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What danger is behind cheap offshore?

Before buying an offshore, potential buyers usually compare the conditions of various vendors – so to speak, “ask the price”. At this stage, many people have the same questions: why are the prices for classic offshore companies so different? In fact, the cost of registration of such a company on the sites of competitors may be 5-10 times different. A tempting low price for an offshore company did not forebode good before, and the situation had worsened over the past year and a half to such an extent that at present, such a purchase might result in criminal prosecution. In this blog, we’ll figure out what forms the price of the offshore, how the sellers manage to reduce it and how relevant is the proverb about “cheap fish” and “bad broth”.

What is included in the cost of an offshore company?

The real offshore price consists of three important components, such as:

  • Required minimum (cost price). This includes the registration of the company in the state register, payment of state duty, a basic package of documents, registration of the registration address, opening of an account in a local bank, international sending of documents and other mandatory procedures.
  • Additional conveniences. In addition to the aforementioned minimum, the customer may need other services – for example, site creation, virtual office, nominal service, etc.
  • Work of specialists. Competent individual approach of the company involves the selection of jurisdiction taking into account your needs, preparation of documents, consulting with foreign registrars and banks. All this requires time and material costs, and therefore, appropriate payment. At the same time, the higher the quality of service and the level of security, the more justified is the high cost of the company’s services.

Miser pays twice: why can you overpay with a cheap offshore?

If a small discount (up to 30%) can be explained by special arrangements between agents or the absence of a nominal service, then obvious cheapness should cause fear. As we have explained above, the formation of the price is quite reasonable and obvious. If you neglect any of the components, you will acquire a non-working tool, and serious problems with the law. Let’s take a closer look at how the sellers manage to reduce the price of a real firm. There are several “classic” situations associated with the purchase of a cheap offshore.

  1. One offshore – several owners. The low cost of an offshore company can be explained by its simultaneous sale to several customers. The last ones do not know about each other and use the offshore calmly, until one of them has problems or issues with the tax authorities. Today, such frauds are quickly revealed and therefore they are extremely rare. However, outspoken scammers, who do not care about their reputation, do it nowadays.
  2. Incomplete package of documents or services. As indicated above, the preparation of documentation is included in the cost of the offshore. However, after payment, it often turns out that some important documents are not included in the declared low price. For example, a bank may require a Good Standing certificate, which the offshore seller will notify the customer about post factum, asking for an additional fee for processing the document. The registrar can also neglect the confidentiality of the customer, for the sake of economy, and, instead of registering a company for a nominal shareholder, issue shares directly in the name of the owner.
  3. Unprofessionalism of agents. The registrar can significantly reduce the costs by recruiting a novice or an inexperienced specialist working according to a “template”. At the same time, neither your wishes nor changes in the legislation, nor the new requirements of the selected jurisdiction and bank will be taken into account. For example, you can buy an offshore company in Panama without being informed that a reporting requirement has been introduced in the country recently. In the absence of an individual approach, the tasks arising in the process, namely, the appearance of a request for additional documents, interaction with government agencies, changes in life circumstances, etc., are not solved or are ineffective.
  4. Poor nominal service. In order to make an impression of offshore as a real company, the nominal employees should be in touch, respond promptly and efficiently to requests, sign documents, etc. If this is not the case, the enterprise causes suspicion. Today, the widespread use of the same nominal employees in many companies is quite common. If desired, it is easy to verify, especially if there is an online service that allows you to find all the companies in which he holds the position of director (as in the United Kingdom). In order to maximize the price of a service, the fraudulent companies may resort to using the following instead of a professional value:
    • documents of dead or non-existent persons;
    • persons without a fixed place of residence;
    • unauthorized persons without their knowledge.
    It goes without saying that in such cases the documents are falsified. The first official request to the company will entail problems with law enforcement agencies.
  5. Fraud on reporting. This turn of events is the most dangerous for the client. Most jurisdictions have certain reporting requirements now. Most often, the machinations are carried out in the states where there is a complete (active) and so-called “simplified” (passive) reporting system. The latest option is much cheaper, but it is suitable for a certain list of companies. What pitfalls can a buyer expect? First, the client may simply not be notified of the need to report or even assure in the absence of such a requirement. The consultant can also include full reporting in the cost, and, in fact, submit passive one, although the company is quite active. Such “skeletons in the closet” are discovered sooner or later, and on one “fine” day, the owner of the offshore will receive a notification from the tax service or other inspection service.

How to protect yourself and your business when buying offshore?

Even if you do not take into account scammers, too cheap jurisdictions are dangerous because of their bad reputation. One of the first problems that you will face is the inability to open a bank account. In addition, underdeveloped countries do not provide proper IT protection, so hacking their vulnerable systems and sites for experienced fraudsters is a simple matter. If you care about your reputation, do not neglect the authority of the jurisdiction when buying offshore. Over the past few years, the trends in the offshore market have changed: legislation has become tightened, many countries have begun the automatic exchange of financial and tax information and have introduced open registers of beneficial owners. Compliance with the new standards has allowed the states to maintain an international reputation, but they are forced to raise the requirements for the registration of companies, conduct due diligence, request additional documents, introduce new registers and so on. All this is associated with higher costs, and, ultimately, with an increase of the cost of opening a company. In view of the above, the client must soberly assess the situation on the market and do not expect that he will receive “all inclusive” for $ 500 without a bunch of problems with the law in addition.