The establishment of offshore companies is the most efficient way to save tax which allows the businessmen and entrepreneurs to use extra funds for the operations of their businesses. The incorporation of an offshore company which will serve as the holding company will certainly reduce tax liabilities. In this scenario, the offshore holding companies will be situated in an income, interest or corporate tax free environment. Usually, in tax haven jurisdictions such as Isle of Man or Cayman Islands the holding company enjoys zero rate tax. This means that business investors will be able to channel their tax savings to the operations of its subsidiaries that are located elsewhere.
Offshore companies are not liable to pay tax on dividends as well . It is also recommended that offshore companies should be the one to own or hold title over the properties and investments of the group of companies since the same will not be liable to any capital gains tax.
However, despite the attractive benefits of establishing a holding company offshore, this idea is being disfavored in some countries such as the US. If an investor wants to earn recognition in the business industry located in a highly regulated environment where the use and the utilization of offshore companies are being discouraged and are being considered as a mode of tax avoidance or tax evasion, the incorporation of an offshore holding company is not the right thing. What these investors should do is to establish a holding company in the US, for example, and incorporate offshore subsidiaries in jurisdictions which have tax treaty with the country of the holding company. In this way, tax savings will still be realized from the avoidance of double taxation.
It is worthy to note that what will work for one investor will nor necessarily work for the others. Tax and corporate planning are indeed a case to case basis depending on the industry and nature of business. A thorough analysis and feasibility study should be taken into consideration.
