Some countries offer a tax heaven as a means to attract more foreign investment. They offer a lot of tax advantages and benefits to companies who register under their jurisdiction. There are basically four types of offshore companies:
Each type of offshore company serves a different purpose; being aware of your requirements allows you to fully enjoy the benefits.
Offshore companies are free from profit tax and sales tax; its shareholders are also free from income tax, stamp duty, inheritance tax and gift tax. Consequently, many corporations with overseas investment transfer all or part of their profits to their offshore companies in order to reduce the tax burden. International trading companies can transact through their offshore companies for tax free purposes.
Corporations can transact via their offshore companies in case of high level risk business or investment. In this case, it minimizes potential damage to the parent company.
Corporations which engage in overseas investment or international trade can setup offshore accounts that enable less restrictive capital management. Registering an offshore account as an offshore company allows the maximum capital allocation flexibility. For example, a subsidiary with profit can plough all its revenue in the offshore account, and a subsidiary at loss can utilize these funds without any restriction.
An offshore company can be used for holding blue-chip stocks from different stock markets. The offshore company can in turn make a public offering on an overseas stock market to make capital gain. For instance, an offshore company registered at places like the Isle of Man or Bermuda, can make an Initial Public Offering(IPO) on Hong Kong's stock market. Any capital raised through an IPO and stock trading may also be free from forex control or taxation, depending where the company is registered.