Offshore (from English off shore - “off shore”, “off borders”) - this is one of the most famous and effective methods of tax planning. The legal basis of this method is the legislation of many countries, partially or fully exempting from taxation companies owned by foreign persons and registered as offshore.
Offshore companies were once perceived as an inviolable refuge for the storage of capital, which has illegal roots. However, today the concept of offshore has changed and at the moment provides ample opportunities for activities, including for the purchase of real estate. Offshore companies are legally registered on the basis of the principle of limited liability, that is, they do not meet assets for the obligations of their owners. Accordingly, when transferring assets to offshore territories, the owner of these assets can be sure of their inviolability.
A distinctive feature of the legislation of most offshore jurisdictions is a legally issued ban on the disclosure of any information about the owners or shareholders of an offshore company. Such information may be provided only upon the sentence of an international or local court. Thus, it is almost impossible to obtain information about the actual owners of an offshore company.
Offshore companies are never used as a standalone tool. They are almost always associated with an enterprise operating in the national tax regime. Most often, the registration of an offshore company is caused by the need to solve the problem of tax optimization. But this is only one of the possibilities of using the unique mechanism of an offshore company, among which are confidential business management, reducing dependence on currency legislation, improving the security of property ownership, including as a means of protection against unfriendly takeovers.
There are a number of factors due to which the use of offshore companies is considered especially beneficial in commercial activities.
British economic expert Tim Searly identifies three main reasons for the attractiveness of offshore companies:
- the ability to minimize inheritance taxes and avoid publicizing the names of the true owners of the company, and therefore property, because such a company can be registered as nominee directors;
- the opportunity to avoid misunderstandings with Sharia laws that apply in the UAE: for example, these laws are contrary to the transfer of property to a spouse after the death of her husband. If both spouses are registered as directors of an offshore company, then there will be no problems with the transfer of property to the desired person;
- the opportunity to avoid inheritance tax: if the property was acquired in the name of an offshore company, the transfer of ownership may take place through the sale of the company itself. In this case, you are selling not real estate, but a company that owns real estate. In addition, you will avoid taxes by investing your profits even in your own country.
According to UTC legal consultants, re-registration of property rights to a real estate object (directly to a non-resident company, or through a subsidiary) is an effective solution to the problem of seizing an enterprise with a view to its conversion and further resale. Since the property, the right of ownership, which is registered in such a way, falls under the regime of foreign investment, such property is guaranteed the most favored nation treatment and protection not only by national legislation, but also by international agreements on mutual protection and encouragement of investment. All international agreements ratified in accordance with the established procedure by Ukraine have the force of national legislation on the territory of the country. And in cases where national legislation is contrary to an international agreement, they have priority.
To ensure the security of the business, it is necessary to separate the institution of ownership of property and the actual commercial companies conducting operational activities, which means they are subject to tax and other risks. Property should be in maximum security, because it is the basis of business. Thus, operating companies carry out economic interaction with the company-owner of real estate on the basis of lease agreements, leasing agreements that give the right to use, but keep the property itself intact.
This article did not set the task of classifying existing types of offshore companies or describing all schemes and mechanisms for their legal use - we are talking only about a few options for the possible use of offshore companies, in particular when buying and registering real estate.
When choosing an offshore company, you can be guided by considerations of prestige of a particular jurisdiction, as well as practical business tasks that will be pursued in the course of using this non-resident enterprise. In any case, deciding to open an offshore company, it is better to resort to the help of a reliable consultant who will be able to quickly and efficiently respond to your requests, be able to solve the problems and provide not only legal, but also audit services, if necessary.
One of the most important factors for making a balanced and informed decision regarding the registration of an offshore company is the internal corporate law of the country of registration of the owner company, which must be well studied. First of all, we propose paying attention not only to the issue of registering a company (subsidiary), but also to working out a financial planning scheme and bank loans, opening bank accounts.
How much does it cost to register an offshore company? Although this question, as well as the question of choosing an offshore jurisdiction, is difficult to cover unambiguously, in any case it should be remembered: whatever the cost of legal services, it is much lower than the costs associated with the transfer of inheritance, the payment of various taxes and fees, including the number of capital gains tax. The price of the issue of business security is high in itself.
To date, the jurisdictions of more than 60 countries legally provide tax incentives for offshore companies. However, it should be said separately about the registration of offshore companies in Dubai (UAE), which also offers this type of service, but, unlike other countries, there is no negative background for this activity.
An offshore company registered in the Jebel Ali (JAFZA) Free Economic Zone can serve not only the Emirates, but foreign investors. Foreigners widely use this type of company to purchase real estate both in the UAE and beyond: minimal taxation and unlimited right to transfer property by inheritance in accordance with the owner’s desire make this tool popular.
Let's note the main advantages of opening offshore companies in Dubai:
- 100% foreign ownership is permitted;
- the company receives a license from JAFZA to conduct trading activities;
- the company may own real estate on the Palm Islands and in other projects of any UAE construction company;
- the company has the right to open an account with any bank in the UAE for daily banking operations;
- company management is granted residence visas if the office is opened directly at JAFZA.
Offshore companies, of course, are an effective tool to minimize taxes in the formation of a real estate portfolio. However, before registering an offshore company or buying property abroad, be sure to consult with specialists on offshore issues. You can get detailed information about offshore companies and clarify the cost of legal services in the legal department of the Ukrainian Trade Center.
Due to its independent status, and at the same time, being official representatives of many UAE structures, on the basis of signed bilateral agreements, we can offer you registration services and information and consulting support that allows you to create the optimal regime for the activities of your companies and enterprises in the UAE.
/ Material prepared by the legal department of the Ukrainian Trade Center in the Gulf countries /
