Why create an offshore company?
Naturally who says offshore company says tax optimization, the main reason for creating an offshore company is indeed to pay less taxes. The term offshore is an English term meaning “outside the territory”
Working in France means paying relatively high taxes compared to most other countries, so it is quite natural to look for ways to reduce taxes and thus maximize your income by domiciling abroad when your business and the law allow it.
Depending on whether you are a micro entrepreneur or own your company, the tax is naturally not the same, so we consider that if you realize approximately less than 60 000 € of profit or that your corporation tax is less than 28% it will not necessarily be worth considering the creation of an offshore company to optimize your tax.
The creation of an offshore company will indeed be interesting beyond a certain level of income and it must be taken into consideration that sometimes it will be more interesting to pay some taxes in France if they are not not be too high and benefit from the advantages of self-employed status (for pension issues, social security, …) rather than trying to escape a few hundred euros but not benefit from any benefits from this status in France.
If the creation of an offshore company is inexpensive, especially compared to the savings it can make you realize, it is advisable to call on a professional company used to establish companies or structures abroad and who will know you advise to optimize your taxation.
What are the advantages of setting up an offshore company?
The benefits of taxation
Exemption from income tax: if your company is established abroad it is called non-resident, the tax authorities will not be able to claim a tax on your profits, unless it considers that your activity is actually established in France.
Contrary to popular belief, the connecting factor is not the company’s head office, but its activity is the place in which the company actually operates.
In this sense, you establish income abroad without paying taxes in France, so you make real savings.
If your turnover is established abroad, you will surely wonder how to repatriate the funds in France, or simply how to use this money if you live in France.
This is where the decisions you have to make will be decisive, either you declare your company abroad and you pay income that will be taxable in France in respect of income tax or you want that income to be perfectly opaque and conceal them and therefore there is no question of repatriating this money in France in which case the tax authorities could oppose fraud.
However, and to the extent that there are many countries in which there is no concept of misuse of corporate assets, it will be quite possible for you to use offshore company accounts for your personal expenses.
The benefits of formalities
- It is not necessary to keep accounts according to the same requirements as the French legislation, so if it is however advisable for a good progress of your activity to keep an accounting, you will be faced with much less constraints and requirements . There is therefore no obligation to publish the accounts.
- You will also not be forced to release a minimum capital for certain companies, so you can build a company with some capital but without the obligation to release the entirety. The minimum amounts required depend on the legislation in place in each country but may be much less binding.
- Although it is not difficult to set up a company in France today, the cost of formalities will be lower in most other countries and the same will apply to your annual management fees (publication costs lawyer, accountant or bank charges).
- The formalities related to the creation of a bank account can be much faster and easier, moreover the requirements of the account statements are done at very advantageous rates.
The benefits of anonymity
- It is also possible to remain anonymous by creating an offshore company, which can present with regard to your current assets as a tax resident, and your potential other income, a major asset.
- In France and since 2018 there is an obligation to publish for each existing civil or commercial company a list of beneficial owners. This list of beneficial owners consists of an obligation to publish the list of all natural or legal persons directly or indirectly holding at least 25% of the company. By creating an offshore company you can escape this obligation to publish your names and those of your associates within the company.
- If the creation of an offshore company is an activity more and more spread by French entrepreneurs, however, it can have some drawbacks that must be considered before having his company established abroad. So you have to weigh the pros and cons against your situation to see if it’s worth it or not to create an offshore company.
What is an offshore company and how to establish it?
An offshore company is therefore a company established outside the country of your country of residence. We often talk about offshore companies for entrepreneurs who would seek to optimize their taxation and no longer suffer heavy French tax.
The main feature in this context, the offshore company is that it is in principle tax-free for the French tax administration.
In addition, offshore company and subsidiary or branch should not be confused. Subsidiaries or branches are well affiliated with a French company (or that of the parent company’s parent company) and the profits they generate, particularly for subsidiaries, go back to the parent company’s profit or loss. French taxation will therefore be applied.
