7 Benefits of Setting Up an Offshore Company

benefits setting up offshore company business tax breaks

More than 25% of small businesses closing their doors within the first five years of their operations. 

This stat highlights just how difficult life can be for entrepreneurs and small business owners.

Despite being known within the corporate world for decades, very few small businesses within the US are taking advantage of offshoring. A savvy small business owner can save thousands of dollars in tax and also enjoy other advantages by setting up an offshore company.

If you are interested in the benefits that offshoring could bring to your business and want to learn more, please read on to discover 7 benefits that your business could enjoy through offshoring.


What is an Offshore Company?

Before we tell you all of the advantages of an offshore company, we must give them a definition. An offshore company is any company that is located outside of a company's national boundaries.

This applies to any company across the globe. An example would be a company operating within Britain which has offshored its location to the Cayman Islands. This may allow them to enjoy exemptions to some British rules and regulations which their competitors in Britain abide by.

There are two key categories to consider when it comes to operating as an offshore company. Firstly the disadvantageous domestics rules that you can avoid by offshoring. Second is the advantage you can find for your company in foreign rules and regulations by offshoring.

1. Tax Exemptions

In order to attract business foreign businesses, there are several governments around the world who offer fantastic incentives. You can take advantage of these if you operate as an offshore business.

There are two important factors to look out for. Firstly, there must be an established set of rules in place that will you to set up your business abroad with ease.

The second is the actual tax benefits that you can take advantage of when your company relocates to this new territory.

This is why you'll often hear places like the Cayman Islands, British Virgin Islands, the Dutch Antilles and international centers like Singapore mentioned so frequently when it comes to offshoring.

These are safe and established areas which have mature rules in place which allow you to relocate your business. They also have a number of tax advantages, doubling their appeal.

In Singapore, for example, you can benefit from high-quality Company Secretary Services which make the process of offshoring extremely simple.


2. Expat Income

On a more personal level, if you are running an offshore company, then you are considered an expat by the US Government. This can be very advantageous in terms of your personal tax bill.

Expats are entitled to $100,000 of tax exemption. This means that your salary or profits from your company could raise a significantly lower personal income tax bill for you.

For this reason alone, operating as an offshore company can benefit you greatly.


3. Deferring Payments

As advantageous as these different tax regimes can be, they shouldn't be considered the primary tax advantage of operating offshore.

One crucial advantage for US businesses operating offshores is that they can defer their taxes to the following fiscal year. Even more significantly, if you choose to reinvest the profits of the previous year back into the business, you can continue to defer the tax payments indefinitely.

This is a doubly advantageous situation for your business. Not only do you make a saving on tax, but you free up any potential profits to improve other areas of your company.


4. Property

Once your business has had a certain amount of domestic success, you may begin to consider expanding abroad. Unfortunately, many governments prevent foreign companies from doing this.

This is where offshoring can help you. You could set up an offshore company which could act as a subsidiary.

All you would have to do is simply create an offshore company, and then make your local business the sole shareholder.

Offshoring could be a very effective solution if you were planning to open up a factory abroad to take advantage of cheaper labor costs.


5. Bolster Your Reputation

If you are a small online business operating out of a garage, offshoring could provide a surprising benefit to you.

Because you can choose where to register and set up your business, you can easily choose a prestigious location.

For example, you could decide a reputation to enhance your sales in the region where you are selling the most products and services.

If you happen to sell themed t-shirts which are popular in New York but are a small internet seller based in the Netherlands, offshoring offers an attractive solution.

If you are a small business looking to boost your sales, have a look at our blog post here for some of the best ways that you can do it.


6. Expanding Overseas

After you have become an established player in your domestic market, it is natural to begin looking at foreign markets for your products. Last year, US-based companies exported almost $1.7 trillion, which shows how huge the market for American goods is.

The issue with operating as a foreign company abroad is that you can be subjected to heavy taxes which will hamper your competitiveness against local companies.

Setting up as an offshore company can help you to be taxed on the same terms as the locals, meaning that everyone is on a level playing field.

In some markets, such as the European Union, you have to set up as an offshore company to operate regardless.


7. Protect Your Vital Assets

When you are operating in a litigious country like the US, where civil lawsuits cost the economy an estimated $233 billion per year, offshoring can protect your company from damaging legal fees.

If your company is segmented into the different regions where it does business, it is more tricky for claimants to sue for the entire value of your company.

Although this is not the primary reason to operate offshore, it is certainly an added benefit.


Advantages in Operations

With the right help, becoming an offshore company can save your small business thousands of dollars. It is also a great way of expanding overseas and reducing your tax liability.

Although the media likes to talk about the immoral side of having an offshore company, there are totally legitimate reasons to do so.

If you are already marginal with excessive costs and other operational concerns, operating offshore can help you make the difference you need to help your small business survive.

Please continue to check this blog to see our other content and advice aimed at small businesses.

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