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The offshore financial sector is larger and more pervasive than any individual national economy, and it is used by business in many different ways to optimize tax structures. Currently, more than half of the world's money is offshore. The advent of the Internet opens up new and even more interesting possibilities.
Those days when offshore legal entities were for super reach people and large enterprises are over. Offshore legal entities and bank accounts become more affordable and easier accessible than ever. It has created a very strong demand from two new group of customers.
First group includes middle class individuals, who would like to preserve their hard earned wealth by moving their assets offshore. Doctors, engineers, corporate managers, nurses, etc. buy properties and move to low tax jurisdictions upon retirement.
Second group consist of middle- and small-size businesses, which conduct business internationally. Import/export companies, companies offering their goods and services online, consulting companies with international clientele are the most frequent buyers of offshore legal entities.
The most common use of offshore companies.
Doctors, lawyers and other wealthy individuals transfer ownership of their assets to controlled offshore entities. Thus, it protects assets against malpractice and other possible claims, helps to save assets in case of problematic divorces, etc. Corporations use offshore structures to protect assets against creditors, product liability, etc.
Trade, Marketing and Distribution
For international business it is often possible to use an offshore company as an intermediary in which part of the profits of the operation can be accumulated in a low-tax jurisdiction. Even for local businesses in high-tax jurisdictions, it may be possible to separate the selling part of the process from the manufacturing part, and send it offshore, especially now when e-commerce infrastructure may be easy organized in almost any offshore jurisdiction.
Offshore companies are widely used for holding foreign subsidiaries and receive dividends or interest on loans from them in a tax-efficient manner, concentrating the profits and losses from subsidiaries in one low-tax area, obtaining financing from institutions that are themselves free of high taxation.
Holding of Intellectual Property
Offshore companies can be involved in software and other intellectual property development, own patents and trademarks licensed to other companies. A a result, businesses can account for significant profit increase, tax savings and minimization of reporting and regulatory compliance.
The gains from investment are exempt from all local taxes or very lightly taxed in offshore jurisdictions.
Real estate holding
Residential and commercial properties can be held by an offshore company.
Inter-Company Borrowing, Lending and Leasing
An offshore company, which is owner of machinery and equipment, can lease the equipment to a company in an onshore jurisdiction with profits for the operation held offshore. Also an offshore company can provide loan and collect interest from a company in an onshore jurisdiction.
Minimum tax, liability and operating costs.