Avoiding Disaster When Using Offshore Companies

Turner Little Ltd look at whether going offshore is the right thing for you as it is not suited to everyone or to all circumstances.

Manifest are the stories of people setting up offshore entities be it for trading or asset protection or simply confidentiality only to find that when they tried to crystallise those assets or draw down any profits they had already disappeared or had become enormously expensive to resume control of. If going offshore is the right thing for you, and it is not suited to everyone or to all circumstances, then here are a few simple tips to avoid you being ripped off or to avoid you making the wrong decision:

The Do’s

1. Do use a reputable and regulated firm and discuss with them at length your ideas, your aims and your future plans. They should be trying when talking to you to glean as much information as possible about you, your work, your family and your circumstances generally. They should want to know everything about your business and personal circumstances if they are to guide you properly on what you do next. Clearly this involves in-depth and confidential discussions and many firms will charge for what is after all a heavy front end workload. Turner Little Limited will not charge you for this initial consultancy work no matter how long it takes; only once you have agreed precisely what structure you want will any price be quoted. Up to that point you can still walk away without it costing you anything.
2. Do use a firm which has been about for a number of years. The fact that they have been around for a while should of itself give you some comfort. Be wary of new firms with new web sites. Check that they are Regulated; if not and they are a UK firm be very wary as they are either very tiny firms with extremely low turnover or they are acting illegally.
3. Do use a UK firm particularly if you are UK based. They are nearer at hand if anything goes wrong and you have a much better chance if it does in resolving any dispute to your satisfaction. Even if you are not UK based as a client it would still be prudent to use a UK agent. This is simply on the basis of the high level of regulation in the UK as well as the information available in the UK on businesses and therefore your ability to check on the firm you have chosen in advance.
4. Do consult with more than one firm. There are not that many around who specialise in the Offshore-World but they do range from relatively small specialist businesses to huge International accounting practices; needless to say prices vary accordingly. You would be well advised to choose the specialist firm unless you have very deep pockets.
5. Do compare what you are being offered by different firms and at what cost on a like for like basis. The firm which seems cheaper may not in fact be cheaper. It is very easy in complex structures to be given a basic cost which seems low and attractive only to be surprised by the “add-ons” which may not only be essential but are expensive if any recommended structure is to work as discussed. Try to get an all-inclusive price and be careful that you are not asked to pay for “extras” which you really do not need.
6. Do make sure that you understand fully all the implications of what you are doing and bear in mind that if the structure you are setting up involves financial transactions you need to be especially careful that what you are doing does not cross the line from tax avoidance to tax evasion. Tax avoidance is legal whilst tax evasion is a criminal offence. A good agent such as Turner Little should be able to tell you if what you are doing is the latter and indeed will refuse to deal with you if it is clear that this is what you intend to commit.
7. Do make sure that you obtain independent advice on the tax implications of your plans. Turner Little although knowledgeable on taxation in both the UK and several overseas jurisdictions, are not qualified accountants and will refuse to give you tax advice recommending always that you seek independent advice in this area.
8. Do make sure that you obtain solicitor’s advice on the legalities of what you are doing. Again, Turner Little, whilst experienced and specialist in Company Law, are not solicitors and will not give advice in this area. It is especially important if you are considering a structure for asset protection of property or other assets that you have made sure that you know the implications.
9. Do expect there to be an annual cost to maintaining an offshore structure.
10. Do get an indication in advance of what the annual costs will be. These will often vary slightly due to the vagaries of exchange rates or changes in costs abroad but generally speaking they are fairly predictable.
11. Do make sure that you fully understand any tax implications both at home and in the jurisdiction you choose for your structure. Your agent should be able to give you a lot of information but remember the recommendation to seek independent tax advice.
12. If you are UK resident do remember that you have a legal obligation to disclose your income derived anywhere in the world to the tax authorities.
13. If you are trading an offshore company do keep proper records, do make proper agreements even if these are between your company and yourself. You never know when you may want to produce them as evidence of your good intentions in what you were doing to counter any suggestion that you were simply trying to save tax.

The Do Nots

1. Do not go direct to an offshore jurisdiction to put your arrangement in place – it is very difficult to assess who you are dealing with and whether they have integrity and are honest can be incredibly difficult to judge. It is much too late to find out when you cannot recover your money or do anything else with the structure because you are dealing with the wrong person. A reputable UK agent knows many overseas agents and knows who and who not to engage with in many jurisdictions.
2. Do not use a jurisdiction where it is mandatory to use a local person as director on your company or as a signatory on any local bank account. Getting things changed or getting money back out just gets much more difficult.
3. Do not put your company and banking in the same jurisdiction.
4. Going offshore is not the right thing for everyone or for every purpose – do not do so without first exploring all the implications. If a reputable agent says “it is not for you…” trust him; he is turning money away.
5. Do not make the mistake of thinking that an offshore structure will save you oodles of tax – it may do but must be correctly legally structured and operated legally to do so. It is very easy to save tax by cheating but that is criminal, the trick is to do so, absolutely legally.
6. Do not be tempted by cheap fees or deals or offers of massive discounts if you, “do it today.” All firms need to make a profit – a reputable firm not only needs to make a profit but to retain their position in the market place. As for most things in life, “you get what you pay for.” Having said that, there is just the odd occasion particularly approaching deadlines for annual renewals to get a bit of discount from virtually anyone.
7. Do not expect an extremely high level of confidentiality in all jurisdictions – some now share some information particularly with the USA, UK, and other EU countries. Listen to your Agent in this respect. If he is up to date and au fait with what is happening in the world, he will know what will and will not ordinarily be shared or disclosed.
8. If placing assets in offshore ownership DO NOT make the mistake of not covering the annual cost and your exit strategy. Again a good agent such as Turner Little Limited, will know how to structure you so that this will not be a problem; they will also be able to advise you on the expected costs of given scenarios even the most unlikely ones.

Finally, tread carefully, take the right advice, stay legal and enjoy becoming an international entrepreneur.