An offshore company is a company which does not conduct substantial business in its country of incorporation.
Since the beginning of the 20th century, the offshore sector has grown at an increasingly fast pace in response to high tax rates in the developed countries, such that it is now estimated that more than half of the world's money is offshore. The term "offshore" has no precise dictionary meaning: the word simply reflects the fact that most low tax jurisdictions are islands. Loosely speaking, it is used to mean "outside the control of the highly-taxed Western nations", although those nations could have controlled the growth of offshore jurisdictions (International Offshore Centres = IOC's) much more tightly if they had wanted to.

Benefits

Offshore companies may bring a number of benefits to individuals or companies.

1. Taxation - the business may be structured so that profits are realized in ways that minimize their overall tax liability.

2. Simplicity - except for regulated businesses such as banks or other financial institutions, some jurisdictions make it relatively simple to set up and maintain companies.

3. Legal protection - some jurisdictions have stricter provisions for allowing a court to pierce the corporate veil, and in many cases, corporate governance rules require the laws of the jurisdiction where the corporation is chartered, rather than where it is sued, to apply.

4. Fees - some jurisdictions impose much higher fees for incorporation than other jurisdictions. They may also impose much higher maintenance fees on a corporation's yearly renewal of its charter.

5. Reporting - the level of information required by the registrar of companies varies from jurisdiction to jurisdiction.

6. Asset protection - it is possible to organize assets and transactions in such a way that assets are shielded from future liabilities.

7. Anonymity - by carrying out transactions in the name of a private company, the name of the underlying principal may be kept out of documentation.  Having said that, current anti-money laundering regulations often require banks and other professionals to look through structures.

8. Thin capitalisation - offshore jurisdictions tend not to impose "thin capitalisation" rules on companies (except for regulated entities such as banks and insurance companies), allowing them to be formed with a purely nominal equity investment.

9. Financial assistance - offshore companies are usually not prohibited from providing "financial assistance" for the acquisition of their own shares, which avoids the needs for "whitewash" procedures in certain financial transactions.

Disadvantages

1. Offshore companies are usually prohibited from conducting business or retaining employees in their jurisdiction of incorporation.

2. For regulatory reasons, there are often certain restrictions on the type of business which an offshore company can engage in. For example, it is quite common for there to be general prohibitions against offshore companies engaging in banking business, insurance business or operating as a trust company.

3. Because of the limited amount of publicly available information in connection with offshore companies, there is usually a certain amount of due diligence required. For example, to open a bank account in the name of an offshore company, to comply with relevant anti-money laundering regulations, the bank will normally require documents verifying the identity of the signatories on the account to be notarised and may require one or more professional reference letters from an attorney, accountant and/or banker who knows the signatories.

4. Certain countries have "anti-tax haven" legislation which makes it difficult to conduct business in those countries using an offshore company. For example, capital market regulations in France prohibit using offshore companies as bond issuing vehicles.

5. Where a shareholder of an offshore company dies, it is usually necessary to have the will admitted to probate in the offshore jurisdiction as well (or, if intestate, to have the letters of administration re-sealed in that jurisdiction), which can add to cost, delay and inconvenience in administering the deceased's estate.

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