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Types of Offshore CompanyFind out about the TAX STATUS of the following:
There is no precise legal definition, but an offshore company is, in reality, a company formed in a jurisdiction outside the home country of the owner. The term is generally taken to mean a company incorporated in a territory, which imposes a zero or low rate of tax, or perhaps exempts from tax, the profits of locally incorporated companies. Historically there may have been qualifying conditions attached to such favourable treatment, such as ownership by non-residents, but the international community is moving rapidly in the direction of the same tax treatment for all companies, by whomsoever they are owned.
Tax-exempt companies are a dying breed. Resulting from the move towards the same tax treatment for all, mentioned above, they are being replaced, in many jurisdictions, by zero tax companies. The benefit of a zero tax regime, from the perspective of the authorities, is that it permits company taxation to be at a zero rate, whilst enabling them to require the company to deduct and pay over tax which would otherwise be payable by locally resident shareholders, who may try to avoid tax by retaining profits within the company rather than take dividends. Some territories have both tax-exempt or low tax regimes and have also negotiated special tax treaties for the avoidance of double taxation by local companies trading with the treaty partner country. These countries typically impose tax at very low rates on companies qualifying for treaty benefits. Mauritius and Cyprus are examples. In some other countries, such as Hong Kong, only local source income is taxed. A company can accordingly be based in Hong Kong, but pay no tax there if its profits are generated from activities elsewhere.
Almost all of the major trading nations, certainly most of the E.U. countries and the U.S.A. use tax incentives to try to attract foreign investment by offering special tax treatment for certain activities. Examples are holding companies, headquarter companies and treasury and finance operations. Companies in onshore, taxing jurisdictions, can also often be used in conjunction with offshore companies, to collect income which qualifies for double tax treaty benefits and route it to a zero tax country from which it can be re-invested. To find out more click on the links below:
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