In light of the illicit utilization of offshore entities by politicians and celebrities, the term offshore company has had a negative connotation, especially in Latin America. This conception was worsened by the publications of the “Panama Papers,” where information related to more than 200,000 offshores incorporated by the Panamanian law firm Mossack & Fonsenca were published worldwide. The fact that it was widely reported that dozens of companies formed by said company were used for illicit purposes, by people of dubious reputation. To make matters worse, as if it were possible, in Brazil, numerous politicians and businessmen embroiled in criminal investigations had their names linked to Panama Papers.
Although the vast majority of offshore companies are used for legitimate purposes, and are duly reported to the governing authorities (through tax returns and the like) of their owners, Panama Papers increased dramatically the bad reputation of offshores, in Brazil and worldwide.
To understand the purpose and legality of offshore companies, you must first understand the meaning of the term. The term “offshore company” refers to a company whose place of incorporation is different from the place where such company will have operations or different from the place of residence, domicile, or nationality of their owners. Common sense says that prima facie there is no illegality in participating in foreign companies.
Another expression with rather negative connotation, which generates as many controversies as offshore, is “tax haven.” Tax haven refers to a jurisdiction that has chosen not to impose any tax on activities within their borders. That is, by a government and administrative decision, some countries simply do not charge income tax, gift tax, or estate tax. The decision of a government not to impose tax payment obligations does not render the operations in such a country illegal or fraudulent.
The incorporation and utilization of offshore entities in tax havens is a standard legal practice.
There are several reasons to incorporate offshore entities in tax havens:
Buy Real Estate in Other Countries
Generally, foreigners use local companies to acquire title to property located in other countries. On some occasions, local laws do not allow foreigners to buy property under the individual’s name, therefore, the use of offshore companies is the only alternative. For example, in Mexico, foreign individuals can not hold title to real estate located within 50 kilometers from the coast.
In the United States, it is recommended that foreigners acquire real estate through structures involving American companies and companies incorporated in tax havens to avoid the incidence of additional income taxes and estate tax, which rate can reach 40% of the market value of property on the date of death of the owner.
Offshore companies offer asset protection at relatively low cost. Notably, offshore structures in jurisdictions that do not impose taxes offer asset protection with a with an excellent cost-benefit for the owner.
Operating a Business
Sometimes it is necessary or more beneficial to incorporate an offshore company to operate a business. Incorporation of operations in another country can reduce costs and taxes, and facilitate movement of goods and services.
Offshore companies incorporated in tax havens are an excellent vehicle for planning and implementing the succession of assets held by company. Generally, succession planning through offshores eliminates the probate and the need for heirs to wait years before receiving the assets.
The publications of “Panama Papers” played a key role in exposing certain illegal activities conducted by some individuals. But it is important to remember that these individuals are the exception rather than the rule. Offshores provide excellent mechanisms to protect and converse assets.
If you are planning to move to the U.S., the tax attorneys at Barbosa Legal can advise you on custom pre-immigration tax planning strategies aimed to preserve your wealth and minimize U.S. income taxes post U.S. relocation, while ensuring compliance of all U.S. tax filing and reporting obligations.
The Barbosa Legal team has ample experience negotiating, drafting, and enforcing all transaction documents and agreement. They assist with planning for future tax implications, creating enforceable transaction contracts, explaining economic conditions and currencies, and the ability to register businesses in multiple countries.
The attorneys at Barbosa Legal are able to offer comprehensive legal services to a diverse group of corporations and individuals, ranging from start-up ventures to established international companies. The advice is personalized and allows our clients to carry out business enterprises, obtain financing, maintain legal status, and create a competitive advantage.
Contact Us at Barbosa Legal to discuss the best alternatives for your particular situation.