There are several distinct differences between the incorporation of offshore companies and the setting up, running and maintenance of a UK limited company. One of the factors which could potentially exacerbate any comparisons would of course depend on which offshore jurisdiction and which type of limited company is featured in any analysis.
For the purposes of this article, the common factors which are inherent in all types of UK limited companies and those which are common to the registering most offshore corporations will be considered.
One of the prominent areas of differences between offshore companies vs. their UK limited counterparts is the costs associated with each.
Costs themselves cover several aspects including the registration fees involved in forming the company, running expenses and ongoing maintenance charges.
Costs of Forming a Company
Generally, offshore company formation is more expensive than forming a UK limited business entity. Companies in offshore jurisdictions such as Delaware can cost £299 or more, depending on where they are purchased, whilst a UK company can be incorporated for less than £25.
The reasons for the wide variation in formation cost exists for a number of reasons, such as the higher local jurisdictional registration fees and charges which are paid to incorporation agents for offshore companies as opposed to the single £15 fee which is payable to Companies House for a UK set-up.
Another factor is that when setting up a UK company, the registrant has the option to use their own private residence as the entities registered office address. Given that in most offshore jurisdiction the beneficial owner can not resident within that country, they then has little choice but to use and pay for a registered office address belonging to a third party.
The costs of running a company, whether offshore of UK based obviously largely depend on the level of activity, type of business engaged in and other factors relevant to the individual entity.
In the area of bank accounts, UK based companies can be offered an array of different free banking arrangements typically lasting for twelve to two years or sometimes for life as is currently the case for some internet banking accounts.
Offshore companies are usually not courted in the same way at the time of their formation, and whilst there might be attractive banking facilities available, these are less likely to provide the similar levels of fees and charges free period as with the UK equivalents.
Most offshore companies are required to maintain few or no accounting records which show their business activities during a given period. The opposite regulations exist for UK companies who are obligated by statute to record and keep their accounting records in good order at all times during their existence.
Annual Compliance Costs
Offshore companies do not generally prepare annual accounts for the purposes of public consumption. Any such documents which are commissioned are likely to be for internal purposes only or for a specific third party such as an investor or lender.
All entities undergoing the UK company formation process are required (again by law) to prepare and submit annual accounts to the registrar of Companies. The form which these documents will take will depend on the status of the company throughout the period it is reporting on.
In some situations group statutory accounts might be drawn up, in others the submission of a simple dormant company form may suffice, whereas in other cases, either abbreviated or full documents may be sent.
Each of the above options for UK companies involve some sort of costs, in either in terms of time or the engagements of other professionals, such as accountants to carry our the work on their behalf.
In instances where the UK entity is not a dormant company, the costs of preparing the statutory accounts might be in excess of several thousand pounds and thus suggest that the offshore company formations route is the more cost effective route.