Offshore Business Law & Lawyers in Pakistan

Offshore Business Law

Globalization has made conduct of business in complete privacy almost impossible; businessmen are facing innumerable problems of excessive taxation, undue governmental control and growing rate of law suits, all these factors lead the business at brink of failure. Due to increasing business vulnerability businessmen are resorting to offshore business which is considered to be one of the best methods of tax reduction. The term "Offshore Business" is about benefiting from the asset protection services offered by various countries (known as 'Jurisdiction' or 'Haven') the legislation of these countries allows for certain important protection advantages i.e. strong asset protection feature, tax relaxation and business confidentiality. An offshore nation allows the registration of the business entity or trust also offer this entity or trust certain considerable tax reduction in lieu of an annual license fee.

An Offshore Company may be defined as, a company which is registered in any foreign country; it does not conduct most of its business in the country where it is officially based, mainly for the reason of tax reduction and freedom from government control.


Origin of Offshore Business

Tax havens and the offshore company are not new phenomena, and their use expanded in the last 20 years to encompass a range of new offshore company jurisdictions. Consequently, approximately two thirds of total global financial assets are housed offshore in 'tax haven' countries, often through an offshore company. The success of the offshore corporation means almost all leading companies bank, borrow and invest offshore. The following information provides an overview of the history and future evolution of the offshore company, as well as key aspects of offshore tax planning.

The concept of an offshore tax haven was originally the brainchild of the US and UK, who were trying to reduce foreign aid to certain developing nations. The idea was that, as an alternative to providing foreign aid, multinationals would be encouraged to invest in these offshore jurisdictions by setting up an offshore corporation. Offshore jurisdictions generally have simple offshore company laws. The offshore industry is worth approximately US$5 trillion. Most experts agree that an offshore corporation is a long-term solution, provided it is structured as part of a comprehensive offshore tax planning strategy. Major international organisations actively derive profits from an offshore company, including aircraft maker Boeing, oil giant Exxon Mobil, American Express and Chase Manhattan Bank.

Definition

The term "Offshore Company" is ambiguous. It may refer to either:

  • A company which isincorporated outside the jurisdiction of its primary operations regardless of whether that jurisdiction is an offshore financial centre (sometimes known as a non-resident company) i.e. a Canadian company may be 'offshore' for the purposes of a USA citizen ; or,

  • Any company (resident or otherwise) incorporated in an offshore financial centre.

Types of Offshore Companies

Examples of offshore companies include the International Business Company (IBC). More recently new legislation has been enacted in a number of Jurisdictions, such as the British Virgin Islands, to replace the IBC type of company with the Business Company (BC).

The following types of company are common in both onshore and offshore jurisdictions:

  • Company having a share capital- These companies issue shares. Once the initial cost of a share (capital and premium) has been paid, the shareholders have no further obligation to the company. The shares may, subject to the rules of the company, be sold or transferred, and the shareholders have the right to enjoy the profits of the company or any proceeds of liquidation. The liability of the shareholder is therefore limited to the amount invested. Shares are assets.

  • Company limited by guarantee - The members of the company agree to pay up to a maximum limit in the event that the company becomes insolvent. They may acquire certain rights against the company, such as the rights to a dividend and the specific rights will be set out in the rules of the company. Membership may terminate on death, and guarantee companies have been used for not for profit organizations. There are also sophisticated estates planning schemes which make use of guarantee companies. Membership is a liability.

  • Hybrid - a combination of the above two classes - i.e. a company have bother liability class shares and asset class shares.

  • Protected cell companies - some jurisdictions permit cellular companies, where particular assets and liabilities are segregated into "cells", in such a way that the assets of one cell cannot be used to satisfy the liabilities of another. Cell companies are particularly used for umbrella mutual funds or unit linked insurance bonds. In this instance the separate cells are effectively distinct legal entities.

It is important to note though that the above is a gross oversimplification of the near infinite variety of types of company most sophisticated jurisdictions permit. Shares themselves come in many different types with the rights in respect of dividend, preference, voting etc being determined by the constitution of the company to which they relate. Also, it is by no means uncommon for companies to utilise many different classes in particular when they are soliciting for investment from third-parties.

