“Digitization often lowers entry barriers, causing long-established boundaries between sectors to tumble”
This statement taken from an article of McKinsey & Company reflects the way in which business around the world is being, and will be, conducted. The same is true for physically engaging in businesses across countries. In this era of digital business, doing business in one country does not necessarily means that one has to incorporate itself in that country. In fact, doing business in one country out of another country can offer a number of legitimate benefits. We outline below 4 key advantages foreign investors in Thailand can generally obtain by doing business in Thailand via offshore companies.
1. Tax Minimization or Deferral
We start off with tax saving which is often cited as the primary reason for incorporating a business offshore. In principle, tax benefits to be gained by the use of an offshore company depend upon the tax regimes, anti-tax-avoidance legislations and double tax treaties of the countries involved. Such countries would include the countries of where the asset in question is located and where the beneficial owners are incorporated or resident. Tax saving can generally be realized in several forms and in a variety of business sectors.
Typically, such sectors include finance, shipping, international trading and professional services
As an example, offshore finance companies may be established for the purpose of intra-group treasury management under which interest payments are tax-deductible and dividends can be subject to low or zero tax. In the case of shipping companies incorporated in a tax-free offshore country, they can own and charter ships, the profits from which can be accumulated tax free.
2. Asset Protection
To protect business assets and your own personal assets from claims, litigation or political unrest, it is common to adopt the corporate structure of holding and operating companies and such adoption can be supplemented with trust arrangements to safeguard personal assets of shareholders. Take holding and operating corporate structure as an example, a holding company is generally set up in an offshore jurisdiction and is a firm that owns shares of other companies in various countries that produce goods and services or own operating assets.
These other companies are commonly known as “operating subsidiaries”.
This structure achieves asset protection because the assets in each country are segregated into separate operating subsidiaries and the key assets of the entire corporate group can be held in the holding company (e.g. all intellectual property rights), therefore claims against one subsidiary is therefore limited to a single subsidiary assets and does not affect the assets of all other subsidiary assets. If properly structured in suitable countries, this will help not only preserve business assets and limit business risks but also minimize tax liabilities and reduce probate expenses.
3. Maintaining Privacy and Confidentiality
Privacy is certainly another key consideration in choosing a country for incorporating offshore companies. Privacy sometimes goes hand-in-hand with asset protection. If privacy or anonymity is one of your primary concern, then you should look for offshore countries in which company laws are relatively “business” friendly rather than “creditor” friendly. In particular, non-resident companies in some countries require you to keep books on your own but do not require you to file them with the competent authorities or publish them in the public domain. Some countries do not require the disclosure of details of your directors or shareholders. Further, if you are a high net-worth shareholder of such group of companies, the use of trust in which all your estate will be placed under the ownership of trust will be useful for not only privacy purposes but also inheritance planning purposes.
4. Cost Reduction, Bureaucracy and Business-Friendly Environments
This is particularly evident in online business because Thailand is less developed than some other Asian countries as far as online business is concerned and an offshore incorporation could help avoid red-tape in Thailand and make use of better online infrastructures and facilities in other countries, especially for secure online payment systems and flexible financing options. Therefore, if we can legitimately put in place all corporate structure and business transactions in cost-effective and business-friendly jurisdictions, we can then enjoy a great deal of business advantages. In particular, we may end up having the company incorporated in one country with low or no issued capital, website hosted in another with access to world class professionals, payments processed in another with several choices of secure and safe providers, products marketed in another with huge population and ultimately taxes paid minimally in another.
Last but not least, it is important to note that the foregoing is not intended as an exhaustive advice or demonstration of offshore companies and we strongly recommend readers to consult professional legal and tax advisors for specific advice. SBC Interlaw is an international law firm with significant experience in setting up offshore companies and our team of lawyers is committed to ensure the best quality customer services for you. If you need any advice on this matter, please contact any of our SBC Interlaw Thailand lawyers or send an enquiry to our law firm in Thailand.