The principal uses of offshore companies are:

•   Financing Companies

Offshore finance companies can be established to fulfill a personal or corporate group treasury management function. Interest payments from group companies to the offshore finance subsidiary may be subject to withholding taxes usually lower than corporate taxes levied otherwise. On the other hand, the interest paid would be a deductible cost, for taxation purposes, and so consolidating interest payments in the offshore finance company may provide a tax saving benefit.

Offshore finance companies are often utilized as part of structures for acquiring foreign entities, real estate and other investment related projects.

Other benefits of such a company to the multinational entrepreneur are:

•   Protection of capital funds introduced from abroad to foster a self-owned project.

•   Tax relief on the cost of borrowing the funds.

•   Freedom to return interest on funds lent to the tax haven, so they can be reinvested at the best tax-free advantage.

•   Trading Companies

An importing or exporting company might establish itself in an offshore area. The offshore company would take orders directly from the customer, but have the goods delivered directly to that customer from the manufacturer or place of purchase. The profits arising out of the difference between purchase price and sales price would then be accumulated in either a tax free or low tax area. With such trading companies, it is important to choose an offshore area which has good communications as shipping and other documentation may be critical to the scheme.

•   Investment Companies

Funds accumulated through investment companies set up in offshore areas can be invested or deposited throughout the world and whilst generally returns or interest payable in respect of these funds will be subject to local taxation, there are a number of offshore areas in which funds may be placed either in tax free bonds or as bank deposits where interest is paid gross. Similarly, in many offshore areas no capital gains taxes are applicable. Use of an offshore company incorporated in a suitable country allows the possibility of investing tax efficiently in a high tax country where there is a concessionary tax treaty in respect of investments made by companies incorporated in the offshore country.

•   Holding Companies

Use may be made of an offshore holding company which would fund the operation of subsidiaries in various countries so that the subsidiaries obtain the benefit of tax deductions on interest paid. If the holding company is situated in an offshore area where there are no income or corporation taxes and no requirement that dividends must be paid, then the profits which are accumulated in the tax free climate can be used to fund the requirement of subsidiaries or reinvested as business convenience suggests.

•   Probate and Privacy

A high net worth individual with properties or other assets in a number of countries may wish to hold these through the medium of a personal holding company so that upon his demise probate would be applied for in the country in which his company was incorporated rather than in each of the countries in which he might hold assets. This saves legal fees and avoids publicity. Again, not everybody wishes to advertise wealth and an individual may wish to hold property through an offshore entity simply because of the privacy which the offshore arrangement gives.

•   Property Owning Companies

There are often great advantages in using an offshore property holding company for the purpose of holding an overseas property. Indeed, we offer low cost specialist schemes, such as the ICSL French Property Ownership Scheme and the ICSL Portuguese Property Ownership Scheme, which we operate in conjunction with lawyers in France and our office in Portugal. Advantages of offshore property ownership include avoidance of inheritance tax, avoidance of capital gains tax, and ease of sale which is achieved by transferring the shares in the company rather than transferring the property owned by the company and reduction of property purchase costs to the onward purchasers. Taking the example of investment in property in the United Kingdom by an offshore company, use of an appropriate offshore vehicle can offer relief from income tax, capital gains tax and inheritance tax. It should be remembered, in particular, that when a nonresident company disposes of a property investment, no capital gains tax is charged and holding through an offshore company removes the application of inheritance tax which would apply if a non-domiciled investor held a UK property in his personal name.

•   Professional Services

Individuals who receive substantial fees in respect of their professional services in capacities such as designers, consultants, authors or entertainers, may assign or contract with an offshore company the right to receive those fees. The offshore employment company may not have to pay tax on its profits which can be reinvested in a tax free climate to generate further income from the offshore company. Payments to the individuals concerned can be structured in such a way as to minimize their tax liabilities. One example in this regard in respect of an overseas employment is to increase subsistence expenses as against fees as such which would be paid to the individual.

•   Shipping Companies

The use of offshore shipping companies can eliminate direct or indirect taxation on shipping. Shipping companies may own or charter ships, the profits from which activities can be accumulated tax free. Tax and legal requirements generally dictate that the offshore company owning a shipping vessel should be incorporated in the jurisdiction whose flag the ship flies. The historic havens for these purposes have been Panama and Liberia. Latterly, the registries of other nations have expanded and consideration might be given to registrations at British Ports of Registry such as those in the Isle of Man and Gibraltar. A certain prestige attaches to the registration of a ship or indeed a yacht at a British port of registry and the vessel can be surveyed at most ports throughout the world by a surveyor recognized by the UK Department of Trade and Industry. The British flag has always been regarded as one of the world's most dependable.

