Myths Concerning Offshore Company Setup in the Middle East

by Zaara 04, May 2022

Myths Concerning Offshore Company Setup in the Middle East

UAE offshore companies have offered investors from around the world a fruitful and prolific climate. Yet, individuals equate offshore businesses with such fallacies as money laundering and asset confidentiality.

Assumptions say that formations of offshore businesses are done to conceal an illegal income. However, the UAE government takes strict steps to eliminate any such operation that the respective offshore companies note.

The UAE government has appointed a 'Financial Action Task Force' to tackle the crisis. A governmental body headed by the Federation's National Council is the 'Financial Action Task Force' and deals with money laundering and terror financing. With massive fines and long jail terms in the UAE, the committee aims to create a clean and uncorrupt economic environment.

While the 2018 UAE fiscal outlook encourages companies to invest, a combination of such misconceptions also prevents potential companies from developing their businesses.

Certainly, offshore companies offer benefits to entrepreneurs and investors on a multitude of levels. Whether it is preserving asset protection, privacy, privacy enhancement or tax savings, all of us will accept that offshore businesses benefit from all entrepreneurs. For this reason, people are likely to look forward to opening an offshore company.

However, the growing success of the offshore company in Dubai, on the one hand, gave all investors many business opportunities. On the other hand, it played a significant role in shifting people's perceptions. Nowadays, people believe that offshore companies are illegal and that money is not invested in them because they can create problems for business people.

They are oblivious that it is not a very big deal to have an offshore company in some cities like Dubai. People from every corner of the world prefer to open an offshore company in Dubai. The facts and misconceptions about the offshore industry must be acknowledged and documented. In this way, we are going to have a perfect picture of how offshore businesses operate.

Indeed, we are more likely to have a gloomy picture of an offshore corporation in our mind because of hearing about scandalous offshore accounts and businesses of some individuals in the press. One also needs to know that offshore companies are one of the easiest and most successful ways to develop and grow businesses. For this reason, we must understand the science and reasoning behind it, instead of looking down on it, and look forward to starting an offshore business in Dubai.

Dubai is undoubtedly one of the most ideal and incredible places to start an offshore company. Specifically, establishing a freezone company in Dubai enables individuals to establish an offshore company and contribute to business growth and development in the best way possible. In this way, in the best way possible, you will develop and expand your business. Therefore, it is vital to know the offshore company’s facts and myths to understand it clearly. Here are some common myths about offshore companies.

Myths Concerning The Offshore Company Setup

There are misconceptions because of offshore businesses’ creation and how these businesses are set up. As to the essence of this work, there are many theories. Based on the tiny details they have available, people prefer to create a picture of something. It often leads to myths. Offshore companies in the Middle East, especially, do not get the appreciation. Here are some myths concerning offshore companies:

Myth - Evasion of Tax

The first myth is that it is easier to evade taxes by setting up an offshore corporation. It's not true. Both jurisdictions have a range of tax regulations of their own. Individual nations have laws that allow businesses to avoid paying taxes. But these businesses are typically huge, and before they can pass the no-tax filter, they have to obey the rules.

In some instances, certain phases of setting up an offshore corporation pay the government a fixed amount of tax. No matter how much benefit or harm they make. Large corporations own it because they usually have a significant share of the market. It is because the more influential the service, the lower the flat tax rate appears in contrast.

Myth - Illegitimate & Added Risk Factor

There are assumptions that there are illegal offshore businesses. Business people worldwide think the risk is involved in starting a business or opening a commercial bank account. The fact is that in the UAE, any jurisdiction offering the establishment of offshore companies has a governing authority. The supreme entity that advises and regulates companies within the jurisdiction is the offshore authority. The management ensures legality, privacy and security benefit at all times.

Myth - Offshore Companies are Unregulated

Some individuals believe very strongly that there are no restrictions for all offshore business setups. Nothing controls their legislation. It's simply not true. Almost all countries have at least a certain degree of regulation to ensure corporations do not do what they want.

This myth is off-the-mark and is groundless. There are also offshore jurisdictions in countries like the UAE, which is a region full of companies. These jurisdictions allow the UAE government also to impose its authority on offshore companies.

Myth - Costly Business Setup

One of the fastest ways you can set up a UAE economy is to start an offshore company. It makes people assume that the establishment of offshore companies can be an expensive affair. The truth is that not only are offshore companies cost-effective, but they also provide an inexpensive module for starting a company in the UAE.

Myth - No Governance Law

Offshore corporations have confidentiality, ownership confidentiality and transaction secrecy. However, it is not accurate that UAE offshore companies have no governance or are absent from the legislation. The UAE offshore jurisdiction has its authority structure with distinct guideline rules to ensure upfront transactions.

