There’s been a lot of media attention on offshore companies and safe haven entities in recent years. However, the public conversation misses the value and underlying need for these offshore entities.
Businesses, regardless of their size, are now more global than ever. Every industry is directly competing with rivals from different parts of the globe, either online or offline. Meanwhile, the barriers to trade and capital investments have been drastically reduced since the turn of the century. In this environment, spreading business operations across borders may be more of a necessity than a luxury.
Here are some of the reasons entrepreneurs and small business owners might want to consider setting up an offshore business:
The fundamental need for privacy isn’t respected equally across the world. In certain countries, governments use personal financial data to exert political pressure on wealthy individuals. In other parts of the world, affluent people are at greater risk of identity theft, data breaches and compromised personal security.
With this in mind, moving assets or setting up a business in a country where data is more tightly protected makes sense. The preferred destination for privacy seekers is Switzerland. The tiny European state is synonymous with security and data privacy. The country also offers a robust legal framework and a network of service providers like Swiss Financial Company & Trust SA that streamline the process of setting up a Swiss company and hiring a tax representative in Switzerland.
Another reason to consider an offshore firm is the tax advantage offered by different jurisdictions. Singapore, for example, has one of the lowest corporate tax rates in the developed world. Estonia doesn’t charge a corporate tax if the net income from a business is reinvested.
Tax havens like the Cayman Islands may be ideal for location-independent consultants and freelancers who want to minimise their tax burden. There’s nothing wrong with seeking to minimise the effective tax rate on your business if your operations are spread across multiple regions.
Access to better resources
An offshore entity could give your business access to better infrastructure, legal frameworks, or the natural resources you need to stay ahead of the competition.
Regulations in different parts of the world could prove to be a hindrance for certain business activities. For example, capital restrictions and protectionist policies in some countries could prevent a foreign entity from launching factories, buying property, or invest in local companies. In this case, setting up an offshore company to complete transactions and hold local assets may be justified.
An offshore entity may be the perfect instrument to mitigate the risks of political instability, economic turmoil or currency volatility. For example, British businesses have already started registering European subsidiaries to limit their exposure to the fallout from Brexit.
Despite what the media might have you believe, there are completely legitimate reasons to launch a foreign company and diversify your business to multiple jurisdictions. At a time when the global economy is getting increasingly intertwined, spreading your operations across borders may be the most pragmatic long-term business strategy you can adopt.