By doing business abroad, an individual or company will generally benefit from legal ownership and management structures, just as they would in their home country. This is done to make the management of the business more efficient, to increase access to investment capital and, on occasion, to reduce the tax consequences of various aspects of the business.
A holding company limits its activities to holding and managing real estate investments, stocks and other assets, but does not manage these entities or engage in business or commerce through these entities. entities. A famous example, albeit in the United States, is Berkshire Hathaway, the brainchild of billionaire Warren Buffet, which owns billions of dollars in stock but does not manage the companies involved. On a smaller scale, where most of the world resides, a holding company can hold shares, property, etc., and manage those investments. It is common for a holding company to have shareholders who invest directly in the holding company and not in the individual holdings of the company. The particular laws and requirements needed to set up and run an offshore holding company vary from jurisdiction to jurisdiction.
A company whose registered office is organized and managed in an offshore jurisdiction. Its sole business is to serve its affiliate through management and administration services. Such a company is usually incorporated in a tax-efficient jurisdiction. The company does not buy or sell products or engage in financial transactions as a holding company does. The parent company is a fixed installation owned by an international company.
The registered office will be located in a carefully chosen foreign jurisdiction whose laws allow it to act for the benefit of one or more companies. Its sole purpose is management control, service and coordination, usually within a specific geographic area. A common situation is that the head office company benefits from a tax deduction insofar as it can base its taxation on a national profit generally between 5% and 8% of the total operating expenses. Depending on the laws of the host jurisdiction, profits may not be taxed at all and expenses may not be used in calculating taxation. Many aspects of this type of company depend on the extent to which the host jurisdiction tries to attract foreign companies and the benefits will vary accordingly. As with many offshore businesses, it is essential to have the advice and expertise of someone familiar with the jurisdiction and its laws.
The Practical Use of Holding Companies and Headquarters Companies in Offshore Business
Offshore companies can be set up entirely to take advantage of tax benefits in the host jurisdiction. Offshore companies can also be formed to take advantage of excellent offshore business opportunities. The ideal situation is to set up an offshore business in a way that maximizes business efficiency and profit opportunities and minimizes taxes through the judicious use of offshore legal structures.
Holding companies and other holding structures
In the offshore business and legal world, it is common for an individual or company to form a legal entity such as a trust in New Zealand or a private interest foundation in Panama in which to hold assets. These assets can be real estate, stocks, works of art, personal property such as planes and yachts, bank accounts and international business companies. In many practical respects, these entities operate like holding companies. However, they provide other characteristics that the individual or company may or may not wish to include in their business planning.
A private interest foundation in Panama has no owners. It has beneficiaries. Its investees will do business normally, but the benefits and ultimate control rest on the basis of use for the benefit of the beneficiaries. A private interest foundation in Panama will generally be used instead of a trust or will to pass assets to heirs, as the foundation documents are simply amended to change the beneficiaries upon the death of the person who has created the foundation.
Similarly, an offshore trust will hold assets similar to a holding company or foundation, but will be created specifically for the purpose of passing assets to the heirs of the person creating the trust.
One aspect of offshore-created trusts and foundations not typically found in an offshore holding company is a feature of asset protection and confidentiality. Trusts and foundations are generally set up in such a way as to protect the privacy of principals. It is usual that the names of foundation beneficiaries, trust beneficiaries, shareholders of international business companies and holders of offshore bank accounts are not publicly available under any circumstances.
The Practical Use of an Offshore Headquarters Company
Generally, a headquarters company can be used only for administrative purposes in running various offshore business ventures. Concerns with setting up such a company will generally have to do with the cost of operating in a foreign jurisdiction and how effectively this management tool will operate. Staffing will be important, as will any requirement by the offshore jurisdiction that local staff be hired under a quota system. In addition, communication facilities and transport infrastructure will be important both for the daily transmission of information and for the movement of key personnel.
To the extent that tax considerations enter into decision-making with a foreign-based company, the issue will arise early in the decision-making process and will be weighed against other practical business considerations and costs.
To the extent that an individual or company setting up an offshore business chooses to use a head office company in the operation, they may also choose to integrate that legal entity with other offshore solutions such as offshore banking, offshore international business companies and foundation trusts. It is best to do this planning very early in the game if asset protection and privacy are major concerns in the business.