Modern offshore programming services and their specific features

Offshore companies are companies registered in countries with preferential tax laws. In this article, we would like to dwell on the relevance of using offshore for IT companies in 2020. What is offshore today and why is it profitable?

In common offshore programming services not a new term. In fact, it has been well known as a powerful tool for many successful entrepreneurs and investors who are well aware of its benefits and values. Therefore, understanding how it works is necessary for all new IT business start-ups.

What is offshore for an IT company?

Let’s start with a clearer definition of the term offshore. In 2020, an offshore company is a company registered in a country or jurisdiction other than the one in which its investors and founders live.

Simply put, offshore is nothing more than a company established in another country. Let’s say you create an international business company (hereinafter referred to as IBC) in the Marshall Islands or Panama to conduct business. This is offshore.

One of the key features of an offshore company that you need to know is that they are generally prohibited or severely restricted from doing business in their country of incorporation.

Despite this, amendments to the law in each individual country may bring various bonuses and barriers to an offshore company registered in that particular jurisdiction. In some cases, you may find a country in which your offshore company may be allowed to do business, but you will need to pay local taxes along with many obligations to comply with local laws.

Because of these complexities, sometimes people can get confused by the misconception about an offshore company that is said to be a tool to avoid taxes or hide money from the government.

In the modern world, companies engaged in IT development are widely popular. At the same time, a significant part of them specialize in servicing customers from foreign countries. The standard scheme of work of such companies is as follows:

An IT company is registered in the country where its management is located. Accordingly, all taxes are paid in this state.
Customers from other countries send funds to the company’s account, which is also subject to tax in accordance with local laws.

Employees of the company are residents of the country, and tax is removed from their wages according to its laws.

Nevertheless, such business remains efficient and the demand for the services of IT companies is constantly increasing. However, today there is an opportunity in a very simple way and with minimal one-time costs to optimize the scheme of work of such companies as much as possible. All that is required for this is simply to register a company offshore. It will act as an intermediary between the resident “parent” company and customers from other countries. The principle of operation of such a scheme is very simple. An agreement on the provision of IT services is concluded between the “subsidiary” “parent” companies. The customer transfers his payments in full to the account of the offshore company. That, in turn, transfers to the “parent” company the minimum amount necessary for expenses. The rest in the form of profit settles offshore, thus not subject to taxation.

What are the benefits of such a scheme?

Profit tax optimization. Local taxes apply only to a portion of the funds received. The rest of the amount, depending on the offshore conditions, is either subject to minimal tax or not taxed at all.

Lack of currency control, which greatly simplifies settlements with customers. There is no need to draw up acts and contracts. All that is required is the presentation of an invoice by a foreign client.

Prestige and obtaining a number of rights. In this case, you can use a Cypriot or British offshore company.