Setting up an offshore company has its pros and cons. The process is becoming more popular with smaller businesses thanks to a growing interest in international connections and the huge impact the Internet now plays in our daily lives. Whether an offshore company is the business solution for all kinds of companies in every industry, however, is debatable. What is certain is that offshore companies are a trending topic at present, which is why it’s worth understanding the advantages and disadvantages they present.
Advantage: avoid paying high taxes
The main reason most businesses decide to set themselves up as offshore companies relates to the tax benefits involved. UK business taxes can be high and this can be crippling for some companies, particularly start-ups. By setting up your company offshore, you can benefit from paying lower business taxes, associated with the country in which you set your business up instead of the country in which you reside.
Disadvantage: expensive to set up and other hidden costs
Businesses looking to take advantage of tax benefits via offshore company solutions sometimes find that their big ideas backfire on them. First, the costs behind setting up an offshore business are no small affair. There are lots of legal fees involved and many countries require businesses to invest a certain amount of money upfront in the country before an offshore agreement can take place. These initial costs can put a stop to the end of an offshore business project before anything even gets off the ground. In addition, business taxes might be avoided in the first instance, but if the future revenue then finds its way back into the UK (through UK bank accounts and in the form of UK bills, rent, household maintenance costs and so on), the individual claiming that revenue in the UK will be charged UK tax anyway. These taxes, for revenue coming into the country from abroad, can also be very high.
If your business is offshore, your personal information is protected. The country in which your business is registered is not required by law to reveal anything about the assets, accounts, investments or trusts to third parties requesting the information. Naturally, should your company partake in any illegal activity, any information required can be released to the bodies seeking the information. However, if your company’s dealings are all above board, the added privacy surrounding what you own is what is so appealing for many business entrepreneurs.
Disadvantage: difficulties in proving offshore company ownership
The flipside of this added layer of privacy, however, means that it can be difficult to prove the success of your business (the capital you have built up and the investments you have secured) when you want to attract the interest of more investors or when you want to apply for other kinds of financial backing. It can be difficult to prove what you have managed to achieve with your company because, unlike businesses registered in the UK with all public records lodged at Companies House, lenders and banks have no access.
Advantage: protected assets
By having an offshore company, your assets are better protected. If, for any reason, you are concerned about what might happen to your business’ assets, placing them at arm’s length in the form of an offshore company means they are protected from creditors.
Disadvantage: lack of foreign economic stability
When you decide to set up your company as an offshore business, it is vital to remember that not every economy in the world is as stable as others. The political and economic climates of any country could change at any time. You might be highly unfamiliar with the country’s customs procedures, its government’s policies and cultural or social aspects which might affect the success of your business at some point in the future. The risk of financial loss in other countries might be considerably higher than those in the UK and these financial risks cannot always be predicted in advance.