11 Reasons to Use an Offshore Company for Business

Despite what the media would have you believe, numerous legal and legitimate reasons exist to use an offshore company.

In the past, many of those who dealt in offshore circles used fake names and fake stock photos as they sought to represent the arguments for the true value and purpose of international diversification from the shadows.

Their masked approach didn’t do much to help the reputation of offshore activity.

One of the reasons the Nomad Capitalist founder, Andrew Henderson, began the company was to bring more transparency to an industry that was unnecessarily secretive. 

It’s been a journey that, in turn, has inspired others to become more transparent.

Navigating the complexities of going offshore can be overwhelming, and regulations change constantly. 

However, there remain many good reasons to take your company offshore.

Apply to become a Nomad Capitalist client, and we will create your bespoke strategy, taking you offshore and helping you legally go where you are treated best.

How Do Offshore Companies Work?

Quite simply, offshore companies work by registering a business in a foreign jurisdiction that offers specific benefits, such as lower taxes, greater financial privacy or streamlined legal and operational frameworks. 

These companies are formed under the laws of the chosen country, but they can conduct business mainly in other countries. Once established, the offshore company can own assets, manage investments or conduct trade, just like any other company. 

For example, a business owner might register a company in a tax-friendly location like Estonia or the Cayman Islands to reinvest profits without heavy tax burdens or gain easier access to global financial systems. 

Before we dive any further into this topic, let’s cover an essential note: offshore companies need to operate legally through proper management and transparency. Misuse of offshore companies, such as tax evasion or hiding illicit funds, is illegal and carries severe penalties.

So, these arrangements must comply with both the local regulations of the offshore jurisdiction and the laws of the business owner’s home country to stay legitimate.

Offshore Companies: What You Need to Know

Obviously, some people are still sceptical. Decades of bad press take time to overcome. 

But the good news is that there are many legal reasons to be involved with offshore activity, such as foreign investments, offshore banking, second passports, and, yes, even offshore companies.

The problem with turning the debate about offshore into a list of what is moral and what is not is that you can slip into too many grey areas. 

It’s often better to think in black and white – legal vs. illegal. Laws are definitive. It’s clear which side of the line you are on, and clarity like that is vital to good business.

For the average small business owner, consultant, cryptocurrency trader, etc., there aren’t many ways to reduce your tax burden if you own and operate your business in the United States.

And even for those for whom there are ways, it’s rather complex. The bottom line is that you can’t just stay in the United States 365 days a year and benefit from an offshore company. 

People think that all they have to do is set up a British Virgin Islands company, and they can run it from the US and avoid taxation. That’s nonsense.

In fact, in many cases, it will make their tax situation worse. These days, real offshore solutions are about finding ways to move your a**, not just your assets.

Moving your assets used to be enough in the days when hiding your money was the name of the game. However, it’s all about transparency and how you and your business can think globally to reduce your tax burden and get other benefits.

None of us chose where we were born, and simply because you were born in the United States, Australia, Canada or wherever else does not obligate you to live there forever.

You can go where you’re treated best.

And if you’re not sitting around using all the resources in the United States, if you legitimately move what you’re doing and move for a good part of the time outside of the United States, why should you pay tax as if you were still there?

You shouldn’t be forced to pay anyone just as some homage because you were born there.

Again, if you stay there and keep milking all the services and screw everybody else by getting out of taxes, that’s not really fair.

It also isn’t legal.

It’s either legal or illegal. When you judge actions by this scale, it’s easy to know where the line is.

How you present your story still matters. Even if you are doing something completely legal, you must be prepared to explain it to those suspicious of offshore activity. And that’s where having a bespoke plan becomes so valuable. 

Even if you have a totally legal offshore structure, the onus is going to be on you to show legitimacy.

So, let’s look at all the possible reasons for using an offshore company for your business. Where necessary, we’ll discuss how those reasons fit into the bigger story you will have to paint to show the legitimacy of your offshore activity.

Legal Reasons to Use an Offshore Company

1. Financial Privacy and Safety

Financial privacy and safety are important and you’re entitled to expect these qualities as a starting point to any business venture.

What many people don’t understand is that privacy isn’t always an issue of wanting to hide your money. And this is yet another issue with moralising offshore activity. Just because something can be used for immoral ends does not make it immoral by default.

For example, a previous Nomad Capitalist client from Mexico was looking for greater privacy because, in Mexico, when you have US$100,000 or more in the bank, your name may be quickly leaked to the wrong people. 

Do you think those people need financial privacy?

Somebody in a situation like this might understandably want to set up a foreign corporation to add a layer of privacy to their operations. They may not even be doing anything to avoid tax. They may just be trying to protect themselves.

