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The Legality of Offshore Companies: Navigating the Complex Landscape

In this week’s opinion piece, we look to address the question of is it legal to have an offshore company and how to ensure you remain on the right side of your local tax authority. This is a complex area but let’s dive into the realities of the offshore world in 2023.

Definition of Offshore Companies

This question might actually sound straight forward but it is, most certainly, something that the legal system has struggled with over the years. The primary reason is that whether a company is `Offshore’ or not depends on where you are physically located.

Case in point, for someone located in the Cayman Island’s a U.S. corporation would be considered to be offshore. Subsequently, the broad definition for an offshore company is any entity that is located in a jurisdiction different to your own.

However, the modern offshore definition, which is in common usage in the media, relates primarily to tax haven status. Subsequently, a company domiciled in one of the well-known tax-free, or low-tax, jurisdictions is often referred to as an offshore company. Locations such as Belize, the British Virgin Islands, Panama, Switzerland, and Nevis are examples of typical tax-haven jurisdictions.

Probably, the key consideration for whether a company is considered to be offshore is its ultimate tax status. If you have an entity set up in one of the island “Tax Havens” you can guarantee that your bank and local tax body is likely to consider it a traditional offshore company.

Ultimately, the distinction between onshore and offshore can be a relatively grey one and depends greatly on your usage of the company.

Understanding Offshore Companies

Offshore companies have a long history and have been around for over 200-years dating back Vienna, Austria where Switzerland’s independence and neutrality was established. From that point on, the practice was picked up by the British Empire, who’s tentacles of control stretched throughout the world in both a financial and military sense.

is it legal to have an offshore company
Asset Protection is a Common Reason to go Offshore.

However, what really caused the explosion of offshore companies and trust structures was the advent of World War 1 where assets were routinely placed into a trust structure for their custody and protection. The period between 1920 – 1980 was the golden years of offshore business and their prominence in the global financial system continued to grow.

The system has continued to evolve over the decades and continues to serve legitimate needs for businesses and individuals worldwide. It is likely that you have probably dealt with many companies where their ultimate ownership structures flow through to an offshore company.

Common Motivations for Forming an Offshore Entity

Asset Protection

he media would have you believe that the only reason for going offshore is simply to avoid taxes or to criminally launder dirty money. However, nothing could be further from the truth with tax probably being one of the worst reasons to solely offshore your operations.

In fact, asset protection is the primary reason for seeking out offshore jurisdiction and remains one of the last ways that wealthy individuals can use to truly protect their hard-earned assets.

Unfortunately, the west has become highly litigious in the past few decades and there is a myriad of case law where successful entrepreneurs have lost everything due to lawsuits with little merit. It’s as true today, as ever, that the only people who win from a lawsuit are the lawyers.

Subsequently, the smart play has been to divorce yourself from your assets and place them out of reach, and in an offshore jurisdiction to protect them from any legal challenge.


The past ten years have seen a march toward less privacy in our personal affairs and is now culminating in the “outing” of company director’s personal information. As macroeconomic conditions deteriorate, we have seen a significant increase in the abuse and harassment of anyone who might have seen success in their lives.

Subsequently, in an attempt to hide from the veritable pitch forks, more people are looking to obscure their corporate and personal ownership records. The use of offshore companies and asset protection trusts can make it exceedingly difficult to discover who actually owns a particular business or property.

In short, privacy is a very good reason to move your asset holding structures offshore especially when you consider that, in the US context, privacy is really no longer guaranteed.

Jurisdictional Matters on Ownership

Firstly, before we get into discussing the legalities of offshore companies it is important to note that every legal jurisdiction in the world has different rules and regulations. I speak, primarily, in the US context but much of this opinion also holds for the major western nations.

Subsequently, before acting on any of this information, you should definitely seek out some legal advice from a trusted source.

Ultimately, in the US (and most western nations) simply owning an offshore company or trust structure is not illegal in any form. There are no US laws restricting the ownership of anything that this article has covered. However, depending on how you have set up your structure, there may be some reporting rules and the lodgment of additional statements and disclosures to the IRS or your local tax body.

Walking the Thin Line of Legality

We have established that there is no legal impediment to forming or owning an offshore company/trust but there are certainly regulations on how you can use them. Probably the biggest misconception is that simply setting up an offshore company exempts you from local taxes. This is simply not true and probably one of the biggest myths.

The reality is that your tax residency will be considered when assessing your liabilities. You can’t simply set up an offshore shell company and cease paying taxes or fail to report it. In this case, you will find yourself in handcuffs relatively quickly.

To establish offshore tax residency for both your corporate entity and you, takes careful consideration of your personal circumstances. Normally, it also requires establishing “economic substance” which involves employing staff and management, establishing a local office, and running the company in a hands-off fashion. It’s not easy to achieve and nor is it cheap.

You need to attack the overall problem with a holistic view to ensure that you are always on the right side of any legal distinction of whether you are simply offshore structuring or evading taxes.

Final Words on is it Legal to Have an Offshore Company

It’s important to note that offshore companies and trusts are perfectly legal to own and operate for legitimate, lawful purposes. There is no reason to be concerned about having one in your overall retirement/business plans and, as long as you operate them correctly, you will never have any regulatory issues.

However, it pays to have an expert familiar with the offshore environment to help you form the operate these entities in the appropriate way such that they achieve your desired outcome. Whether it be asset protection, or completely offshoring your business, speak to an expert and do it right the first time. Hopefully, we have addressed the key question on is it legal to have an offshore company.

Steven James

Meet Steven James, an offshore tax advisor splitting his year between Thailand and St. Lucia. With expertise in trust and company structures, he guides clients to financial success. In his spare time, Steven is a passionate writer and researcher, exploring diverse topics with curiosity and dedication.