The higher the tax charges are in certain countries, the higher the companies´ and the individuals´ interest in investing abroad is, because an important number of factors as strong currencies, economical and politic stability, tax exemptions and lower income tax, in addition to security, secrecy and privacy, free exchange market, lower administrative costs, and eventual access to certain types of international financing, to lower rates of interest. These privileged zones are located in several world´s geographic areas and some enthusiastic enterprisers are used to call them “tax havens”.
The companies founded in these “tax free zones” are called in English as “Offshore companies “. “Offshore” is the adjective for the company which is abroad.
So, an “offshore company” is an entity located abroad, ruled by different laws, “out of territory” in relation with the country of domicile of its members.
But the term refers more specifically to the companies which are founded in “tax havens”, where they have taxation privileged regimes, (lower tax duties or even tax exemptions in some situations). And this only became possible when some countries adopted the tax exemption policy, to attract investors and foreign capitals.
In South America, Uruguay is a typical case.
The individuals with high incomes are used to found holding companies, either personal or familiar ones, to administrate their investments.
These personal holdings provide secrecy, privacy, and security, not provided by their countries of origin legal systems, and at several occasions even allow them to reduce tax duties depending on the place where the benefits are paid.
When paying dividends, the reduction of the rate of the source withheld taxes can be obtained thanks to a company founded in a free zone or country.
Holding companies or Offshore companies are usually the choosen mechanism for buying and selling a personal patrimony, for financial investing and for doing other particular business, in addition to allowing to inherit a heritage without the costs, potential arguments and delays involved when an inventory has to be done.
In this situation, the founder´s or founders´ patrimony is assigned to a foundation, administrators are provided, and they operate abroad with special instructions in case of deaths or divorces in what is related to this patrimony´s assignment. Someone assigns his properties to another person in orden to having them administrated and to having someone who assigns them to certain beneficiaries.
In case the founder dies, the personal and/or family incomes, the company´s shares and even the real estate will be distributed only among the choosen beneficiaries.
This can also be done through the assignment of the company´s shares that represent the assigned patrimony whenever certain tax duties do not have incidence on the heritage and on the real estate assignment.
The minors who become inheritors can also have their interests protected by way of prohibition of assignment clauses which are suspended since the beneficiary become older and able to act according to the law. All this can be done without the wills´ costs, inventories and documents which involve long proceedings before the Courts.
PROFESSIONAL SERVICES COMPANIES
Individuals who offer engineering, air transport, and computer professional services, e-commerce, servers, portals companies and those who work in the movies and entertainment industry, can obtain important tax duties reduction benefits by way of the foundation of services companies domiciled in another taxation jurisdiction.
The offshore company can be assisted by a professional with domicile abroad whose fees can be paid and cumulated abroad free of tax duties.
The sending of benefits to another country, for instance, Brazil or Chile, could create a problem because of the source of the incomes , with possible tax consequences which have to be analyzed at every new case.
This is the most frequent usage in the international trade, a company founded in a tax free zone or in a reduced tax zone.
Important opportunities of saving tax duties amounts of money can arise when founding an offshore company that imports and/or exports.
If an enterprisers’ group located in the country called “A” controls an offshore company located in the country called “B”, it will be able, for instance, to export goods to his subsidiary abroad, at lower costs.
This way, the offshore company located in “B” will be treated as a group´s commercial distibutor and will be able to export again the same goods to another countries with gainings free of tax duties obtained as a result of the difference between the buying price and the second sale price.
At several occasions, the goods do not need to be physically received by the offshore company, and can be shipped directly to the final buyer.
The offshore company will pay the invoice for the seller and the final buyer will pay a higher invoice rendered by the offshore company.
An offshore company can also be used to import raw materials or wholesale products, at more favourable prices, directly from big suppliers. For instance, a group of companies of the same category gathers to found an offshore company and buys big quantities of raw materials in the international trade to take profit of the scale economies and of the reduced administrative costs.
The products will be sold again to the associated companies, with little margin of profit which will be useful to capitalize the company abroad and will allow the business to continue.
On the taxation point of view, such a system can be more efficient than a companies´ association in the country of origin.
The companies and people in general use offshore companies as a way to maintain and administrate their investment portfolios, investing in shares, Eurobonds, public credit instruments, money deposits and other diverse financial products.
Bank deposits in the name of the offshore companies can provide better returns, which at several occasions have no withholding taxes in the source, or can be invested in collective investment funds (portfolios).
The offshore company that can offer securities (for instance, related with its export credits), would eventually access bank financing abroad at more favourable money rate and conditions than the ones available to its controlling company in other countries considered of high risk as could be Brazil or Argentina.
OFFSHORE COMPANIES´ REQUIREMENTS
First of all, their aims should be defined and their legal foundation requirements provided.
Depending on the law standing in one country one has to decide if this is the right country where one should found the company.
Several factors have to be analyzed, as for instance,
Business secrecy and privacy protection.
Taxation law, seeking the exemption or the reduction of the income tax duties or of the goods purchasing and sale operations tax.
Free exchange market, without purchase and sale limitations or foreign currency draft to any country restrictions.
Banking law allowing strong currencies deposits.
Companies law, involving the analysis of:
the authorized and incorporated minimum capital value
the number of required administrators and the possibility of directors to domicile abroad
bearer shares issuance viability, that is to say that they could be assigned by handing them over, and that no owner identification nor assignment document be required
the shareholders´or partners´ responsibility limits
According to the latinamerican entrepreneurs´opinion Uruguay is the most attractive “Tax Heaven” in the region because of the tax and financial benefits the legal system offers.
The Offshore Companies´ financial operations involve foreign currencies or strong currencies (U.S. Dollar, Sterling Pounds, Euro).