Finance Company

An offshore finance company would fund the operation of subsidiaries in various countries. The subsidiaries would obtain the benefit of tax deductions on interest paid. If the finance company is situated in an offshore area where there are no income or corporation taxes and no requirement that dividends be paid, then the profits can be accumulated in a tax-free climate. These funds can be used to further finance the requirements of subsidiaries or reinvested, as business convenience suggests.

In certain countries, foreign exchange losses are not deductible for tax purposes. For example, if an offshore finance subsidiary that has been set up suffers a foreign exchange loss and that subsidiary company is then liquidated, the investment should be a tax-deductible item for the parent company.

Another area where offshore finance companies are used is leasing, particularly where an offshore structure is rich in funds which, if they are not invested, may be repatriated or subject to high levels of corporate taxation.

Offshore companies are often utilised for the purpose of acquiring foreign entities, international restructuring of corporations, real estate and other investments, and other corporate finance-related projects.

Since some countries suffer from political and economic uncertainty, many large corporations reduce the risk by moving their base of operations and ownership of assets offshore. For example, Luxembourg and Bermuda are host to many companies that have re-domiciled their operations.

Offshore companies are regularly employed to raise money through loan or bond issues. Such an arrangement may serve to reduce withholding tax on interest payments. For example, countries such as the UK levy a withholding tax on interest paid to non-residents on non-quoted bonds, thus it is vital to avoid double taxation in such cases.

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30/09/2006
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