Some countries and regions have formulated some especially loose tax systems to attract worldwide investors coming to those countries to set up Offshore companies (also known as offshore companies) This kind of company generally is not subject to any tax, except an annual license fee. The world's leading offshore company incorporations are in the British Virgin Islands, Cayman Islands, Bermuda, Bahamas, etc., sharing the common characteristics among them: The incorporation procedure is simple and convenient, free movement of foreign capital, without conduct business activity in incorporation area the company is not subject to any tax, as well as the company information are entitled to high confidentiality.
In recent years, the British Virgin Islands, Cayman Islands, Bermuda and other offshore places have become the favorable places for company incorporation for global enterprises. Offshore company incorporations, to a certain extent, reduce operating costs, so the enterprises can save large sums of tax expenditure by operation of offshore companies.
Setting up a company in offshore jurisdictions area, with rational planning, can effectively transfer and accumulate the profits from the third country sales or investment. The typical approach is: a company wishes to invest in country B, first set up offshore company in the low-tax island, and then invest to country B in order to achieve the purposes of reasonable tax avoidance.
To set up offshore companies in the low-tax countries or regions is the most common application used for international trade. Introduced offshore company can gain a substantial tax reduction opportunity in international trade. If a company wants to produce products in a country, and sells it to another country, then the resulting profits can be accumulated in the offshore companies without paying taxes. Such as export products for sales to offshore company in the Cayman company and then resell it to other countries; offshore company accumulates the resulting profitsand is not subject to taxes.
Another application of offshore companies is used to control the investment of subsidiary, joint companies, listed companies, private companies and joint venture. In many cases, capital gains arise due to special investments, which is not subject to tax. On the other hand, the use of offshore companies set up in no-tax or low tax jurisdictions area with the double taxation agreement with the contracting countries, can greatly reduce the withholding tax on dividends.
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