Offshore companies are often registered for no reason other than to gain access to the numerous benefits of the offshore banking world.
Offshore banking is simply an arrangement where a bank account is maintained in a foreign country instead of the account holder’s country of residence. Offshore companies are often incorporated in order to operate as group finance companies, thus taking advantage of the offshore banking world benefits.
The diagram below shows how a typical offshore group finance company may operate.
The role of the group finance company is to provide finance to the various business entities within its group. By consolidating the entire group’s funding requirements, the group finance company is able to turn to the offshore banking sector in order to secure larger loans from offshore lenders. Due to the size of the loans, the group finance company will be in a position to approach wholesale lenders and to negotiate superior terms than would be available if each of the group’s businesses tried to source its own funding. Substantial administrative cost savings are also achieved by having a single company handling the entire group’s funding needs.
Once the funding is obtained, the group finance company will then in turn extend loans to the various group businesses. Depending on the interest rates which the group finance company has been able to secure from its offshore banking sources, it may add an appropriate margin to the loans it extends to the group businesses. This provides the possibility to increase the interest cost of the group businesses, thus resulting in a reduction of their tax liabilities. The interest margin accumulated by the group finance company will typically not be subject to tax, as the company will be incorporated in a tax-free jurisdiction.
In cases where some of the group’s businesses have excess funds available, eg group business 3 in the diagram, the funds can be transferred to the group finance company for investment. Once again, by consolidating the group’s excess funds, the group finance company is able to obtain higher rates of interest from the offshore banking world than what each individual group business could obtain. It may also have access to offshore banking facilities which would not normally be available to onshore companies, due to the more restricted nature of onshore banking.
As demonstrated, a group finance company registered in an offshore jurisdiction and thus having access to offshore banking facilities can provide substantial benefits to its group.
Should a group finance company be needed for your group, Offshore Company Solutions will be pleased to assist. You may initiate the company’s registration simply by clicking on the Incorporate Now button below. You may also select from our list of shelf companies if your company is required for immediate use. The benefits of offshore banking are only a click away.