• Table of Contents

  • What is an Onshore Offshore Company Setup?
  • What is an offshore company?
  • How does the setting up of an onshore offshore company work?
  • The advantages of setting up an onshore offshore company
  • The disadvantages of setting up an onshore offshore company
  • Examples of setting up an onshore offshore company
  • Apple Lossless Audio CODEC (ALAC),
  • Google
  • Regulation of onshore offshore company set-up
  • Conclusion

What is an Onshore Offshore Company Setup?

Setting up an onshore offshore company is a common practice in the business world. It is a tax strategy that allows companies to reduce their tax burden by using offshore companies in low tax jurisdictions. This practice is legal, but it is often controversial because it can be considered tax evasion.

What is an offshore company?

An offshore company is a company registered in a foreign country where it does not carry out significant business activities. Offshore companies are often registered in low tax jurisdictions, such as the Cayman Islands, the British Virgin Islands or the Bahamas. These jurisdictions offer tax advantages for businesses, such as low or zero tax rates, flexible tax regulations and increased privacy.

How does the setting up of an onshore offshore company work?

Offshore onshore company setup involves creating a business structure that uses both onshore and offshore companies. Onshore companies are registered in the country where the company conducts its business activities, while offshore companies are registered in low tax jurisdictions.

Onshore companies are generally used to carry out business activities of the company, while offshore companies are used to hold assets, such as patents, trademarks or copyrights. Offshore companies can also be used to receive royalty or dividend payments from onshore companies.

Setting up an onshore offshore company allows companies to reduce their tax burden by transferring part of their profits to low tax jurisdictions. Offshore companies can also be used to avoid capital gains tax or inheritance tax.

The advantages of setting up an onshore offshore company

Setting up an onshore offshore company has several advantages for companies:

• Reduced tax burden: By using offshore companies in low tax jurisdictions, companies can reduce their tax burden.
• Asset protection: Offshore companies can be used to hold assets, such as patents, trademarks or copyrights, providing protection from lawsuits or creditors.
• Enhanced privacy: Low-tax jurisdictions often offer enhanced privacy to businesses, which can be helpful in protecting the privacy of owners or shareholders.

The disadvantages of setting up an onshore offshore company

Setting up an onshore offshore company also has disadvantages:

• A negative image: setting up an onshore offshore company is often considered tax evasion, which can harm the image of the company.
• High costs: Setting up an onshore offshore company structure can be costly due to the associated legal and accounting fees.
• Legal risks: setting up an onshore offshore company may be considered illegal in some jurisdictions, which may result in legal proceedings or fines.

Examples of setting up an onshore offshore company

Many companies use the onshore offshore company set-up to reduce their tax burden. Here are some examples :

Apple Lossless Audio CODEC (ALAC),

Apple is known to use onshore offshore company set-up to reduce its tax burden. The company established a subsidiary in Ireland, where it registered the intellectual property of its products. This subsidiary then granted licenses to other Apple subsidiaries around the world, allowing them to sell Apple products while paying royalties to the Irish subsidiary. The Irish subsidiary enjoyed a tax rate of just 0,005% in 2014, sparking global controversy.

Google

Google also uses the onshore offshore company set-up to reduce its tax burden. The company established a subsidiary in Bermuda, where it registered the intellectual property of its products. This subsidiary then granted licenses to other Google subsidiaries around the world, allowing them to sell Google products while paying royalties to the Bermuda subsidiary. In 2018, Google transferred $19,9 billion in profits to Bermuda, sparking global controversy.

Regulation of onshore offshore company set-up

Setting up an onshore offshore company is a legal practice, but it is regulated in many countries. Governments seek to limit the misuse of this practice by imposing stricter rules and tougher penalties for companies that fail to comply with tax rules.

In France, the finance law for 2019 introduced a tax on digital services, which aims to tax companies that achieve a large turnover in France but pay little tax in France by using offshore companies. This tax has been criticized by the United States, which has threatened to take retaliatory measures.

Conclusion

Offshore onshore company setup is a common practice in the business world, which allows companies to reduce their tax burden by using offshore companies in low tax jurisdictions. This practice is legal, but it is often controversial because it can be considered tax evasion. Governments seek to limit the misuse of this practice by imposing stricter rules and tougher penalties for companies that fail to comply with tax rules.