorporation; any incorporated company is then identified by the terms limited (ltd) or ‘inc’ as an addition to their name. Incorporation allows for the company assets and company owners/investors to be separate from each other in what is referred to as limited liability, which is an advantage to the owners/shareholders.

The term offshore corporation and offshore company are used interchangeably as they are the same. A company is referred to as an offshore if it is incorporated or registered away from the country of its investors and the region of its main operation and offices. It operates outside the country where it is formed. However, it can hold a bank account in the home country of its owners.

In Singapore, it can also be called a paper company or a non- resident company, and it enjoys tax exemption if certain conditions are met such as having legal control outside the country and conducting no business/banking in the country.

The term ‘offshore’ is sometimes not added to a company’s name in all countries where these companies may be formed. Some countries omit it all company ordinances.

Myths about Offshore Incorporations

When many people hear of the word offshore incorporations, the first thing that comes to mind is illegal activities like money laundering and hiding of assets from the government. In as much as these may take place in some of such companies, it is not always the case. In most countries, residents are required to report their assets, companies and foreign incomes. In addition, countries which have an agreement with offshore countries of tax exchange always have your information between them. So it boils down to individual integrity. Some change residence in a bid to escape such reporting and taxation requirements by becoming the residence of a particular country that does not tax foreign income. The reason most people engage in offshore companies in most cases is to take advantage of the low tax rates and thereby increase their income levels. Others also form these companies to escape unwarranted lawsuits, unprincipled/corrupt people and estranged spouses.

Another myth is that offshore companies are those established in developed and economically flourishing countries. But this is not the case. If a company owner is from a well-developed country but has a company in an under-developed country and vice versa, it is still an offshore company. An offshore company can also exist between under-developed countries or between developed countries.

Why Incorporate Offshore In Singapore?

Singapore is a tax haven which offers corporate companies favourable corporate laws and tax rates. Singapore has low personal income and corporate tax rates.

There are no dividend tax charges, and there is an extensive network of a tax treaty. It also has a liberal policy on foreign ownership such that an incorporated company can be established with 100% of a foreign individual/corporate shareholders.

Singapore is rated as the most economical and politically stable country in Asia. Its government is the least bureaucratic country that exhibits high integrity and takes the pro-business approach.

Why Incorporate Offshore in Singapore

Differences between Offshore and Onshore Companies 

There are no clear cut differences per se in most countries, and in some countries, the terms ‘onshore’ or ‘offshore’ is not added to the company’s name as part of its formation information. However, the following can be noted:

  • Onshore companies are formed within the country of the stakeholders, while offshore companies exist outside the stakeholder’s jurisdiction.
  • There are lower corporate tax rates for offshore companies than for onshore companies.
  • The company charter for offshore companies is less complex than for onshore companies.
  • Company information for onshore companies is publicly available to the general public, unlike in offshore companies where much information is mostly available to the law enforcement authorities. Hence it is difficult for onshore companies to involve themselves in money laundering or criminal activities.
  • There are less reporting requirements for offshore companies than in onshore companies.
  • Offshore incorporated companies are not allowed to engage in any economic activities with the residents within their home jurisdictions while onshore incorporations are not allowed to do any commercial activities with residents outside their jurisdictions.
  • There are fewer overheads in offshore companies as compared to onshore companies.
  • An offshore company is not allowed to lease a physical office, but an onshore company is not restricted.

Similarities between Onshore and Offshore Companies in Singapore

  • They both issues shares to their stakeholders.
  • They carry out similar business activities.
  • Their management structures are similar.
  • Both have transparency in terms of the public availability of shareholder names, director details and share capital.

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How to Benefit More from an Offshore Company

In order to maximize the benefits, one should:

  • Have a clear concrete reason for company formation—a reason on which to follow on to satisfaction, your primary motivation.
  • Create a global mindset.
  • Change how you view other countries.
  • Broaden your horizon of residency. Overcome your fear of staying away from your country.
  • Have a positive view of foreign companies and financial accounts.
  • Do thorough research on the country your choice in terms of their laws, financial/economic stability, and political stability.
  • Maximize on your country’s international influence and public relations.
  • Always ensure you and your company abide by the laws and regulations of your jurisdiction and your offshore jurisdiction.
  • Always do the business that you love and enjoy. It will make you feel fulfilled watching it grow.
  • Last but not least, know that it always seems difficult to try out a new thing/territory, business included, but it does not have to be so.

Advantages of Being a Corporate Entity

  • It allows the owners/investors to transfer ownership to another party in such a way that they can take business risks that enables growth without affecting the personal finances of their owners, shareholders and directors.
  • It has a lower tax rate than a sole proprietorship or partnership business.
  • Raising capital can be done through the sale of stock.
  • Tax restrictions are lenient in case of the loss of Cary forwards.
  • Debts or financial liabilities incurred by the company are not deductible from stakeholders and shareholders. The company bears losses.

Disadvantages of Offshore Companies

  • Because information is not publicly available to the general public, many of these companies take advantage and form/engage in criminal and harmful businesses. However, in Singapore, the law enforcement department has access to such information. 
  • One has to deal with cultural differences.
  • Difference time zone differences require one to be careful when setting timelines for tasks.
  • Problem resolution is difficult.

What to Consider Before Incorporating an Offshore Company

  • If the company is contemplating being an investment holding entity.
  • You intend to use your intellectual property in different jurisdictions.
  • Relief and tax planning.

Summary

While it is true that offshore businesses have various advantages, the reason for forming such businesses and the benefits hoped for may be different from one person to another. Some may be having offshore companies because of political instabilities in their countries or family reasons in the absence of which they could be having the same companies in their home jurisdiction. While others may form them because of additional services/incomes.

In Singapore, there are various offshore investment areas such as intellectual property holding, yatch holding and ship management, trading, and professional services or consultancy.

Maintaining an offshore corporation in Singapore is costly compared to other offshore jurisdictions like Hong Kong, Cyprus, Seychelles or Belize. However, the benefits that you will reap will make the cost insignificant.

Offshore Company Incorporation FAQs

What is an offshore jurisdiction?2020-10-01T17:41:16+08:00

This is the country in which your offshore company exists and which has an influence on your offshore company.

Why should I offshore my company?2020-10-01T14:35:12+08:00
  • In most cases, the rules and regulations of a corporate company are less strict in a foreign country than in the home country.
  • There is discretion when it comes to financial accounting.
  • Offshore in a country that is a tax haven and you get to pay less tax.
  • You won’t have to pay corporate taxes for your limited company in your home jurisdiction.
  • The general public does not have access to the confidential information of an offshore company.
  • Your assets are always safe and protected by the country you offshore in. There is also a separate legal system in those countries which ensures malicious entities do not break into your assets.
  • Offshore company incorporation gives the entrepreneurs an opportunity to house intellectual property and global trademarks because of the strong legal system.
What is a tax haven?2020-10-01T14:35:30+08:00

This is a country with a small economy that has chosen to impose low or zero tax rates and has reduced complex charter laws on incorporated companies in order to attract international corporations and non-residents and thus earn foreign exchange. 

What are the responsibilities of shareholders in a company?2020-10-01T14:36:15+08:00
  • Payment of their shares.
  • Electing the director or board of directors depending on the company’s size.
2021-01-29T10:56:53+08:00February 11, 2015|0 Comments
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