The term offshore company means a certain structure registered in a foreign State considered a tax haven, but that develops its business outside that jurisdiction.
Among the main advantages offered by these societies and that makes them attractive instruments for people around the world is that they are relatively easy to create, that is, there is a little bureaucratic burden in their formation, with them it is possible to reduce the tax burden and It can better protect the goods.
The countries where offshore companies are usually created to respect privacy and hardly respond to requests from foreign courts. Form an offshore company is a simple process, which takes only a few days, do not open offices or hire employees.
Sometimes it is not even necessary to have a real owner, but a fiduciary or other company is placed as a shareholder.
Offshore companies, being registered in tax havens, do not pay taxes in those jurisdictions, because they carry out their activities abroad. In this way, through this totally valid legal mechanism, it is possible to reduce the tax burden.
How does an offshore company work?
Let’s say for example that a company produces lemons, in Guatemala and sells them in a supermarket in Italy.
For this purpose, it has three companies, all of which are owned: the one that produces the lemons, registered in Guatemala, another that sells, registered in Italy and a third, an offshore company, incorporated in a country of no taxation, such as Panama.
Learn how offshore companies work in the United States and the United Kingdom
Then, the company that produces the lemons declares that a box has a cost of production of 100 dollars and sells it, in 100 dollars, to the offshore company.
Therefore, the production company does not record profits in Guatemala and thus does not have to pay taxes. Then, the offshore company sells the box of lemons in 400 dollars to the company that sells said lemons, in Italy.
This company declares that it sold the lemons, in the supermarket, at 400 dollars and, as it does not have any profit, it does not pay taxes in Italy.
Meanwhile, the 300 dollars that the company won with the box of lemons are registered in the offshore company, in Panama, which, as it carries out activities abroad (in this case, Guatemala and Italy) do not pay taxes either.
For Spanish laws, forming an offshore company is not a crime, but if that company is not declared, then it can be a violation of the tax laws. According to the Treasury, many resorts to tax havens to save taxes, deduct expenses, avoid their creditors or not be exposed to the requirements of ex-partners.