Real investment case
When enterprises expand overseas markets, they usually do not directly set up companies in the target country, mainly because the regional economic model is becoming more and more active, and offshore companies are also often used as one of the methods of investment holding.
For example, the main investor or director of an enterprise holds the equity of the parent company in the name of an offshore company or transfers its assets in the form of a trust. These properties are legally separated from the original owner, but in fact, the original shareholder is the controlling owner of these assets, and because of the strict bank secrecy system of offshore companies and the guarantee of high liquidity of international funds, make the operation of enterprises more flexible.
Hedge funds and private equity funds also often set up their funds in the above offshore companies. The fund managers are responsible for operating to separate the legal responsibilities of investors. The investors of these funds are usually passive investors, such as pension funds, insurance company premiums, endowment funds which do not require investors to transfer their profits to their home country quickly.
Foreign investors can enjoy the tax-free, low-tax, limited liability overseas contribution of offshore companies by investing and setting up factories, trading, or service companies in China/Vietnam/Thailand through offshore companies.
If an offshore company is established in the name of a parent company or an individual to invest indirectly and set up a factory, it may decide at its best time to transfer the foreign income back to Taiwan to avoid the immediate taxation of returning to Taiwan.
Take Taiwanese companies investing in mainland China to set up trading companies as an example. Not only need to Taiwan’s parent company investment but to reporting MOEA, in the future, the mainland company’s reported profits will have to be returned to the Taiwan company. If the parent company is not a listed company, it will increase Additional accounting tax costs.
Therefore, most companies will invest in Shanghai trading companies by setting up offshore holding companies in the name of individual shareholders.
In this way, in addition to avoiding the overseas unlimited liability risk of personal investment, if there are future equity changes or family inheritance issues, you can also directly change the offshore holding company to avoid the transfer of equity in the mainland company.
The procedures are complicated and time-consuming, and also need to face the 20% local capital gains tax on the mainland. And afterward, the mainland surplus can also be allocated to offshore holding companies first to increase the flexibility of overseas structural operations and the flexibility of capital operations.