INTERNATIONAL BUSINESS COMPANIES
- Types of IBCs

Holding Companies

A holding company by its very definition is a company whose business it is to hold shares in and to exercise management and control of other companies. Its uses include the collection of dividends from a subsidiary, which may in turn be reinvested, free of tax. In the event of the sale of the shares in the subsidiary to a third party, profits are maximized there being no taxes payable on such sale.

Personal Investment Companies

The business of this kind of Company is to invest in securities on behalf of its owners. Its major asset is usually a securities portfolio from which it will earn profits from trading and dividends in a low tax or no tax jurisdiction.

Import/ Export Companies

These types of companies are ideal for transfer pricing strategies. Of course there are several variations to strategies but an illustration will suffice. Instead of buying inventory from a wholesaler directly, goods may first be purchased by the offshore company, which in turn sells the goods to the onshore company at a premium for the service provided. The majority of the profit therefore remains in the offshore tax-free company while the onshore company accrues loss chargeable income and may even become entitled to special tax concessions and/or government subsidies.

Professional Service Companies

These companies allow professionals to secure their income offshore as professional fees are paid directly into the offshore corporation, which company will in turn pay the professional an agreed sum for tax reporting purposes.

Intellectual Property Holding Companies

The use of this type of company is ideal for a developer or purchaser of intellectual property. The owner of a design or other intellectual property when sold naturally shall be entitled to royalties upon its reproduction. Those rights should be sold to the offshore company, which will in turn license onshore companies to distribute the same. The offshore company may then receive the royalties from the onshore companies direct and the moneys once paid are tax-free.

Finance Companies

A common use of an offshore holding company is to fund a secondary company through loans in circumstances where the secondary company is located in a country that allows for the deduction of interest on such loans as a business expense. This strategy enables a group of companies to in effect lend money to itself and collect interest income in a zero or low tax jurisdiction while at the same time allowing the onshore company to subsidize interest earnings.