Offshore company formation in tax haven

[Elemia]

Looking to open an offshore entity in a low/0 tax jurisdiction with simple/no annual reporting requirements.
I operate an operating business in Canada and I'm looking to establish an offshore in a tax haven. Entity will be used for wealth transfer/investment as well as used to adjust my operating company's income.

 

[Sols]

Send me a post card from prison.

What you're proposing is not only illegal, it's‌ trivial for the CRA to find you.

Many options.⁠ Most of the well known tax havens fit this. Nevis, Samoa, Seychelles, Belize, Saint Lucia,⁤ and so on.

Focus on doing that, especially if it's a growing/profitable business.

Sounds an︁ awful lot like you want a convenient place to book costs and park profits to︂ avoid paying tax in Canada. The kind of stuff they train CRA officers on day︃ 1.

Look into things like corporate tax residence and BEPS (Base Erosion and Profit Shifting).︄ Any company you form while still controlling from Canada is considered Canadian for tax purposes.︅

 

[Elemia]

Thank you for the tip, I'll let my acquaintances who got audited by the incredibly competent︀ CRA agents know about this. They may have done this for 15+ years but they︁ might send me a postcard from prison next week.
That being said, thank you for︂ the jurisdiction suggestions, I'll look into them.

 

[Tradepass]

Sure you have to⁤ structure your offshore entity in a proper way to obtain some kind of tax benefits.⁣ For instance, you need to ensure that your offshore company has some economic substance, because,⁢ otherwise, if it is deemed to be "shell company", your company will be reported to︀ the Canadian Revenue. There is no best offshore jurisdiction out there. If you want to︁ use your offshore company just to make investments, it is better to go for Cayman︂ Islands, Bermuda, or The Bahamas. These are the offshore financial centers closer to you and︃ that have a robust financial industry and banking system.

 

[aniglo22]

He won’t gain much, as his offshore company will be a CFA,︁ and he plans to use it for investment purposes.
Investment purposes mean much stricter requirements︂ to be exempt from FAPI (which is basically impossible in his case).
He would need︃ to employ more than five full-time employees actively conducting the business.
Income tax act 95(1)︄:

That means all the income earned by the offshore company will be considered FAPI, and he⁠ will be taxed on it in Canada at his regular rate.

 

[Tradepass]

He also said that he's planning to use the offshore company for intercompany transactions, so⁢ I guess the structuring becomes easier. If he's outsourcing to a third jurisdiction some services︀ (interCo), he's still able to obtain some tax benefits, provided that there is a transfer︁ pricing analysis.

 

[Sols]

Maybe I presume too much based on previous threads and questions of this nature. But‌ when someone is asking a question like this, things like economic substance and transfer pricing‍ analysis don't come to mind.

Perhaps @Elemia's friends did all that and that's how⁠ they passed an audit with the CRA. Or maybe those friends don't exist. If they⁤ do, why not just ask them how they set things up? More likely, if they⁣ do exist, there is much more to the story than we and/or Elemia know.

It just reeks of BEPS and tax residence issues to me.

 

[Tradepass]

Tax residence should not be an issue here. Again, it all depends on proper structuring.︁ Having a shell company is no good for anyone. Having a real economic substance makes︂ the difference. If your entity must be a tax resident of a third jurisdiction, you︃ should have, at the very least, an independent resident director for your company (usually, a︄ class B director, since the class A director is usually the owner). This is something︅ I worked on for years, while I was in Luxembourg (or do you really think︆ that all Luxembourg holdings have 5 or 10 employees). Please note that a nominee director︇ is not an independent director.

This is why I always emphasize on having a company︈ in a reputable jurisdiction. If you incorporate a company in Cayman, you can find all︉ the professional services you need to ensure to comply with international tax laws. If you︊ incorporate in Anjouan or other third world countries, do not expect Revenue authorities to believe︋ that you have a genuine business purposes for that...

 

[aniglo22]

Even with proper transfer pricing, service income earned⁤ by a CFA from intercompany transactions is often classified as FAPI under Canadian tax law⁣ (ITA § 95(2)(b)),
as such income is recharacterized as income from a non-active business and⁢ therefore falls under FAPI.

It's not that simple .

 

[Tradepass]

Sure, it is not something simple. If you⁠ want to take some tax benefits, in today's world, you always need to have some⁤ real presence (or better, economic substance). Just the fact of having a company in a⁣ Caribbean island doesn't mean anything.

