Before you take action in the Offshore Company Setup Process, keep the following in mind.

The Offshore Company Setup Process is a multi-stage process and your experience in setting up the offshore entity depends upon many factors that are idiosyncratic.  Some people have more complex needs than others and certain aspects of the process are just prioritized more.  It takes less money than many think to create an offshore company, but there is much to consider before even considering the cost.  Offshore company formation is not a process to take lightly and getting an offshore company for the sheer thrill of it is a waste of money.  What should you be considering and what has driven you to point where you have to go through the Offshore Company Setup Process?

1.  You’ve Simply Exhausted Domestic Options

As this is the Wednesday article, there is personal experience involved here and the biggest reason why I went offshore was because I had no choice.  Before the Offshore Company Setup Process, I was going from large domestic bank to large domestic bank trying to get an account for a trading game that issues out a prize.  However, I was disqualified from getting a mere checking account for five very different reasons by eleven different banks.

I got lucky with the bank that took me on as a banking client and did not raise the issues that the previous banks had raised.  However, if this bank said ‘no’, it would have been forced my business offshore because how can the business operate without an entity to help with the holding, collection and distribution of funds?

When you’re being told ‘no’, you work to find somebody who will say ‘yes’.  Of course, there’s a vetting process, but the objective is to be able to operate legally.

2.  Choosing Your Regulator and Jurisdiction to be able to operate.

In the United States, there are a lot of regulations and many of them are not going away.  The regulations are not exclusive to the Federal Government, the individual states and municipalities tack on their own regulations.  This makes doing business in the United States very expensive and aggravating.  Growth in regulations has actually made the United States less competitive on a global scale, throw in jurisdictions that allow for unlimited civil damages in the cases of lawsuits (a litigious society) that extort businesses and individuals into settlement processes and you have a toxic brew.

Regulations are barriers to entry, whether anyone wants to admit it or not.  This is of course, not strictly a U.S. oriented phenomenon, but it is important to point out because my experiences are from a U.S. perspective.  Your experiences (the majority of this audience has a different regulatory regime altogether) are and will be much different.  However, the themes are often the same.

You can legally operate a business that would otherwise be illegal or severely obstructed in your home Country by going offshore.

In my circumstances, I wanted to form a Forex Brokerage.  Your circumstances may be completely different, you may be wishing to create a Foreign Captive, a business that caters to people in a different country, an investment firm that requires greater privacy, etc.

Handling depositor funds and transferring them to a segregated account in Hong Kong (the hedge account) with a United States based bank would never pass KYC/DD and it would have been illegal to even attempt.  However, this was 100% legal offshore in the jurisdiction that I chose.  I chose my regulator and incorporated in a country that would not imprison me for my entrepreneurial efforts.  I did not accept money from U.S. or Canadian citizens or residents.  I also abided by the FATF Blacklist.

I was able to operate in a different jurisdiction to serve those outside of the United States in exchange for being transparent in terms of my business income and offshore holdings (complying with FATCA and the IRS).  Your jurisdiction is likely not to be as draconian when it comes to taxation and reporting of holdings, but you should consult with a tax attorney/barrister in your home country just to make sure everything you are doing is LEGAL.

Yes, there are people and businesses out there that will encourage you to go offshore or seek out different ways to legally reduce your tax burden as if this is the only reason to get a second passport or incorporate in a different jurisdiction.  Some others will also present it in an apocalyptic sort of a way as well and how you need to escape.  Political disagreement and taxes are not the only reasons to go through the Offshore Company Setup process, they are not the only reasons to seek out citizenship or residency in a different country as well.

My reason for setting up an offshore company was pretty simple:  I wanted to start my business and I did not want to break the law in the United States.

It was actually quite a noble reason to do it.  For all of the people who claim that Offshore Company Formations are unpatriotic, the taxes were not the issue, it was about doing things the legal way and playing by the rules so that I could operate.  I had to go through the Offshore Company Setup Process and I chose to pay U.S. taxes without any sort of tax avoidance hoops (deductions and credits) other than what a typical U.S. citizen would encounter in a state with an income tax of its own.