Myth - Offshore Companies are Always up to No Good

This one just comes from a comic book right away. Some people assume that the configurations of the offshore company only lead to no good. They believe that businesses are still up to no good in foreign countries. There can be many reasons why offshore industries reject public information to be published. It is potentially done not to give the competition clues, but that does not mean committing evil acts. Business people sometimes have no other option other than to open up an offshore company. There are even offshore charitable trusts and foundations.

Myth - Offshore Business is Illegal

It isn't right. In several jurisdictions, the offshore sector is a legitimate and highly-regulated industry. An offshore corporation is simply an organisation that does not perform business operations in the country in which it has been incorporated. Several significant companies own offshore subsidiaries and book income abroad to reduce taxation and legally maintain more funds for re-investments.

Myth - Offshore Business is a New Trend

Although the term 'offshore' has recently received a lot of media attention, the practice has a long history among foreign business owners and is nothing new.

Historically, the critical difference is that such events and opportunities are only open to large companies with deep pockets because of gaps in transport and communication systems. However, anybody can own an offshore company nowadays. Most of this is attributed to the Internet and the advanced global banking system. Today, doing business online is much simpler and cheaper.

There is also a rise in location-independent start-ups, such as web design, content development and business consulting, of which an offshore framework offers many advantages.

Myth - Tax Reduction is the Only Benefit of an Offshore Company

Tax cuts indeed are one of the critical benefits of an offshore system since most offshore jurisdictions do not offer income tax, VAT, tax on capital gains, tax on dividends or withholding tax. There are a variety of other advantages, however.

First, it is an excellent way to diversify fiscal, and litigation risks and safeguard assets to set up an offshore business. As a holding company for intellectual property or acquisitions, an offshore fund is widely used.

Secondly, setting up and running an offshore firm is typically cheaper. It is a perfect way to meet buyers from all over the world.

Most offshore jurisdictions have smaller minimum capital and easier filing standards, which further decreases your operating costs. For small start-ups and individual enterprises, this is extremely important.

An offshore company will also make doing business more straightforward and more profitable. For example, some nations have very tight control over foreign exchange, such as Vietnam or Indonesia. Therefore, to promote their foreign trade, a business owner from those countries may want to incorporate a company. Also, most offshore jurisdictions offer some degree of confidentiality, which is essential to investors who respect their privacy.

Myth - Offshore Companies Perform Illegal Activities like Child Abduction

It is a hilarious myth that arises in one of those strange discussions in the Middle East between several people. There is no documentation of the establishment of offshore companies involving themselves in child kidnapping, and there is no link between the two. It is a waste of precious time and money to explore the very definition.

A similar rumour is that terrorists, criminals and drug lords own offshore companies. It is also not true; average citizens are the owners of offshore companies that want to start a company without going through the unpleasant capabilities of the country’s particular laws and the unjust stuff that corporations have to obey.

Myth - Offshore Banks are not Trustworthy

A very compelling misconception in the Middle East before forming an offshore company is that the offshore banks with which these companies will engage are not trustworthy. These offshore banks, people say, are fraudulent, and they're going to take your cash and run away. Just because your money is in another nation right now means the country’s laws no longer protect it.

It is not so because of most of the world's biggest banks and financial institutions’ offshore positions. If anything, banks are more likely to scam you with your money in the Middle East’s local countries. Just by stealing a corporation’s money, no big bank will want to destroy its prestige and hard-earned respect.

Are Offshore Companies a Sin?

We do not want to involve ourselves in faith, but there's a common misconception that it's a sin to open offshore businesses.

This myth is typically spread through religious nations that have confusion between religion and political rules. Such tales are spread, from what we understand, to prevent the use of money outside the country and eventually fade away from the country's economy. The setting up of an offshore company affects the country’s economy as a whole, but only when its taxes and laws are unforgiving and unreliable for a business owner. It should be the government’s responsibility to properly implement regulations that favour both the business and the country.

How Can Commitbiz Help You?

Here is something business owners may forget in the case of an exclusive offshore company. Except for investing in real estate and opening a bank account in the UAE, any commercial operation within the UAE cannot be conducted by business owners. An offshore company would not make you eligible for a UAE residency visa instead of an onshore company in a Free Trade Zone.

There are several benefits associated with offshore company formation. But unlike onshore company setups, where there are far fewer constraints, the establishment of offshore companies in Dubai has several restrictions and prohibitions. Still, you will be able to move freely in the Dubai economy with business setup services provided by Commitbiz, to set up your own offshore company.

If you are interested, do contact us today.

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