After living in other countries and seeing the issues that people deal with on a daily basis, watching big Western governments can be frustrating. They come in with their economic and political weight to pressure other countries to make cultural, social and political changes in a culture and context that they know nothing about. 

But somehow, it is their responsibility to tell the rest of the world how to live. Every country should be like them.

2. Meet Legal Requirements

A common reason to set up an offshore company is to meet the legal requirements of the country where you want to buy property. For example, in Malaysia, owning property through select foreign companies is possible. In many countries, this is not possible.

Instead, you must purchase the property through a local company. An offshore company. 

For instance, if you want to use money from your US company to buy a factory in Nicaragua, the Nicaraguan government won’t let you. You would need to set up a Nicaraguan company whose shareholder could be your US company, so it’s a subsidiary, and then you would be able to make the purchase.

That is a completely legitimate reason to have a foreign company.

Now, in many cases, it’s beneficial to own property in your own name. There has historically been a reason for US citizens who own businesses overseas to invest through corporate structures. 

That incentive has somewhat been diminished with the tax reform, but for the average person who wants to hold property overseas in their own name, the tax structures in many foreign countries are more beneficial than just ownership in your name.

Provisions are available in the likes of Turkey, where you can actually benefit from incentives in the country’s tax system purposefully aimed at bringing more companies into the country to buy properties. They want people to open offices in Turkey, so you can set up a Turkish company and purchase property there as well.

3. Investment Funds in Tax-Neutral Locations

An investment fund run by various individuals from different locations may need a tax-neutral location where they can combine capital from different sources.

The Cayman Islands has historically been a top choice for investment funds because their rules are relatively lax. Moreover, funds here will not have to deal with things like the Security and Exchange Commission. 

By doing this, these funds can often access different investments unavailable to US investment funds. A tax-neutral location may offer more benefits than a simple tax reduction.

4. Good Legal Framework

If you live in a country where things are a mess and everything is inefficient, you might not mind paying more taxes to get a better legal framework.

There are certain countries where taxes are somewhat low, but setting up and running a corporation can be extremely bureaucratic and inefficient. Even moving money around can be difficult. In that case, setting up an offshore company is not a tax issue.

In fact, some people may be willing to open a company in the EU, like Bulgaria, to gain better operational efficiency, legal architecture and access to better courts. They may not get lower taxes, but an offshore company will solve so many other issues that it will not matter.

5. Better Banking Infrastructure

If you want to set up a Labuan company or a Marshall Islands company, your company may have more limited banking opportunities.

The reverse can be true as well. If you live in Peru, you may have difficulty getting banks to take your Peru company, so you may choose to set up an offshore company that will give you better access to banks.

A bank may not take your Peru company, but they’ll take your Bulgarian, Cypriot or Hong Kong companies. Again, these countries may or may not be tax-neutral, but they will give you better banking infrastructure, and that benefit alone is enough.

6. Asset Protection

Beginning with asset protection, the next four reasons to use an offshore company are those that may be deemed to be challenged. 

Many people will set up an offshore company to protect their assets from individuals such as creditors, plaintiffs, attorneys, family members or ex-spouses. 

In highly litigious places like the United States, just having a simple offshore corporation can be a lot more beneficial than setting up a trust or an offshore foundation – you can get enough asset protection from a foreign corporation.

If you set up a company in a place like St Kitts and Nevis, somebody would have to post a bond before they could sue you. Obviously, many objections to offshore companies arise from the allegations that they are used to stop people who legitimately have a claim.

However, the issue is that a lawsuit is filed every 16 seconds in the United States: at a rate like that, it’s safe to argue that many of those lawsuits are illegitimate. 

And who doesn’t want protection from a system that is out of control?

7. Avoid Capital Gains Tax

Every country is different, and every country has different capital gains tax laws. 

This post is not to provide tax advice, but it would appear that some countries allow structures by which you can avoid capital gains tax through indirect transfers of assets.

If you’re a US citizen, you can’t avoid capital gains tax, especially if you’re living in the United States. 

So, while other countries may have this issue where you can avoid capital gains by transferring assets, it’s not an option legally available to US citizens.

8. Lower Tax Rates

There’s nothing wrong with seeking a lower tax rate in a different country.

They don’t only benefit you directly, but also the country offering the lower rate. Often, these countries offer lower tax rates to instigate development.

And who is the United States to say Lithuania or Estonia should be deprived of business?

The Baltic countries have come out with very low tax rates in an effort to develop their economies. Estonia even offers zero tax as long as you do not take the money out of the company.

Former Soviet satellite states that have joined the EU and become pretty pro-capitalist free-market societies. 

They want low tax rates and can develop their economies far more successfully by attracting businesses and wealth with low tax rates than they ever could by overtaxing their people.

And if somebody wanted to move part of their operations to Lithuania and hire some Lithuanians, what’s wrong with that?

