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Misconception about Offshore Company

Offshore company comes with a stigma. Most of us still get confused with the concept and end up believing in certain myths regarding offshore banks. Some cringe at the mere mention that they can keep their money safely in an offshore bank account. Images of fast, expensive boats, drug kingpins, and white suits come instantly to mind. Moreover, the proliferation of bad Hollywood movies, television shows, and negative portrayal in the press has not altered this perception.


These myths have been misleading people into believing that anything related to offshore activities should be avoided, as it may lead to some trouble. In this article, we are going to have a look at some of the myths regarding opening an offshore bank account and try to solve them.




#Myths 1: Offshore Company is Illegal

One of the most common myths about having offshore account is considered having offshore account as illegal and relate it to money laundering. But the truth is offshore banking is allowed in many countries and is highly regulated.


A lot of countries practice this as it will bring in foreign investments, which will eventually strengthen the country’s economy and boost GDP. Although it is legal, however there are still a small percentage of offshore owners are misuse it for illicit affairs.


#Myths 2: No Tax for all the profits

A lot of people have been thinking, as long as the profits are derived from offshore company that pay no tax, then it shouldn’t be taxed by their tax authority in the home country.

However, it is no longer true. Countries that apply worldwide tax system, like U.S., China, Australia, Vietnam and etc., all the profits that generated from overseas, is still subjects to the tax of their original taxpaying country.


Especially for US citizens, or green card holder, all the information of their account incorporated in overseas will have to be exchanged back to Tax Department in US under FATCA.


It will be the same for the countries or jurisdictions that applying territory tax based system, such as Singapore, Hong Kong, Malaysia and etc.. The tax authority will have to make sure the permanent establishment of the company is out of their territory. Permanent Establishment is mean the actual place of operation of the company, although the offshore company is incorporated in tax free jurisdiction, but the profits are subject to the tax of the jurisdiction where the actual place of the operation.


#Myths 3: Tax Authority will not be able to know the foreign account

In the old good times, as long as we park our liquid assets in overseas, it will be out of the radar of the country where we paying tax. However, it is no longer true nowadays. Common Reporting Standard (CRS) is implemented on year 2016. Since then, more than 100 countries has signed CRS, which including of major financial centre like Hong Kong, Singapore, England and Switzerland.


Under CRS, bank will have to exchange the information of the bank account belong to the foreigner to their original taxpaying country, which also known as Automatic Exchange of Information (AEOI). As long as we have incorporated an account in overseas, tax authority will known it under AEOI.


#Myths 4: Tax Reduction is the Only Benefit

Most of the offshore jurisdiction indeed no income tax, VAT, capital gain tax, dividend tax or withholding tax, however, there are more benefits than that.


Offshore company can be act as asset protection arm. It can protect your assets to be hammered by your country’s tax authority due to it is under the different jurisdiction and applying different laws. Offshore company is often used to act as holding company also, to hold intellectual property, shares of companies, vessels, property and etc.


Moreover, maintain an offshore company have relatively low maintenance cost and easier to set up comparing to onshore company. Unlike onshore company, offshore company is not compulsory to submit audited report to the tax authority, and it has pay no tax, make it a lot cheaper to maintain, only annual fee is applicable.


Last but not least, the minimum capital of the offshore company is flexible. No minimum capital is required. You may adjust the capital of the company based on the actual business operation.


#Myths 5: It is Only for The Rich

In fact, there are a lot of SME customers that doing well in their business incorporate offshore company to have a better tax management. Although rich personnel have more rooms to allocate their assets, however the same structure can be applied to doing-well business person, as the cost being charged is fix and is low.


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