What are the disadvantages / pitfalls of incorporating offshore?


6

I am looking into setting up a company for a business I'm bootstrapping, that I plan to finance by doing consulting/freelancing. So I would like to set up a legal entity to do business.

The main issue is that I don't necessarily want to incorporate in my country of citizenship. I'm currently living abroad and plan on moving around the world in the next years.

The hurdles of incorporating in the origin country have to do with the necessity of having an office space, accounting, and lots of administrative details that I would like to minimize, at least for the beginning, until this actually turns into a profitable business, or there's actually a need to hire people.

Based on my research of incorporating offshore I don't see major disadvantages of following this route, but at the same time offshore companies don't seem to be popular.

I was wondering why this is. I understand that some of the benefits of zero tax are non-existent any more for a lot of the western world (because of new legislation), but other than that, what are the disadvantages of incorporating offshore? Or why should I not incorporate offshore?

Also if anyone has first hand knowledge with this I would be very interested in their experiences.

Momentarily Seychelles seems the most attractive to me.

Incorporation Offshore

asked Mar 28 '11 at 05:22
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Mircea Grelus
782 points

1 Answer


3

You need to understand two separate concepts exist about companies in "most" legal systems: place of incorporation, and place of domiciliation. Domicile generally determines questions of taxation and jurisdiction.

Accordingly, if you want your company to domiciled in the Seychelles, you will need local directors to run your company. This can be awkward for a trading company, and will certainly cost money.

Secondly, offshore jurisdictions usually require you to hire some sort of local agent for the company, and frequently to have locally-based auditors.

If you were going to hire these professionals anyway, then clearly it makes little difference. The advantage of a local incorporation is that it is frequently less hassle in a place with a well-developed and efficient legal system and government. It seems like you have decided that would not describe where you live.

One last consideration is that some people may hesitate to deal with a company incorporated in an offshore jurisdiction, particularly one that is outside of Europe. For that reason, I would suggest that you consider Cyprus, Gibraltar, or any other tax-advantageous jurisdiction within the EU, especially if you are within the EU. You may decide that nowhere in the EU meets your needs, of course, and that you are not that afraid of other suppliers refusing to deal with you.

answered May 19 '11 at 16:35
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Marcin
526 points
  • Note: Seychelles IBCs have **NO** auditing/accounting requirements. – Jberger 5 years ago

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Incorporation Offshore