how does offshore corporation works?

Rivka Killmer: Yes - that is correct. If you have a business in another country and it does some of the work there then you can perhaps shelter some of your business profits there. However a few points:1) You actually have to do work there not just have done some paperwork and a mail box. 2) You have to split profits between the US and off shore corporation in a way that will survive an audit. It has to pass the giggle test ie when you explain what you are doing to the IRS agent - does he break down laughing? (OK - that is the formal definition but you know what I mean). 3) If you set up manufacturing in the Cayman Islands and then ship to the US. Yes the US company can buy the articles at a price where your US company would show very little profit. (You would want to minimize profit in the US company). 4) I assume your business is organized as a C corporation? If it is a S Corp or LLC, then none of this works because US tax law says that all US citizen's income is taxa! ble no matter where in the world it is made. A S Corp or LLC just rolls the business profits over onto the individual's tax forms. 5) If you have a C Corp and you are setting up something similar in another country, then you should have your CFO hire a counseling firm to walk you through the mechanics of doing this. Note that what the "big guys" are doing is holding the company's profit offshore. If they bring it back to the US - it will be taxed. So if you have something you want to spend that money on in a different country related to the business - go ahead. But if your goal is to have that profit to eventually make its way back into your pocket or even for use to build your US business - forget it. You still will pay taxes on your profits and now you have wasted your time and a lot of money on complexity that does not help you at all. It is possible to set up a shell off shore corporation and try to scam the IRS but the odds are very high that you will be caught becaus! e international banking transfers are closely monitored. Then! you will be audited a few years down the road and need to pay huge penalties plus face potential prison time. Note that you would be spending your years in a "country club" federal prison if that makes a difference :-) If you want to do something illegal then I would suggest all cash businesses such a selling drugs, etc.....Show more