Now, there are rules on transfer pricing – you can’t just run a company in the US and shift all your profits to St Kitts and Nevis or Vanuatu without any reason. 

There are established principles in most countries, so you must ensure you get that lower tax rate through legal means.

If you have a company with 99 employees in Boston and one employee in Thailand, you can’t pay that guy in Thailand 50 times the salary of the guys in Boston. It’s just not going to be allowed.

However, can you set up your business offshore to get a more competitive tax rate? Absolutely. 

And if you run part of your business in a low-tax jurisdiction and part in a high-tax jurisdiction, there should be no problem with apportioning the proper tax revenues where they belong.

9. Access to Tax Treaties

Tax treaties rarely affect wealthy individuals who are becoming nomadic with nomadic businesses. 

But, tax treaties exist for a reason, so that’s a possibility for some corporate structures.

Illegal Reasons to Use an Offshore Company

10. Tax Evasion

Tax evasion is the old-school approach to offshore where you’d set up a numbered Swiss bank account and then simply not report that money. Numbered bank accounts do not exist anymore. And reporting is now the legal obligation of all US citizens.

In the age of transparency, we have FATCA, FBAR, huge IRS penalties and the CRS (the Common Reporting Standard) for the rest of the world, with 120 countries signed up to share information as of 2024.

The days of hiding money are over. Transparency is here.

So, sure, are there still ways to do it? There are plenty of structures where people try to put their friend’s name on something to get past reporting requirements. But most of the time, even these ideas backfire because then the friend has a tax problem.

Tax avoidance is what is legal. It’s up to you to determine if it is moral. If you can establish your business through legal practices, is there a reason not to do that?

What is not legal is tax evasion, hiding money, not reporting earnings, etc. Of course, that’s illegal. And it is definitely not recommended.

11. Criminal Enterprises

This is what the media wants everyone to believe that people are doing offshore: hiding ownership from law enforcement authorities, dealing in corrupt practices, stashing the proceeds of crime, financing terrorist activity, laundering money, etc.

And, of course, this is illegal.

But the reality is that there are millions of people who just live overseas. They’re travelling, digital nomads and expats, and choose to base their operations in the most convenient place, which often isn’t back home.

Again, the politicians and the people who want to spend your money don’t like yachts being registered in the Marshall Islands. They’d rather you register in the US, where they can charge you a fortune. 

But if you have a yacht and you’re not docking it in the United States, why would you pay ten or even 50 times the taxes to the United States when your yacht is not using any of their services?

Thanks to all these criminal activities and the fact that certain banks have been involved with them, the people who suffer the most are those who run legitimate businesses. People have their accounts closed at banks like HSBC in Hong Kong every day. 

So, while criminal activity certainly exists offshore as it does everywhere else, the vast majority of people using offshore companies and banks do not do so to get away with illegal activity.

How to Establish an Offshore Company

Setting up an offshore company involves a series of legal and administrative steps. These steps are never the same, as they depend on your specific business needs and the jurisdiction you choose. 

However, as a general overview, here’s what you need to do to get started:

1. Choose the right jurisdiction: First, you need to choose a country that aligns with your business goals. The most popular jurisdictions, like the Cayman Islands, Singapore or Estonia, each offer unique benefits, such as low taxes, strong legal frameworks or excellent banking infrastructure. You’ll need to do deep research into local regulations, corporate tax policies and any restrictions on foreign ownership.
2. Use a professional service provider: You’ll need to partner with a reputable incorporation service or legal expert who knows your chosen jurisdiction. They’ll guide you through the process of setting up your company, keeping compliance with local laws and handling all the important documentation.
3. Complete the incorporation process: Provide all the necessary documents, pay the required fees and appoint a local registered agent if you have to. You’ll also need to open a corporate bank account, which may involve additional due diligence.

It’s a relatively straightforward process, but you need to make sure you do things the right way. That’s why working with experienced professionals is so important, as it helps you stay compliant with laws in both your home country and the offshore jurisdiction.

Offshore Company: FAQs

Your Reasons to Use an Offshore Company

Most of the reasons to use an offshore company are legitimate. 

Half of them are legitimate by any measure and are potentially tax-neutral; most of the remaining reasons are legal, although morally debatable and only two of the reasons are completely illegal.

The small number of harmful and illegal reasons are mostly overblown to make everything else on this legal and legitimate list seem like shady or even criminal activity.

The moral debate is mute: the politicians make the laws, not us – we just follow the laws.

If you’re going to pay tax, wouldn’t you rather pay it somewhere where they respect you and your values?

That’s reason enough to go where you’re treated best.

Become a Nomad Capitalist client, and we will work as your offshore strategy architects and general contractors, navigating all the complexities with you and taking you where you’re treated best.