European company vs. offshore company

Do not confuse “Cross-border company in Europe (in or near the European Union)” with “offshore company”.

Our ethics lead us to suggest to our clients the use of “onshore” type companies (company and company owner in the same country) or in Europe (cross-border, European Union), but not of so-called “offshore” companies and for good reason, “tax havens” are (or have always been for Europeans) a fake, a mirage, and the majority of “offshore companies” their collateral victims, for the following reasons :

international taxation is evolving with universal notions such as :

• economic substance : the cross-border company in Europe (in or near the European Union) must organize its economic substance so that there are real offices and/or warehouses in the country where the company is registered, and a real administrative and/or commercial activity carried out by individuals employed by the company (non-exhaustive list),

• taxation of the company : if the company has no economic substance in the host country, it will be eligible for corporation tax in the country where its business is actually organized,

• taxation of company owners (“in Europe” (company and company owner in the same country) or in Europe (cross-border, European Union): shareholders of a company (“in Europe” (national) or in Europe (cross-border, European Union) are always taxed in their country of tax residence: owning a company abroad in no way exonerates you from paying taxes in your country of tax residence; owning accounts abroad and not declaring them in your country of tax residence qualifies as tax evasion,

• It’s worth noting that so-called “tax haven” countries are re-evaluating their tax policies, in line with the concept of international tax uniformity. Tax evaders run the risk of having their bank account(s) blocked, and of incurring tax adjustments of up to 110%. As a reminder, failure to declare income in one’s country of tax residence is punishable by law. If a foreign company fails to pay its corporate income tax, its owner(s) will have to pay it in their country of tax residence.

Invoicing from or to a company that has no economic substance can be qualified as invoicing fraudulent, tax fraud, etc.

To put it simply, using an “empty shell” or “shell company” abroad serves no purpose and, on the contrary, can only result in penalties, tax reassessments, etc.

The terms “cross-border company in Europe (in or near the European Union)” and “offshore company” refer to business entities located outside the country in which they are set up. However, there are important differences between the two concepts, particularly in legal terms:

Cross-border company in Europe (in or near the European Union) :

A cross-border company in Europe (in or near the European Union) is a company registered in a European country other than that in which its shareholder(s) reside(s), and whose activity is carried out in the company’s host country. In Europe, in most countries of the European Union and the United Kingdom, except in exceptional cases, a company pays corporate income tax and its shareholders are listed in a public register, unlike an offshore company registered in a tax haven, which exempts a company owned by non-tax residents and its shareholders from all corporate income tax. This exemption from corporate tax is, in principle, subject to marketing outside the host country.

A cross-border company in Europe (in or near the European Union) has commercial activities in the host country, such as the sale of products or the provision of services.

It is subject to the laws and regulations of the country in which it operates.

In short, a cross-border company in Europe (in or near the European Union) is a business owned by non-tax-resident owners, and has similarities to a company in Europe (company and company owner in the same country), due to its commercial proximity to its host country and the taxation of that country. One essential difference is that its shareholders are non-tax residents in the country where the company is registered. Unlike an offshore company, a Company in Europe will generally pay its corporate tax in the host country, and the shareholders will be listed in the public register of that country. In cases where the company has not organized its economic substance, corporate tax will be paid in the country where the activity takes place. Even if there is no business activity in the country where the company is registered, that country may still claim corporate income tax; also, if the business activity is relocated to another country, the company may incur corporate income tax: in the country of registration and in the country where the business activity is carried out. It should therefore be noted that a Company in Europe is transparent, unlike an offshore company, which is often opaque. A Company in Europe is generally set up for subsidiaries, branches, holding companies, subcontractors, expatriates or future expatriates, in order to, for example, relocate, ..:

• conquer new markets in host and neighboring countries,
• manufacture, transform and package products,
• provide services,
• manage subsidiaries around the world.

A cross-border Company in Europe generally benefits :

• local resources and costs, including human resources, raw materials and their processing, and know-how,
• but also the geostrategic situation of the host country, particularly in terms of import-export, transport, logistics and storage,
• and finally, advantageous land costs and incentives.

Offshore company: this type of model and legal, economic and tax environment is strongly discouraged.

An offshore company is a business registered in a country other than the one where its owners reside and where its main operations take place.

The term “offshore” is often associated with jurisdictions that offer tax advantages and more flexible regulations to attract business.

Offshore companies are often set up with the aim of reducing tax burdens, protecting confidentiality or benefiting from less restrictive regulations, which is often done illegally.

It is indeed important to note that all companies and company owners are subject to national and international rules and regulations.

However, one cannot blame a future expatriate for preparing a professional project in a very attractive country (transport, tourism, leisure, call centers, customer relations, remote services, IT development and maintenance, agriculture, industry, import-export, logistics, warehousing, etc.) or a company for thinking of relocating its activities there (manufacturing, assembly, packaging, etc.) or relocating itself (in particular holding, subsidiary, branch, etc.).

Two of the main specific characteristics of most offshore companies, which make them totally lacking in credibility, at least from a tax point of view, are ..:

1. they do not physically exist in the host country; in this situation, they benefit from substantial tax advantages granted by the host country, even though they are not established there,
   opacity is maintained by tax havens, which do not disclose the identity of directors and shareholders.