Uses of Offshore Companies
These are just some of the activities for which offshore companies can be used:
Investment Holding Company
Both individuals and companies can use offshore companies as vehicles to hold investment portfolios, which may consist of cash, stocks, bonds and other investment products. Cash assets held by offshore companies can earn gross interest on their deposits. Offshore companies are regularly used for inheritance purposes and to reduce probate expenses.
Property Holding Company
An offshore holding company can be used to hold property and property rights in an offshore location. Such companies may be used to avoid capital gains taxes on property when it is sold, as well as inheritance taxes. The sale of property held by such an offshore company can, for instance, be arranged by transferring the shares in the company and thus avoiding stamp duty payable by the purchaser.
Offshore finance companies can be used for example for the purpose of inter-group treasury management. Interest payments from group companies may be subject to withholding tax, but these taxes may differ from the standard corporation taxes and may result in a tax saving if an offshore finance company is used based in a low or no tax jurisdiction.
International Trading Company
An offshore company can be used in international trading whereby it purchases goods in low cost production countries and sells them to distributors in high value markets, and where the actual trading operation may take place from a third country Significantly improved margins may be achieved by forming such a company which will be used as a trading medium for buying, shipping, and selling the goods.
Professional Service Companies
Individuals receiving substantial fee income can be employed by a company incorporated in a low or no tax jurisdiction. Fees they generate can flow into the company. Though the individual would normally be taxed on any salary taken from the company, the surplus could be held by the company and re-invested free of tax.
Patent, Copyright and Royalty Companies
A company can purchase or be assigned the right to use a copyright, patent, trademark or know-how by its original holders, with a power to sub-license and subsequently exploit the intellectual property right in various countries. In most cases royalties paid out of a high tax area will attract withholding taxes at source, but using an interposing company could reduce or eliminate the tax.