That's why structuring is essential. And that's why you always⁢ need to have reliable professional services. Beware of people who claim that by buying a︀ $1k offshore company formation package, you can save taxes LEGALLY... it is just not true.︁ You need to have real presence, local directors and possibly employees (depending on the activity︂ that you outsource to your offshore company). In other words, the question should not be︃ "where do I incorporate an offshore company", but "where do I want to carry on︄ part of my business activities"...

 

[aniglo22]

But the costs associated with it are often higher than the tax︃ savings, especially for small entrepreneurs like most people here

 

[Tradepass]

That's exactly why the‍ OECD has implemented BEPS and all the related-regulations... that are totally ineffective with big multi-national⁠ corporations and devastating for the middle-man...

There are just a few situations where it is⁤ possible to legally obtain tax benefits with an offshore company... but they have to be⁣ carefully evaluated... for instance, you can set up a family office or a private investment⁢ fund in Cayman or Luxembourg... but still you need to spend some money in legal︀ fees to have proper authorizations from regulatory bodies (CSSF or CIMA), etc.... the life for︁ unregulated entities is just becoming awful tax-wise...

 

[Sols]

IMO, what you're describing is corporate tax residence being an issue. It is an issue that must be solved, as︁ otherwise any offshore company just ends up being Canadian for tax purposes.

The solution depends︂ on the magnitude and severity of the risk/threat being faced. A genuine director goes a︃ long way. However, nine times out of ten, when a question like this thread is︄ posed, hiring a genuine director isn't in scope. They just want a cheap Seychelles IBC︅ to book some costs through to lower their tax basis, like it's 1995 again.

 

[aniglo22]

I fully agree, especially with the︀ second part.
They’ve probably watched some documentary or YouTube video about offshore companies and think︁ that incorporating one would magically let them pay legally no tax.

 

[Elemia]

I assure you my acquaintance is real and his company deals in import and wholesale‌ like I do. His offshore should be in Hongkong and potentially established before his Canadian‍ operating company, but I don't know anymore than that.

He might of obfuscated it by⁠ rerouting his import through this company or simply billed his Canadian company with invoices for⁤ products and services. Although I would like to know exactly how he did it, he⁣ retired back in 2022 and left the hellhole that is Canada. Unfortunately, we weren't close⁢ enough to discuss things like this further due to the nature of these questions. I︀ am also not interested in establishing any entity in Hongkong or China, although that might︁ have been a part of his obfuscating process.

I'm not requiring for one account or︂ entity to be able to both handle investing and profit shifting, though of course that︃ would be preferred.

 

[Tradepass]

Especially when it comes to import/export transactions,︄ there are plenty of business operations that you can move to an offshore jurisdiction, depending︅ on personal circumstances. Especially in complicated distubutorship/agency arrangements, Incoterms management (for risks related to tariffs︆ and freight), trade insurance & finance... I am sure you have plenty of tax opportunities︇ (through well-designed transfer pricing analysis). But, as mentioned by others, professional expenses are not going︈ to be negligible, so you have to conduct some cost / benefit analysis... my suggestion︉ is to consult a Canadian CPA or tax attorney... they can surely work something out︊ for taxes (LEGALLY).

 

[alley]

what solution you figured out if you don't mind to share with us?

 

[OVZA LLC]

Just a quick note from someone who works in this space: if you're setting up‌ an offshore structure to interact with your Canadian operating company, especially for income shifting or‍ wealth planning, you need to speak with a qualified tax lawyer in Canada first. The⁠ intent matters just as much as the structure itself , and even legal offshore setups⁤ can trigger GAAR, CFC rules, or transfer pricing scrutiny if not implemented properly.

Also, while⁣ people still casually use the term “offshore tax haven,” it's worth noting that it's outdated⁢ and doesn't reflect how modern international compliance works. What you’re likely looking for is a︀ low or zero-tax jurisdiction with light reporting and no CRS exchange, for asset protection or︁ investment purposes , which is a very different goal from aggressive tax evasion structures of︂ the past.

That said, if you’re just setting up a holding or investment company (not︃ directly billing your Canadian entity), St. Vincent and the Grenadines is one of the most︄ straightforward jurisdictions out there. No annual reporting, no public registry, and no automatic exchange of︅ information for now , plus a solid legal system and cost-effective maintenance. It’s one of︆ the last few clean, quiet jurisdictions still suitable for privacy-focused structures.

But again , set︇ it up right. Don’t skip the legal input. The line between optimization and exposure can︈ be thinner than it looks.

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Eli Carter

Legal Affairs