One of the questions I regularly receive… Is It Legal to Have an Offshore Company … and I can understand why people considering offshoring their operations are concerned.  Unfortunately, the various Paradise and Panama Paper leaks over the past 5 years have seen holders of offshore companies demonized and having their private information spread around the web.

However, the question isn’t one of legality because, by and large, an offshore entity is perfectly legal to own. Sure, there are those within the media that would have you believe that anyone using an offshore structure is a shady and corrupt terrorist. The reality is that offshore structures are incredibly prevalent because they are a needed item not only within our broader finance industry but also as liability shields.

What is an Offshore Company and Is It Legal to Have an Offshore Company

It would probably pay to quickly define what an offshore company actually is. For a company to be considered “offshore” it needs to have been formed in a jurisdiction that is different from the one you currently live in. That is really what an offshore company is, however, the media’s definition is really where a company is based in a ‘perceived’ tax haven jurisdiction. Their definition is really a political pejorative term rather than a legal one.

Offshore companies are legal because they are widely used throughout the financial and insurance sectors as a way to move risk around and insulate their operating arms from legal liability. Unfortunately, the world we live in today is incredibly litigious and people will, and do, sue for almost any baseless claims. Even when you are morally and legally in the right, you still lose financially, and the only people who really benefit from such a claim are the dreaded lawyers.

Subsequently, offshore companies make it very hard to seek a reasonable judgment for the average domestic litigant. So, they can really act as a quite effective liability shield, depending on the jurisdiction, if they are set up correctly. These structures really do have multiple uses for the smart entrepreneur, and they should not be demonized as “illegal” because it simply isn’t true.

Unfortunately, the media and public have been baying for blood following the various data leaks instead of working out what they can learn from the available documentation. This is really just a form of socialistic envy as these individuals somehow believe that they are being deprived of tax revenue somehow by these offshore entities. It has become politically expedient to kick capitalists despite the fact they produce thousands of jobs annually and provide for many people’s livelihoods.

Short Answer: Yes, It Is Legal to Have an Offshore Company

Moving forward, although it is legal to have an offshore company, in some jurisdictions you have a legal obligation to disclose it as a controlled foreign company (CFC). The days of the pure offshore shell company being totally anonymous are now effectively over, so it pays to make sure you are being tax compliant locally. For this reason, you should confirm your obligations with a tax advisor in your country or talk to us about your circumstances.

As mentioned, the offshore companies themselves are perfectly legal but it, ultimately, is how you use the structure that matters. If you are money laundering, tax-evading (not structuring but evading), bribing FIFA officials, politically stealing from your country’s coffers, or gun-running, your company is obviously not operating legally. Don’t expect that such activities will be tolerated by banks and service companies or that you will be able to hide behind the cloak of privacy to save yourself. Personally, that sort of behavior exceeds smart offshoring and I take moral issue with it as it tends to draw knee-jerk reactions from regulators and lawmakers. However, if you are operating a legitimate company or service and you choose to base yourself offshore then I see absolutely nothing wrong with your actions from either a legal or moral standpoint.

Do You Have to Pay Tax on Income from an Offshore Company?

Although seemingly simple, this is actually a hard question to answer because it depends. It depends on your personal circumstances and how you have structured your offshore presence. It also depends on what country you are presently a tax resident of. Most offshore companies exist in countries where there is only a tax on locally derived profits. This typically means they are not subject to tax but, again, it will depend on where you are based as to whether you need to report this income.

Final Words

Hopefully, I have fully answered your question on Is It Legal to Have an Offshore Company in 2022. I really want to reiterate again that there is nothing intrinsically illegal about using an offshore structure and that, indeed, you should be considering setting something like this up. Putting tax benefits aside for one moment, the reality is that such a company, set up with a trust, can effectively shield you from almost all legal risks. Additionally, it puts your corporate assets at arms-length and away from conversion in your home jurisdiction.

Ultimately, it’s up to you to educate yourself on how to structure your financial and company affairs but I have never seen someone regret taking the time to think through all their options and to come up with smart ideas to protect their hard-earned business and personal assets.

If you would like to talk through your situation with us, please contact us for a confidential discussion.