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An Introduction to Setting Up an Offshore Company in Singapore
Setting up an offshore company often gives off an impression of unsavoury business dealings. One can hardly have failed to notice that it is one of the preferred ways in which shady people and businesses hide their ill-gotten wealth. The recently leaked Pandora Papers, for instance, outline many alleged examples of wealthy politicians and world leaders who made use of offshore companies to make secret transactions and investments away from the scrutiny of tax collectors and other authorities.
However, there are also many legitimate reasons why one would wish to set up an offshore company. Central to many of these reasons is the fact that one should not be restricted to conducting business only where they were born. If there are advantages to be gotten elsewhere, there is no reason why someone cannot reap these benefits legally and through legitimate business practices simply because they are a citizen from somewhere else.
Here is some information on why people would legitimately set up offshore companies, and how to do so.
What is an offshore company?
An offshore company is one which is incorporated in another jurisdiction than where its principals (directors, shareholders, parent company etc.) are located. It can hold a completely different name from its parent company, and engage in completely different business activities as well, so long as it meets the requirements to do so which is set out by the jurisdiction in which the offshore company is set up.
Legitimate reasons for setting up an offshore company
Some of the most common reasons for having an offshore company are:
· Financial privacy and safety
· Meeting legal requirements
· Investment funds in tax-neutral jurisdictions
· Good legal framework
· Superior banking infrastructure
· Asset protection
· Avoiding capital gains tax
· Favourable tax rates
Admittedly, not all of these reasons are particularly applicable for our Singapore towkays, since Singapore is already one of the best jurisdictions in the world when it comes to the efficacy of our legal system and our banking infrastructure, our lack of corruption, and our relatively low tax rates.
In fact, Singapore is actually a very popular location for offshore companies to be set up by foreigners!
Nevertheless, there are still reasons why someone from Singapore would set up an offshore company. For instance, a common reason to do so is to meet the legal requirements for buying property. Many countries do not allow foreign companies to own property, thereby necessitating the need for the creation of a local company.
There are also countries that offer even better tax rates than Singapore. For example, Estonia famously charges zero corporation tax on retained and reinvested profits.
How to set up an offshore company
For example, all it takes is a simple Google search, and one can find multiple websites offering their services to help incorporate a company in the British Virgin Islands – a popular option due to the fact that no minimum capital is required, nor any annual reporting or auditing. Other perks include the fact that income is exempted from local tax. In fact, it seems the only major caveat is that offshore companies must not actually engage in business activities in the British Virgin Islands. (This is generally not a problem; there is hardly any business to be done on an island with a population of only 25,000 anyway.)
To set up an offshore company, one must first be aware of the requirements. Generally, the company name must be subjected to approval, and there is a stipulated number of directors and shareholders that the company must-have. A corporate secretary must also be appointed. Lastly, the company must have a registered address within the foreign jurisdiction.
If one wishes to make use of business incorporation services, they will generally handle the process once the requisite paperwork is done. In most cases, they will also provide a registered address for the purposes of the incorporation.
Asset protection and confidentiality can be a double-edged sword
Many of the most popular locations for setting up offshore companies are lauded for their business information confidentiality. This is why many people choose to set up an offshore company in these places to protect their assets from creditors, plaintiffs, attorneys, or even ex-spouses.
St. Kitts and Nevis, for example, specialises in letting its clients create corporations with greater anonymity than almost anywhere else on earth. Ownership information is kept so secret there that even the island’s own corporate registry does not always know. In addition, in order to bring legal proceedings on Nevis, one must first file a bond of $100,000 with the court as proof that the case isn’t frivolous.
The point is that it is almost impossible to retrieve any corporate information from these offshore jurisdictions, especially as a private citizen with a civil claim against any of their companies’ owners.
However, a great deal of confidential information has been leaked in recent times, such as the Panama Papers, Paradise Papers, and the more recent Pandora Papers. These leaks have shown that many people have used such offshore companies for tax evasion and avoidance, and illegal transfer purposes.
This inevitably gives offshore companies, particularly those in jurisdictions with the most confidentiality, a very bad reputation. Any individual or business who is known to have incorporated a company offshore almost automatically gives off an impression of being suspiciously shady. The potential ramifications of such a negative image are not inconsiderable.
Setting up an offshore company is not difficult or particularly costly. The reasons for doing so are often deemed to be immoral, if not outright illegal. However, there can be legitimate reasons.
The stigma of offshore companies does carry a certain weight though, and, as such, one may wish to consider whether the benefits of opening an offshore company would outweigh the potential detriments.
Read also: Things to Take Note When Setting Up A Company in Singapore
Read also: Roles and Responsibilities of a Company Secretary
Read also: What Are Special Purpose Acquisition Companies (SPACs) and What Do You Need To Know
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