Offshore Company: What Is It and What Are Its Benefits?
By: Genilde Guerra •
The concept of an offshore company can be confusing and even intimidating to numerous people, as it has often been associated with illegal business activities.
However, Offshore company structures are not only legal entities that limit liability, but they are also the source of numerous benefits, including asset protection, better control and privacy or anonymity.
What is an Offshore Company?
A company registered in a jurisdiction that is considered a “tax haven” is generally called an “offshore” company. These companies are formed for many purposes, the most common of which are privacy and asset protection. This type of company must be registered by a licensed, experienced attorney who will keep the client’s information confidential. An offshore company should never be registered by banks, accountants, or by any other institutions that do not have the guaranteed confidentiality of an attorney. An attorney can provide the right credentials and appropriate protection needed in an offshore structure.
It’s important to note that the connection between offshore companies and illegal activities is most frequently a misconception!
It’s legal to own an offshore company. It’s important to know that offshore companies provide unique legal benefits, such as:
• Increased privacy and confidentiality
• Asset protection
• Cost reduction
• Tax reduction or avoidance
• Low risk management
A qualified lawyer will be able to provide assistance on the various aspects of legal offshore company formation. The attorney will form an offshore company in a law-abiding and effective manner.
Should a Foreigner use an Offshore structure when buying a property?
A foreigner who is acquiring a property in the USA, must be aware of the many legal implications of that ownership will create. A common and very problematic issue is the US estate tax (“death tax”).
A foreigner owning a property located in an American territory in his own personal name or in a personal Limit Liability Company (LLC) without proper structure might be heavily taxed since foreigners don’t have the benefit of any deductions enjoyed by US Citizens or Green Card holders, as delineated in the US tax code. The creation of an LLC by itself to own a property, may not limit personal liability or taxes. It is necessary to consult a qualified attorney to structure such entities.
Another very negative issue for foreigners owning a property is FIRPTA (Foreign Investment in Real Property Tax Act) which imposes a 15% withholding on every property sold by a foreign individual regardless if the property has appreciated in price or not at the time of sale. The US government also imposes heavy taxes on rental income of properties owned by foreigners.
US taxes are severe, but it is not only taxes which are a problem for the foreigner owning a property in the US in his personal name. Worst of all, is that he can be sued and lose his property. The law suit does not need to be a controversy arising in the USA. Any law suit can place a hold on real property which is owned by a foreigner.
How to avoid all those problems and be able to enjoy the US investment?
It is very important for the international buyer and their realtors to consult a competent attorney who is specialized in assisting clients from the international community. It is important that the lawyer analyze the US immigration status of the foreign buyer to determine which structure is most appropriate to him/her (the buyer). The attorney and title company will be able to recommend the best structure for the purchase. Many times, even buyers with working visas in the USA should consider the offshore structure for their real estate investments.
offshore companies, investment, real estate in the US, taxes