As a founder who is looking to set up your new business, your options are virtually limitless. These are important decisions, but where to start? 

We get that. So the purpose of this article is to shed a bit more light on something we don’t talk about enough: onshore vs. offshore businesses, their characteristics, misconceptions and differences.

Ok ready? Let’s start!

 

The basic basics 

What is an offshore company? 

First things first. In its simplest definition, an offshore company is a foreign-based corporate entity. In other words, a company that is geographically located elsewhere than your home country. But it’s not only that. 

Offshores are typically portrayed as exotic Caribbean islands. But also many onshore jurisdictions have special regions with different economic policies such as Offshore Financial Centers (OFC) like Luxembourg, Netherlands or Switzerland. 

So to keep things simple, think of offshore companies as having a legal entity elsewhere than where your citizenship is based with different political and economic policies.

 

What is an onshore company? 

If offshores are outside of your home country, then onshore companies are legal entities based in your country or nearby countries. Beyond physical location, some define onshore locations also as developed financial economies such as the U.S., or the United Kingdom. 

Additionally, onshore jurisdictions are often referred to as regions that do NOT offer special economic policies such as territorial tax regimes or non-disclosure treatments. Onshore companies typically do the majority of their businesses in the country of registration. Therefore they need to comply with all the local laws and regulations as well. 

 

How about places like Hong Kong and Singapore? 

Onshore-offshore hybrids. These are the interesting siblings that fall in-between of the entire spectrum. We call these the midshores. If Malta, Liechtenstein and Ireland ring a bell, they are examples that fall under this category.

Combining the best of both worlds, these hybrids typically offer the robust economic stance and international transparency standards as well as special economic benefits such as investment-friendly laws and territorial tax policies. 

 

Why choose an offshore over an onshore company?

Numerous reasons. Offshore jurisdictions are typically designed for cross-border international businesses that are not tied to a single location. Versatile entity types, light bureaucracy from the regulation side, attractive tax policies (often 0% tax on foreign-sourced income) and strict privacy laws for those who value confidentiality…and this is just scratching the surface. 

There are multiple use cases where offshores are simply a better choice for the business, for instance when you’re looking to set up a holding company to gather all the Intellectual Property.

Offshoring this protects your assets, limits your legal liability, grants more security for your shareholders and enables more freedom for foreign-sourced investments. 

Maybe you’re a digital nomad and don’t have a fixed place of residence. Your office is your laptop and you’re roaming the planet as you go. In that case, offshoring your business can be an ideal option as you want to keep the official requirements, reporting and tax policies minimum.

 

Real-world example

• Swedish entrepreneur is in eco restaurant business and sells licenses to franchise her branch across the world.
• She sets up an entity in Panama while her actual business operations are mostly in Europe. The purpose of this is to group the otherwise distributed and separate IPs of the branches.
• She uses the Panama company to hold the licensing rights, trademarks and other assets. This is an offshore company setting. 

 

Why choose an onshore over an offshore company?

While offshore businesses enable more freedom in cross-border operations, protect your assets with minimal reporting requirements, onshore strategies works the opposite. And they, too, have their numerous advantages. 

For those who intend to reside in one place and do their business there, why look elsewhere?

Familiar legal landscape for both personal and corporate income, tax policies, local banking or more traditional, offline businesses, this may be the ideal setting to operate in. 

Many associate offshore jurisdictions with tax havens and therefore they still ride with a questionable reputation. To be ignorant of this factor would be naive at best, so if you’re in a rather traditional business where it’s important to be able to prove your tax transparency or legal legitimacy, then onshore companies will have an easy win. 

Most offshore jurisdictions tend to be light on mandatory reporting, which often translates into their benefit, but in proving your reputation and keeping things straight and simple, onshore requirements on annual reporting can also be your sought-after benefit. 

 

Real-world example

• American chef starts his own business in selling hot dogs on a food truck. Wants to keep things simple, works whenever he wants to.
• He sets up a Wyoming entity to separate his personal liability, and chooses to be taxed as an individual as all his business income comes from within the U.S. and this is also where he resides. 
• He applies for a local food seller’s license and operates through his local bank accounts. This is an onshore company setting. 

 

What about Korporatio’s Smart Companies? 

Compared to traditional company types, Smart Companies are a different breed.

With this, we’re talking about a completely paperless entity model that governs things with built-in compliance. And it’s all automated. 

