You already know about the benefits of setting up offshore companies. Depending on what you want to accomplish with the business, choosing to base it in a particular nation could pave the way for all sorts of tax breaks within that country. This choice could also make it easier to obtain raw materials for production purposes, or even make it much easier and cost effective to ship those finished goods to certain parts of the world. Along with all these benefits, it helps to balance everything you know about the advantages with a few of the potential pitfalls.
The Local Political Situation
When thinking about setting up offshore companies in certain parts of the world, it is important to take a long hard look at the political climate within the nation you are considering. The goal is to determine just how stable the business environment happens to be. One of the best ways to project what will happen in the future is to investigate the history of that nation.
Delve into the background of the country, especially in terms of political stability. Do you find that over the years the governmental approach to international businesses has remained somewhat constant? Have there been any unexpected and perhaps unusual shifts in policy that forced business owners to quickly move operations away? Look back for at least a couple of decades and pay close attention to what happens when the country in questions experiences a shift in which political party is in control, or when the economy goes through a recession or depression. Chances are whatever happened in the past could very well be repeated in the years to come.
What Protection Does the Government Offer?
One of the worst mistakes you could make is assuming that current laws will protect your offshore business in the same manner that domestic laws protect your business interests at home. The fact is that laws and regulations will vary greatly from one nation to the next. Until you have become thoroughly acquainted with those laws and know what they will and will not do in the way of protecting your operation, moving forward with the establishment of that offshore company is not wise.
As you read through the rules and regulations that create the business environment within the country under consideration, come up with some scenarios and project how they would play out under those laws. Err on the side of caution and consider what could happen in the worst-case scenario. If you find that the very worst that could happen is still something that you could weather and keep the business profitable, then chances are that nation does offer sufficient protection for your interests.
The Ease of Tracking and Reporting Taxes
One of the reasons that you are seriously considering the establishment of an offshore company is the more favorable tax climate. Even so, there must be mechanisms in place that ensure all taxes owed to the host country are paid, and that all income is reported properly when you manage your domestic filings. This is an easier task in some nations than others.
As you look at the potential of different nations as a home for your business operation, find out how taxes are calculated, when they are due, and what procedures make it easy to track the submission and crediting of those payments. In many nations, detailed reporting is made available that will simplify the process of reporting gross and net income with ease, and ensure that you do not create a financial nightmare that leads to stiff penalties.
Keep in mind there is no one international location that is the ideal option for every type of business. It is up to you to weigh all the pros and cons associated with incorporating in a given country, then decide if the potential benefits are sufficient to merit dealing with any possible risk factors. If you take the time to do your homework, the chances of creating a viable company in the right environment and reaping significant rewards will be all the greater.