3.  Where are your clients/customers?

Depending upon where you live, if your client/customer base is 100% foreign and your tax regime is not citizenship based or the territorial taxation is quite liberalized, you could pay minimal taxes if you lived elsewhere and had an offshore company.  You could possibly even not have to live in another country for most of the year, but this really depends upon your jurisdiction.  This is why it is important to check with a tax attorney/barrister on this matter.

Are you hiring people in your home country?  This could also complicate matters as well.  You need to create a checklist of various issues that may pop up.  In my case, I was doing it all on my own, but I was going to outsource client support and go through processes that would not subject myself and my company to U.S. restrictions.

4.  What am I looking for in a jurisdiction?

Your needs will vary, but this is the question you will be asking before you start the Offshore Company Setup Process.  If what you are looking for in a jurisdiction matches your home country, then you do not need to look offshore.

You may find that going through the Offshore Company Setup Process is best left handled at another time.  Businesses and people move all the time and in this incredibly location-flexible world, you have options.  However, you should consider what happens in a jurisdiction if you wish to exit it for another jurisdiction.

Create your own list of custom criteria and put your home country on it.  Make a spreadsheet table of it, assign scores if you have to for each jurisdiction.  Find out more about how each jurisdiction has changed in terms of regulation because an unstable regulatory regime is a dangerous one for your business.  If the laws are being constantly changed and/or the laws are trending toward being less favorable, it should be a red flag.

5.  You Can’t Haphazardly or Recklessly Choose a Jurisdiction

You have to know exactly what the business culture is like in the jurisdiction.  Is your registered agent going to be slow?  Are your banking hours going to be short?  Are processes going to take long?  Are there new political waves to come that will make things temporary in the jurisdiction.

Efficiency and predictability are valuable.  If you’re just choosing a jurisdiction because you heard it is cheap to incorporate or that it may offer tax advantages, you’re going about it the wrong way.

It’s not about who you choose for the performance of the Offshore Company Setup Process, but your expectations and preparation for what is to come.

Choosing to set up an Offshore Corporation in the Cayman Islands because it sounds cool or sexy to bring up in casual conversation is rather stupid.

6.  You Had Enough of Your Home Country’s Taxes

This is where you need a tax attorney before you do anything.  Seriously, get into contact with one in your home country to help discuss your options.  This may not necessarily determine where your Offshore Corporation or LLC is established, but it will help you determine your operational plans and physical location going forward should you wish to go through with this.  It’s an important preliminary step.

You do not need to set up with a four person team in a $2,000 per night hotel room to do this either.  You can meet with an attorney who will bill you for their work, you can get quotes from the legal professionals and then take action accordingly based on the guidance given.

Like anything else, create your plan first and then find the pieces in the Offshore Company Setup Process to fit the plan.  However, it is important to seek out a tax attorney in this case.

7.  Privacy and Protection

Offshore Trusts, Foundations and Captives.   The formation of these entities is meant to reduce costs, reduce tax exposures, assure privacy and make you less of a target for litigation.  You should be in contact with tax and legal professionals both offshore and in your home country to coordinate and advise this, but it could result in significant savings in legal costs, taxation and insurance premiums down the road.

Keep in mind that with these organizations you need to ensure that your jurisdiction aligns with the expertise of the professionals you work with.  For instance, a Panama based tax attorney with little or no experience with handling trusts in Isle of Man or Bermuda, is likely not to be a good option.  So make sure that the professionals you work with have expertise and licensing in the jurisdictions of your choosing.

I’ll admit this is not something that I personally have dealt with as this did not fit my needs, but I do know that this requires some careful planning.

As always, seek out legal advisement from a tax attorney in your home country first.  When it comes to taxes and money distribution, this is always a tricky matter and your home country is the one that is set to have a diminished share of your earnings.

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