However, many offshore jurisdictions offer increasingly specialised forms of companies (as well as specialised trusts and partnership) seeking to increase their share of the market. Examples include limited duration companies, unlimited liability companies, companies limited by guarantee and with a share capital, restricted purpose companies and hybrid entities such as limited liability partnerships, which are more akin to companies to actual partnerships, and foundations, which are nominally trusts but are more akin to companies than trusts.

Formation

Offshore companies are meant to provide the corporate business infrastructures to aid in opening any company in the specified jurisdiction. With increasing demand for such companies' world over, the registration has been simplified in many offshore countries for the purpose of efficiency and time saving. The important factors to consider even before starting the process of offshore company registration are as follows:

Identify the jurisdiction

From which you want the company registered. In doing this, you need to:

  • Know the level of security that the jurisdiction identified is able to give to the company;

  • Know the taxation rate per every income received, the level of capitalization should be of concern (the reason being that some jurisdiction imposes rules that only need little amount of capital to start) get to know the financial benefits that is offered by the jurisdiction countries to offshore companies; and

  • Know the cost of operating an offshore company in any offshore jurisdiction.

II. Ability to pay Annual Registration Fee

The company must be able to meet the nominal levy requirement that the jurisdiction charge on offshore company's trade.

III. Explanation of Objects of company

The legitimate reasons for opening the offshore company in question must always be provided in details. This is because some individuals or group of persons tend to open the offshore companies with ill-motives. Some do it to finance terror gangs and other criminal activities, to evade tax, creditors' evasion and fraud.

Procedure for Registration

With all these given important considerations, the process of offshore company registration may therefore continue.

Obtaining the required license

To begin the procedure, try and get the required license for the company you need to register. The methods of dealing with such offshore bank account are the most difficult process. This requires careful and selective decisions that will enable you get the best services.

For an offshore to be registered, the following legal documentation and charges must be provided:

a. The government filing fees

That is payable at the beginning of the first year. This is a renewal fee that must be paid at the end of the specified period. The fee varies with the jurisdiction of choice. An example of offshore jurisdiction where this fee is paid annually is Seychelles.

b. The Incorporation Certificate

Must be produced. This must adhere to the set rules and regulations of membership.

c. In Seychelles the letter of appointment of first directors is produced

This letter shows the names of directors and managers that will be involved in running the offshore company.

d. A special declaration of trust

Must be passed by all the stakeholders, who have been nominated to operate the company.

e. The Memorandum and Article of Union must be provided to show the agreement and role played by every member.

This documentation acts as a proof of legality of the offshore company to be opened. In both Belize, BVI, Seychelles and many other offshore jurisdictions, the procedures for registering an offshore company is the same. However, in some jurisdictions such as US, the procedures are a little bit different.

Management and control

It is worth mentioning at this juncture that taxation of a company somewhere other than its place of incorporation is not by any means an exclusively offshore concept. By way of example consider a UK incorporated company which traded exclusively in France. If the board of directors of this company were based in France there would be no doubt that the company would be subject to French tax.

Consider also a US citizen running a Bahamas company from the US, there is no doubt that the activities of that company is subject to tax in the US.

The same principle extends to regulation also.

Features of offshore companies

Memorandum and Articles of Association or by laws

These documents are fundamental to the existence of the company. The Articles detail the rights of the members, the objectives of the company and the internal processes of the company and the Memorandum states the type of Company and its capital.

Certificate of Incorporation

This is issued by the Registrar of Companies or their equivalent, and is served as proof that the company has been brought into existence. Other information may be necessary to prove that the company has not been liquidated or struck off such as a certified of incumbency or good standing.

Registered Agent

It is often the case that an agent must be appointed in the jurisdiction in which the company is incorporated for the purpose of dealing with official communications with the registrar. The Agent will have to be licensed and will assume some level of responsibility for the company's activities.

Registered Office

This is the official address of a company, to which official documents are sent and legal notices received. It is normal for the registration agent to provide a registered office. A company may have other business and correspondence addresses.