The main difference between traditional companies and Smart Companies in simple is this: 

in order for traditional companies to execute certain tasks in corporate governance such as shares transfers and board voting, you need to carry X amount of steps, processes, filings and payments. This usually means quite a bit of time, money and agencies or law firms to help you out on things. These steps are legal requirements so mandatory to you.

Smart Companies, on the other hand, simply remove all these steps and replaces them with a few clicks on a digital dashboard. The necessary processes are still there, and they’re still mandatory to you, but we’ve just streamlined those steps so it’s faster, cheaper and less hassle to execute.

That’s all. It’s sort of like sending an email versus sending a letter via traditional mail. 

 

Are Smart Companies offshore or onshore companies?

Smart Companies can be both. So it depends on the jurisdiction. 

Legally speaking, Smart Companies are recognized as private limited liability companies. Our model runs on code, which is new and exciting. But this also means, in order to keep things compliant, we need to work with jurisdictions one by one to expand our reach.

Today, we offer all three: offshore, onshore and midshore Smart Companies. Let’s take an overview of all of them:  

Smart Companies in Offshore Jurisdictions

• Republic of Seychelles 

Dynamic, cost-effective and versatile. This was the very first jurisdiction where our Smart Company model got approved.

To get started here, you only need one director, one shareholder (which both can be you yourself) and no restrictions on nationalities. No paid-up capital needed and full tax exemption on all foreign-source income. 

This is a very telling example of how light on red tape offshore companies can be. It’s an optimal place if you’re looking into holding companies, estate planning and accessing the rapidly growing African market. 

• St. Vincent and the Grenadines 

This one’s for those who value security, privacy and established financial services. In fact, Smart Companies in St. Vincent add an extra layer of security – our technology makes sure your data is tamper-proof, securely stored with all actions trackable and traceable to you and your company owners. This is on top of St. Vincent’s privacy law which is considered one of the strictest in the world.

Similar to Seychelles, only one director and one shareholder is required to get you started. Here you’ll get a light-weight entity structure, zero corporate tax on foreign-sourced income and a developed banking sector with multiple options.

• Republic of Panama 

Often referred to as the most popular offshore jurisdictions in the world, Panama Smart Companies enjoy its established jurisdiction and well-developed financial landscape. 

Seriously diverse, this may suit you the best if you’re looking to set up a holding entity to gather otherwise distributed assets. Similarly, if you’re in international trade, international logistics or supply chain, and real estate.

Smart Companies in onshore/midshore jurisdictions

• Wyoming, United States 

Part of the U.S, this is officially an onshore jurisdiction but for Wyoming as a state, there are offshore characteristics in this. Wyoming Smart Companies are legally compliant with Wyoming LLCs, therefore all same laws apply. 

One of the best things about this entity type is how light the structure is. It offers the legal protection of limited liability yet it won’t suffocate entrepreneurs with a heavy burden of bureaucracy. As an owner of Wyoming Smart Company, you get to decide everything from whether or not you choose to reside in the state or not and even how you are taxed. 

And – a special shout-out to all blockchain-enthusiasts out there. Thanks to Wyoming’s Blockchain Coalition, you’re yet to find a more blockchain-friendly jurisdiction than this one.

• Singapore 

This one needs no introduction. Carrying the badges of #1 in nearly everything related to the ease of doing business, Singapore represents our latest add yet our first, as earlier introduced, midshore jurisdiction.

Legally speaking, Singapore Smart Companies are Private Limited Companies. This is one of the most popular entity types that suits a range of different business and operational models. While the requirements aren’t as minimal as for offshore jurisdictions, it certainly compensates with its robust economy, strong infrastructure, productive labor and attractive tax laws that just a few characteristics to explain the popularity of this place. 

 

Takeaway

All options from offshore to onshore and midshore have their advantages as well as downsides. What you choose to set up really depends on what you’re planning on doing with your business, your residential situation, your tax planning and your financial situation. 

Know what you’re getting into, and do your homework. 

To help you start, we’ve compiled a list of 10 questions to ask yourself while making the decision of which jurisdiction to choose. 

1. What is your core business i.e. what do you sell?
2. Where do you plan to sell?
3. What are your plans for fundraising (public/private)?
4. What are your requirements for banking? 
5. How do you get paid? 
6. What types of income will you generate? 
7. Where is your team located at?
8. Where is your office located at?
9. What is your country of residence?
10. Tax treaties with other countries?

 

We hope this was helpful!

In case you’re feeling even more confused now, do make sure to drop us a line at future@korporatio.com and we’ll take it from there.