•   Patent, Copyright and Royalty Companies

An offshore 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 sublicence. Upon acquisition of the intellectual property right the offshore company can then enter into agreement with licensees around the world who would be able to exploit the intellectual property right in various countries. It is thought preferable to acquire, for example, a patent at the patent pending stage before it becomes very valuable so that the capital payment for the acquisition of the patent can be set at a lower amount. Often royalties paid out of a high tax area attract withholding taxes at source. In many cases an interposing holding company may allow a reduction in the rate of tax withheld at source.

•   Banking Companies

Many offshore banking institutions have been established in tax havens in recent years. Many of these institutions are subsidiaries of major international banks. Such institutions pay interest free of withholding tax and engage in international financing from offshore bases which are free from exchange controls. Such banking institutions and their associated trust companies are able to provide a wide range of financial services to their international clientele. Offshore banking institutions are also used by the smaller business Organization and indeed in some cases by individual owners to act as offshore cash management centers. In the past, certain offshore centers such as Montserrat and Anguilla have lacked the supervision which should accompany the setting up of smaller banking institutions. Indeed the British Government introduced a moratorium on the setting up of banking institutions in its Caribbean dependencies until such time as adequate legislation had been brought in and bank supervisors appointed. Of these jurisdictions one of the first to meet British Government requirements was the Turks and Caicos Islands. Under its banking regime two types of license are available, namely, a national and an overseas, the latter only permitting banking activities outside the Islands. In either case a bank would have to maintain a physical or representative presence in the Islands. A combined license can be granted. The management of the proposed bank would be required to display a sound knowledge of banking with evidence of ability and experience and no less than two directors must be appointed. In respect of those banks wishing to deal with the general public without restriction, substantial capital resources would have to be demonstrated.

One jurisdiction which does permit the setting up of the smaller banking institutions, whilst at the same time providing a supervisory regime, is the Republic of Vanuatu (formerly known as the New Hebrides).  Another Pacific jurisdiction favored by smaller institutions is Samoa.

•   Insurance Companies

There are a number of offshore havens which are keen to encourage the establishment of insurance companies which like banking companies bring employment and investment to the country of incorporation and generally enhance its reputation and its range of financial services. In a number of offshore havens it is possible to incorporate insurance companies which pay no tax in respect of their premium or investment income.

•   Captive Insurance

Captive insurance companies have been created by many multinational companies to insure and re-insure the risks of subsidiaries and affiliated companies. Captive insurance companies are particularly suitable for the shipping and petroleum industries and for the insurance of risks which might be insurable only at prohibitive premiums. Bermuda and Guernsey have long been favored as domiciles for the incorporation of captive insurance companies with countries such as the Isle of Man and the Turks & Caicos Islands competing for a share of this growing market.

•   Ship management and yacht planning

An offshore corporation may own or charter ships, profits from which can be accumulated in tax-free area.

•   Personnel and corporate tax planning

Many individuals engaged in the provision of professional services in the construction, engineering, aviation, finance, computer, film, and entertainment industries can achieve considerable tax saving benefits through the establishment of an offshore personal service company.

The offshore company can contract to supply the services of the individual outside the country in which he/she is normally resident and the fees earned can accumulate offshore, free from taxation in the offshore centre. Payments to the individual can then be structured in such a way to minimize income tax.

•   Real estate

The ownership of overseas real estate and land by an offshore company can often create many tax advantages. Additionally, using a trust or a Panama Private Foundation to own the shares in the offshore company can give rise to additional tax advantages in the client’s country of residence and simplifies procedures in the event of the client’s death.

The main benefits are:

•     Avoidance in most cases of local inheritance taxes on the property in the event of death of the beneficial owner.

•   Avoidance in most cases of local succession laws which can, in certain countries, stipulate to whom the property must pass.

•    Elimination in most cases of local transfer and capital gains taxes upon resale of the property.

•   Simplification of procedure upon resale of the property through the sale of the real estate holding company to the buyer saving both time and costs.

•   Exclusion of foreign exchange controls restrictions, in certain countries, in the event of the beneficial owner taking up residence in the property.

•   Ease of transfer to heirs in the event of the beneficial owner’s death.

•   Confidentiality of ownership.

•   Venture capital

Offshore companies are regularly employed to raise venture capital through equity or debt issues in capital markets. Many corporations have sough to mitigate risk by accessing markets through offshore companies while at the same time reducing certain taxes.

This technique is a refinement of the offshore investment holding company. With prudent management, it can prove very profitable by itself, apart from accumulating tax-free profits

•   Other professional services

Many individuals engaged in the provision of professional services in the construction, engineering, aviation, finance, computer, film, and entertainment industries can achieve considerable tax saving benefits through the establishment of an offshore personal service company.

The offshore company can contract to supply the services of the individual outside the country in which he/she is normally resident and the fees earned can accumulate offshore, free from taxation in the offshore centre. Payments to the individual can then be structured in such a way to minimize income tax