Shareholders or other members

These are the legal owners of the company. For administrative simplicity, or for anonymity, a corporate service provider may supply nominees who will hold shares on behalf of a beneficial owner, and act on his instructions.

Directors, Managers or their delegates

The individuals who manage the day-to-day affairs of company. In many jurisdictions it is possible for companies to be directors of other companies. Corporate service providers in offshore jurisdictions will often provide directors, provided they are able to control, and be satisfied with, the activities of the company. The company is generally considered to be resident for tax purposes at the place where the decisions are made. In many cases if a person is acting as a director they will be considered de facto to be a director in spite of not having recorded this with the relevant body.

Shadow directors

In some cases, it has been shown that the formally appointed directors merely act as the alter ego of others, blindly following their instructions. In these cases, the courts have considered that those instructing the named directors really control the company, and that the named directors merely rubberstamp decisions. Companies managed in this way will be tax resident in the jurisdiction where the shadow director is resident.

Company Secretary

This is the person or body corporate that is responsible for ensuring that the company meets its statutory obligations. Corporate service providers usually provide this service.

Statutory Records

A company is obliged to maintain registers setting out certain information about the company. The mandatory records vary from jurisdiction to jurisdiction, as does the level of public access to the information contained in the records. Many jurisdictions require that the records are kept within the jurisdiction in which the company is incorporated. The records required may include minutes of meetings, registers members, directors, officers and charges.

Bookkeeping

Directors are generally required to keep proper records. They may be required to prepare audited accounts. Specific requirements vary between jurisdictions and may depend on the nature of the company's activity. For example all banks will need to prepare audited accounts, whereas a private investment.

Typical uses of offshore companies

Offshore companies are beneficial for many purposes including at least some of the following:

1. Consultancy, Professional Services, Agency

Professionals, consultants, artists and many self-employed individuals can gain substantial advantages by working as employees or as external consultants of offshore companies, of which they may be the sole shareholders and, if they want to, the sole directors.

2. Employment of Expatriate Staff

Expatriates working overseas can frequently benefit from being employed through an offshore employment/consultancy company. This can avoid tax being deducted at source. By not remitting the full salary it can minimize tax and avoid exchange control difficulties in the country of temporary residence. This arrangement will be particularly attractive to expatriates working in politically unstable countries.

3. Property Owning Companies

There are often significant advantages in using an offshore holding company for the purpose of holding property. The advantages of such an arrangement include the avoidance of inheritance tax, capital gains tax and the ease of sale which can be achieved by transferring the property owned by the company and reduction of property purchase costs to the onward purchasers.

4. 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 as bank deposits where the interest and/or the capital gains are paid and kept gross. To invest in global securities including mutual funds not available to "local" citizens. Offshore jurisdictions are typically less invasive allowing for aggressive and unrestrained Free Enterprise.

5. Copyrights, Patents and Trademarks

Offshore companies can purchase or be assigned the right to use copyright, patent or trademark. Royalties can then be accumulated offshore although often royalties may suffer withholding taxes at source. An interposing holding company in some cases may allow a reduction in the rate of tax withheld at source.

6. Privacy

A high net-worth individual can save professional fees and unwanted publicity by owning property or other assets through an offshore company. ECI can provide a wide range of services in the field of privacy protection.

7. Protection

To file first position liens against assets and property closing the door to predatory litigation before it begins. To segregate high-risk investments from other more secure holdings. To protect retirement funds from possible bankruptcy. Provide for the transfer of assets, for the next generation in an efficient and discreet fashion. Nominee directors and officers can allow you to conduct business transactions for your benefit while you remain anonymous. To access your funds with corporate debit or credit cards thereby maintaining absolute confidentiality.

Advantages of establishment of an offshore company

To summarize the reasons why should a businessman consider going offshore, these are main benefits for it:

1. Asset Protection

It provides security against future claims such as judgment, divorce proceedings, bankruptcy, creditors and litigation.

