Before You Go For Offshore Company Formation: Read This! 

Are you gearing up to incorporate an offshore company in your favorite jurisdictions? Well, that’s a rational move that can lend you a host of benefits. But before you run after authorities to get things started, it is essential to pay attention to regulations so that you do not encounter any legal hassle. That said, let’s take a closer look at key compliances for offshore company formation. 

Necessary Regulations For Offshore Company Formation 

Facilitation of UBO (Ultimate Beneficial Ownership) Documents 

According to the Corporate Transparency Act (CTA), which came into effect in 2024, companies are required to share beneficial ownership information reports (BOI Reports) with the Financial Crimes Enforcement Network (FinCEN). This shift will help authorities to curb illicit transactions and terrorist financing. Notably, this act does not apply to

• Public companies holding a class of securities cited under the Securities Exchange Act of 1934 are exempt.

• Banks 

• Trust companies

• Bank holding companies

• Credit unions  

Appointing an Agent or a trust company

If you are a foreign applicant, you must partner with a certified agent or a trust company, depending on the jurisdiction you choose for offshore company setup. Most offshore jurisdictions have made this a compulsion, which means you cannot directly apply to the authorities for company registration. 

Undergoing EDD checks 

This is particularly mandatory for applicants based in the US. International organizations, such as the Financial Action Task Force (FATF), have recently released new guidelines that emphasize Enhanced Due Diligence (EDD). Under EDD,  the offshore authorities and banks may conduct extensive KYC checks on the business owners, members, or directors. 

Ensuring Economic Sustance 

One of the key highlights of the offshore company is its ability to pursue virtual operations. In other words, it allows owners to conduct business activities from the comfort of their home or office. This is something that has changed recently. Now, most offshore jurisdictions require companies to conduct tangible business operations that contribute to the nation’s economy. Precisely, to ensure economic substance, companies must 

• Have a physical business place 

• Have ample manpower 

• Incur adequate business expenses

• Conduct core income-generating activities 

Defining the Purpose of a Business in the MoA 

The Memorandum of Association (MoA) is among the key documents for incorporating structures such as International Business Companies (IBCs), private limited companies by shares, and foundation companies. The MoA must entail the purpose for which the entity is proposed to be formed. For example, if your goal is asset management via an IBC, you cannot mention “trading” as a purpose in the MoA. It is a good idea to consult a professional before drafting such a critical document. 

Some Notable Norms for Operating an Offshore Company

• Offshore entities, particularly in Seychelles and other law-abiding jurisdictions, must keep the register of the beneficial owners (BOs) without fail. These registers may undergo surprise inspections for legal checks. 

• Maintenance of the register of the directors, members, and other key officials is as important as maintaining the BOs’ registers. 

• All offshore companies must keep records pertaining to minutes of meetings and resolutions.

The regulations discussed here do not mitigate the fundamental benefits of having an offshore company. In fact, following these rules will help improve the credibility of your business in the eyes of the law. Plus, your business will have seamless access to credits provided by financial institutions. 

We hope this write-up has provided you with ample information to get started with the offshore company registration process. You can also partner with a certified service provider like BSW to ease the blow. Business Setup Worldwide (BSW) specializes in company formation services, compliance management, and a host of other services that ease the business journey.