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Offshoring and foreign trade transactions: advantages and pitfalls

Offshoring and foreign trade transactions: advantages and pitfalls MAS East Midlands

We have talked about the offshore business and its typical schemes and want to point out that it is a rather ambiguous business.
2023-03-24, by Frank Flegg, Director at BNI East Midlands

#LLC || #Business || #Offshore ||

Table of contents:

What are offshore operations

These are services designed to make it easier to do business. In an upgraded form, they are not just for clandestine operations, but also involve the provision of advice to find the best strategy and location for doing business.

They are also actions that help to sort out the jurisdiction, provide staffing, and support running a business in another country. Though it is not a new concept, in the UK company formation non resident with bank account can be a challenge that requires a good lawyer and tax consultant.

Offshore finance

Making money is not a simple business. And even deposits via offshore schemes require detailed investment planning in order not to miscalculate Offshore financing is a system of funds that keeps the whole structure functioning.

It is not just a matter of moving money from one area to another in order to escape the tax system. It is also a sound calculation that is geared towards achieving a profit.

Sources of funds are individuals or entities that seek to conduct an offshore operation. For countries which have a low tax threshold, it is very advantageous for foreigners to invest even with low-tax conditions, as there is virtually no alternative to raise funds from investors there.

Why do people favour this type of financing? This was discussed above - everyone wants to avoid the additional costs associated with lending.

Tax rules of offshore countries

They are known for their low tax requirements. However, this raises a logical question - what is the benefit of such activities? It should be noted that there are different types of taxes levied on such areas.

  • The classic system, under which depositors or companies are not charged any interest, but then an annual fee, which can reach several thousand dollars, is imposed. The advantage of the countries is that they have a fixed income and because of this policy, they are very popular with the respondents.
  • The second kind involves the collection of interest. But they are so minuscule that the depositor does not actually notice the loss. The income tax can be as high as 9-12%. Compared to what one would pay at home - the difference is enormous. That's why many consumers turn to offshore countries for help.
  • Taxes by territorial affiliation. Quite an interesting system exists in some countries, which provides for the collection if the respondent conducts business activities on its territory or receives income from certain sources of that offshore country. If such information is not confirmed, no tax will need to be paid.
  • There are some offshore jurisdictions that provide for very high taxation. But if certain conditions are met which are favourable to that country and do not violate the rules and laws, the government may grant special exemptions which substantially reduce the interest.

As you can see, the different approaches and laws of offshore zones have many details which you need to familiarize yourself with, so that you do not end up with a loss. It is important to be able to calculate all the moves and constantly study the market.

Schemes and companies

History knows quite a few examples related to offshore companies on the global market. And there are many famous names.

For example such as Silvio Berlusconi. He was at the top of the Italian government. In 1998, a scandal broke out when an official was accused of transferring 6,000,000 euros through offshore accounts to former Italian prime minister Bettin Craxi, who was a friend of Berlusconi. The latter received a two-year prison sentence for this, but he did not serve it because the statute of limitations had expired. So, as you can see, offshoring is quite a risky business because it is constantly being investigated by both law enforcers and journalists.

Another scandal affected Iceland's prime minister, causing him to resign in 2016. According to evidence, Sigmund Günnlöygsson bought a firm in the British-owned Virgin Islands and used it to make money and evade taxes.

Among the many investigations, one can find quite a few officials linked to Russia. After all, statistics show that a great many people have enriched themselves in this way. The police do not care who is the subject of the investigation: kings, presidents or lower-ranking officials. It is therefore necessary to take into account from the outset what an offshore transaction may be subject to.

Frank Flegg

Frank Flegg contributor to
Director at BNI East Midlands
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