2. Reducing Tax Liability

A foreign jurisdiction can offer unparalleled opportunities for reduction of your tax liabilities.

3. Confidentiality

From competitors, claimants, ex-spouses, and other parties from whom you wish to keep your business interests private.

4. Simplicity and Reporting

Except for regulated businesses, such as banks or other financial institutions, some jurisdictions make it relatively simple to set up and maintain companies especially with reference to lesser reporting requirements than so-called onshore jurisdictions - the level of information required by the registrar of companies varies from jurisdiction to jurisdiction.

5. E-Commerce

Shifting business to an Offshore Haven removes restrictions, regulations and taxation. What can you do with 50% more time and money?

6. Protect the long-term survival of multinational companies

By moving their domicile from countries with poor economic or political instability to a more stable tax haven.

7. Simplify the transfer of assets and properties held in several countries

The sale or probate of properties in different countries can become complex and expensive. If these are collectively held by an offshore company, ownership can be transferred by company's shares rather than by transferring the actual properties owned by the company.

8. Own or lease ships or pleasure craft

Vanuatu International companies may own or lease ships or pleasure craft and pay no taxes on income derived from the vessels. Registration fees are low and Vanuatu flag vessels are welcomed in ports world-wide.

9. Reduce payroll and travel expense administration

Offshore Companies set up in Vanuatu or the British Virgin Islands need not pay social security, withholding tax, or associated expenses of employees working in other foreign countries. This can be a major savings for companies that have staff working on overseas projects.

10. Allow employment or consultancy fees to accumulate in a low tax area

Offshore corporations can contract the services of professionals to employers resident in high tax locations or politically unstable areas. This allows the fees to accumulate in a low tax jurisdiction.

11. Protect investments in other foreign countries

International Companies can give loan funds to corporations in other foreign countries. Investors may set up, but not directly own, an offshore company that loans funds to a development company set up in another country and charge interest rates that will lower tax obligations and protect the long term ability to repatriate investment funds. This can be especially important when working in countries with strict exchange controls and high tax profiles.

12. Minimise tax exposure when dealing with international transactions

An offshore corporation can buy or lease products from one country and then sell or lease them to a company in another country so the profits of the transaction are accumulated in the offshore company where there is no taxation on profits.

13. Maximise profits from intellectual property rights, franchising and licensing

An offshore company can franchise or licence intellectual property rights in other foreign Countries allowing the profits to accumulate in a tax free environment.

14. Reduction of cost of business

An offshore jurisdiction may be the right choice both for a business activity and for a more cost-effective personal life organisation. An offshore company formation and / or redomiciliation of a company to an offshore country, as well as changing one's place of residency to a low-tax jurisdiction introduce effective solution to a more cost-effective business and life style.

Offshore Jurisdictions

There have been various attempts to define an offshore jurisdiction, and the most appropriate one is widely believed to be the following one: any country outside one's place of residence. In addition, the financial industry has to be the only or the main economic activity, on which the whole country's economy is based. Having stated that, almost the whole world has to be evaluated as an offshore environment, even though offshore countries, so called tax heavens of fiscal paradise, are usually referred to only low-tax or zero-tax jurisdictions.

List of offshore financial centres

It is possible to incorporate offshore companies in many jurisdictions. In some onshore jurisdictions, such as the UK and New Zealand, there are particular types of companies which offer many of the advantages of typical offshore structures. Below is the list of some of most prominent Jurisdictions in the World.

Andorra, Anguilla, Aruba, Aruba, Bahamas, Barbados, Belize, Bermuda, British Virgin Land, Brunei, Cayman Island, Cook Island, Costa Rica, Cyprus, Delaware (see also Delaware General Corporation Law) Dubai, Gibraltar, Grenada, Guernsey, Hong Kong, Isle of Man, Jersey, Jordan, Labuan, Lebanon, Liberia, Marshall Island, Mauritius, Monaco, Netherlands Antilles, Nevada, New Zealand, Panama, Ras Al Khaima, Seychelles, Singapore, Trinidad and Tobago, Turks and Caicos Island, United Kingdom, Vanuatu.


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