What are Offshore Companies?
An offshore company is a company that does not conduct substantial business in its country of incorporation. They are sometimes known as non-resident companies.
BENEFITS
Offshore companies may bring several benefits to individuals or companies.
Taxation - businesses may be structured so that profits are realized in ways that minimize their overall tax liability.
Simplicity - except for regulated businesses, such as banks or other financial institutions, some jurisdictions make it relatively simple to set up and maintain companies.
Reporting - the level of information required by the registrar of companies varies from jurisdiction to jurisdiction.
Asset protection - it is possible to organize assets and transactions so that assets are shielded from future liabilities.
Anonymity - by carrying out transactions in the name of a private company, the underlying principle's name may be kept out of documentation. Having said that, current anti-money laundering regulations often require banks and other professionals to look through structures.
Thin capitalization - offshore jurisdictions tend not to impose "thin capitalization" rules on companies (except for regulated entities such as banks and insurance companies), allowing them to be formed with a purely nominal equity investment.
Financial assistance - offshore companies are usually not prohibited from providing "financial assistance" to acquire their own shares, which avoids the need for "whitewash" procedure in certain financial transactions.
Offshore Banking
An offshore bank is a bank located outside the depositor's country of residence, typically in a low tax jurisdiction (or tax haven) that provides financial and legal advantages. These advantages typically include:
Greater privacy (see also bank secrecy, a principle born with the 1934 Swiss Banking Act) less restrictive legal regulation
Low or no taxation (i.e., tax havens)
Easy access to deposits (at least in terms of regulation)
Protection against local political or financial instability
While the term originates from the Channel Islands "offshore" from Britain, and most offshore banks are located in island nations to this day, the term is used figuratively to refer to such banks regardless of location (Switzerland, Luxembourg, and Andorra, in particular, are landlocked).
ADVANTAGES OF OFFSHORE BANKING
Offshore banks provide access to politically and economically stable jurisdictions. This may be advantageous for those residents in areas where there is a risk of political turmoil who fear their assets may be frozen, seized, or disappear (see the corralito, for example, during the 2001 Argentine economic crisis). However, developed countries with regulated banking systems offer the same advantages in terms of stability.
Some offshore banks may operate with a lower cost base and can provide higher interest rates than the home country's legal rate due to lower overheads and a lack of government intervention. Advocates of offshore banking often characterize government regulation as a form of tax on domestic banks, reducing interest rates on deposits.
Offshore finance is one of the few industries, along with [tourism], in which geographically remote island nations can competitively engage. It can help developing countries source investment and create growth in their economies and redistribute world finance from the developed to the developing world.
Interest is generally paid by offshore banks without tax deducted. This is advantageous to individuals who do not pay tax on worldwide income, or who do not pay tax until the tax return is agreed, or who feel that they can illegally evade tax by hiding the interest income.
Some offshore banks offer banking services that may not be available from domestic banks, such as anonymous bank accounts, higher or lower rate loans based on risk, and investment opportunities not available elsewhere.
Offshore banking is often linked to other structures, such as offshore companies, trusts, or foundations, which may have specific tax advantages for some individuals.
Many advocates of offshore banking also assert that the creation of tax and banking competition is an advantage of the industry, arguing with Charles Tiebout that tax competition allows people to choose an appropriate balance of services and taxes. However, critics of the industry claim this competition as a disadvantage, arguing that it encourages a "race to the bottom" in which governments in developed countries are pressured to deregulate their own banking systems in an attempt to prevent the offshoring of capital.