Anyone can create an offshore company, nevertheless it is advisable to entrust all the administration and the formalities of creation to a specialized company because it is necessary to avoid the pitfalls and the errors that a non connoisseur could commit and which would be detrimental to him .
Depending on the countries in which the company may be established, a certain number of formalities must be carried out, sometimes similar to those required in France, such as the drafting of articles of association, publication, registration with the courts or competent departments, opening a bank account, …
Possible disadvantages of offshore companies
If anonymity is an advantage, it can also be a disadvantage, depending on the activity you want to achieve, anonymity can be binding, your company will not be known to your financial partners, you can not really rely on investors.
Moreover, even if the company allows to remain anonymous, know that an offshore company is always more subject to control than an onshore company is the reason why it is up to you to make arbitrations, to adapt to to be in the optimization but in the legality or if you are in a tax haven with anonymity, to be very rigorous on your links from France with this company.
Note also that while the list of countries in which you can easily create a company is wide, there are countries in which you may be faced with certain prohibitions of exercise and this in particular to protect the local economy.
Finally, we must not forget that the interest of creating an offshore company is to avoid French taxation, so it is useless to hope to repatriate your profit in France whether by a professional account or a personal account, otherwise you would be taxed on this income.
The interest to create an offshore company is to manage and use this money either abroad or in France using the bank card account abroad but not for all your operations either, the idea is that the tax authorities can not discover total incoherence between your income and your standard of living in light of the information available in France.
To what extent is creating an offshore company legal or illegal?
Offshore company, tax haven, tax evasion … Indeed, when we talk about offshore companies, tax havens and evasion or tax evasion often come to mind.
However, if we remain in the very definition of the offshore company, it is only a matter of creating a company abroad, it is quite possible to create a company abroad, avoid the French taxation and be in legality.
On the other hand, it is possible to create an offshore company in the greatest illegality, so we are not talking about tax optimization but tax evasion or even tax evasion.
It is up to you and according to your situation to make arbitrations on the chosen country, the definition of your activity, the establishment of your bank accounts …
Take an example, you have an e-commerce company with products that you ship from China to Portugal.
Your company is based in China, where you have your bank accounts and carry out your business on a regular basis, for example by hiring someone on the spot for all back-office tasks.
Your business is well established in China even if you live in France, in this case it is possible, with the help of a specialized company to make all the steps in the legality.
Note however in this context that the tax administration, pursuant to Article 1649A of the General Tax Code (CGI) requires any tax resident to declare his accounts abroad using Cerfa form 3916 that you will have to attach to your tax return.
You must indicate the details of the bank, account references, its nature (deposit account, savings, …) and specify among other things whether it is a personal or professional account.
On the other hand you do not have the obligation to specify the balance of your accounts abroad.
Failing this, you expose yourself to pecuniary sanctions, in addition to the taxes that you will have to regularize with default interest, to a fine of 1500 € per account not declared, which can be increased to 10 000 € when this account and established in a state that has not concluded an assistance agreement with France against fraud and tax evasion.
To conclude with the offshore company
To conclude, a multitude of possibilities is open to you to create an offshore company, but do not confuse tax optimization, tax evasion and tax evasion.
By tax optimization you can open a company abroad, benefit from the advantageous tax of this country but once the corporation tax paid in the other country, and in case you decide to distribute yourself dividends, repatriate dividends in France and apply the dividend tax regime in France.
In this way, you will have been able to optimize the cost of corporate taxation and thus increase your profitability. In addition, you will have been able to take advantage of some of the company’s availability without the risk of misuse of social good for various purchases. , all without being illegal.
This is often the case for companies established in England (although more difficult at this time with regard to Brexit), Ireland, Mauritius or Hong Kong.
Tax evasion consists on the contrary to conceal its activities and income from abroad in order to escape French tax, the tax evasion operations are sanctioned by the tax administration, in the same way as tax evasion which is to make false statements.
In this sense, this is the reason why many companies settle in countries such as the British Virgin Islands, Panama, the Bahamas, …
But the risk is very important so it is highly recommended to be well advised by specialists for the development and creation of your company to remain in the legality, although sometimes a certain discretion will be essential for the management of your accounts abroad