Muhammad Mohsin Ali

‘Offshore: As a holding company’

From my previous blogs, it has been established that the Offshores are used by individuals and conglomerates to hold shares and assets around the world. This part of the discussion is closely related to the asset protection discussion featured previously on this blog page.

An offshore is used by companies and entrepreneurs, as a holding company to hold shares in multiple companies, locally and internationally. Its benefit of anonymity and confidentiality makes it a hot favourite amongst entrepreneurs interested in holding shares and equity in multiple business ventures while safeguarding their interests and keep their identity a secret.

Let me give you an example; an individual having shares in Company X wishes to stay anonymous and get away from taxation on its returns. Conveniently, he/she can let the offshore take over his part of the shares.

Offshore for banking transactions will be highlighted in my next discussion.

‘Offshore: A Tax haven’
Offshore’s inception is based on ‘tax free jurisdictions’ principle. This allows for entities to avoid unnecessary taxation in their local place of operation and repatriation of capital/profits in a foreign country. An offshore allows the owner to invoice clients internationally and use its bank account to facilitate transactions.

Source: Guardian UK

Scenario: Company A (Supplier) sells goods to Company B (Buyer). In doing so there are multiple taxes involved that directly or indirectly affect either the costs of the goods or the profit margin. If Company A has an offshore Company C, they can invoice its client, Company B, through this entity and use its bank account to avoid incurring surcharges.

There is distinction between avoiding taxes and evading taxation. Offshores are used by conglomerates or individuals to avoid unnecessary taxations, for example, for transferring ones ownership of the asset to its next of kin.

On the contrary, evading taxes is considered an illegal practice while a few even shun this legal structure altogether. In this case offshores are used to evade all sorts of taxes like income tax.

In my next discussion, we will look in to the element of Asset Protection.

The term offshore denotes an activity which is outside the jurisdiction of one’s primary operation. There are multiple offshore jurisdictions out there that provide a tax free haven for corporates while maintaining anonymity.

My Following discussions will feature various key points of an Offshore that stands it out from the rest:

Anonymity: An offshore company ensures anonymity of the operator. While only a few offshores publicise the director’s information, all of them ensure anonymity of the owner/shareholder. Its formation is beneficial to the individuals who are keen on keeping their details private, for example, for financial transactions, avoiding taxes or holding assets, etc. The anonymity of an individual is comprised only in the case of illegal or criminal activities by the offshore company. Non-conformity with the international regulations and laws can also lead to this disclosure of information to the enforcing authority. Economic turmoil has given an exponential rise to this legal structure for avoiding taxes, anonymously.

In my next discussion, we will discuss its feature of Tax-free haven