Offshore Companies. what are they and why are they?

Topic: Offshore Companies, why they are built, how they are built and operated and what is a tax haven?

What is an offshore Company?
The term offshore company or offshore corporation is used in at least two distinct and different ways. An offshore company may be a reference to:

• a corporation or (sometimes) other type of legal entity which is incorporated or registered in an offshore financial centre or "tax haven";^[1] or
• a company or corporate group (or sometimes a division thereof) which engages in offshoring manufacturing or business services.^[2]

Most of public in world do not know about offshore companies.

British Virgin Island Offshore Registry: Photo Wikipedia.org, Author Legis

Question is why most of the public do not know about offshore companies and their way of action?

 Answer is; we only come to know about a thing when it happens in our life or it is directly or indirectly related to our personal life. Unless some one tell us about it without any reason. Example is do you know Superman? If not then you might be right because superman has nothing to do with you are your family or even your community, but if you say yes, it still has nothing to do with you, your family or even with your community but in second case you know about him  because you have been told about him through movies or stories. Same is the case of offshore companies.

Now why these offshore companies or made?

The reason behind starting and operating offshore companies is always one, i.e., Avoiding to pay TAX to his motherland. Some may say that, that is wrong as offshore companies also pay taxes. My question is to whom they pay tax. Answer is very simple, they never pay taxes to any government in the world, instead they pay tax to a Law firm, which on behalf of them shows that she is paying tax for them. But actual question is still there that whether they pay tax to the country from which they are originated or from which they have funded the offshore company. If they think it is all legal then why they hide these companies while filing returns to their homeland. Why do not they declare their offshore companies in their motherland or a country where they are residing. 

Why do people require an offshore company?

Because they want to hide their property whether legal or illegal. The tax havens never disclose the assets to original countries so people feel comfort to invest if offshore companies if they want to hide their tax details and property count.

What is a tax haven?

A tax haven is a state, country, or territory where, on a national level, certain taxes are levied at a very low rate or not at all.^[1]
It also refers to countries which have a system of financial secrecy in place. Financial secrecy can be used by foreign individuals to circumvent certain taxes (such as inheritance tax on money, and income tax of the interest on the money you have on your bank account). Because the requirement of paying taxes on these funds cannot be transmitted, as the funds themselves are invisible to the country the individual is from, such taxes can be avoided. Earnings from income generated from real estate (i.e. by renting houses you own abroad) can also be eliminated this way. Despite this occasional abuse, the countries themselves stand in their right to have a system of financial secrecy in place, and it is up to the individual to fill in the required paperwork (i.e. double taxation forms). If the proper double taxation forms are filled in, and taxes are paid, companies can avoid much taxes, even if they hence pay their taxes legally. This is because the tax rates on income can be much lower than the tax rate in their own country. Some taxes (such as inheritance tax on the real estate, VAT on the initial purchase price of the real estate -aka Transfer tax-, annual immovable property taxes, and municipal real estate taxes) can not be avoided or reduced, as these are levied by the country the real estate you own is in, and hence need to be paid just the same as any other resident of that country. The only thing that can be done is picking a country that has the smallest rates on these taxes (or even no such taxes at all) before you buy any real estate.^[2]
Individuals or corporate entities can find it attractive to establish shell subsidiaries or move themselves to areas with reduced or nil taxation levels relative to typical international taxation. This creates a situation of tax competition among governments. Different jurisdictions tend to be havens for different types of taxes, and for different categories of people or companies.^[3] States that are sovereign or self-governing under international law have theoretically unlimited powers to enact tax laws affecting their territories, unless limited by previous international treaties. There are several definitions of tax havens. The Economist has tentatively adopted the description by Geoffrey Colin Powell (former economic adviser to Jersey): "What ... identifies an area as a tax haven is the existence of a composite tax structure established deliberately to take advantage of, and exploit, a worldwide demand for opportunities to engage in tax avoidance." The Economist points out that this definition would still exclude a number of jurisdictions traditionally thought of as tax havens.^[4] Similarly, others have suggested that any country which modifies its tax laws to attract foreign capital could be considered a tax haven.^[5]
According to other definitions,^[6] the central feature of a haven is that its laws and other measures can be used to evade or avoid the tax laws or regulations of other jurisdictions. In its December 2008 report on the use of tax havens by American corporations,^[7] the U.S. Government Accountability Office was unable to find a satisfactory definition of a tax haven but regarded the following characteristics as indicative of it: nil or nominal taxes; lack of effective exchange of tax information with foreign tax authorities; lack of transparency in the operation of legislative, legal or administrative provisions; no requirement for a substantive local presence; and self-promotion as an offshore financial center.
A 2012 report from the Tax Justice Network estimated that between USD $21 trillion and $32 trillion is sheltered from taxes in unreported tax havens worldwide.^[8] If such wealth earns 3% annually and such capital gains were taxed at 30%, it would generate between $190 billion and $280 billion in tax revenues, more than any other tax shelter.^[9] If such hidden offshore assets are considered, many countries with governments nominally in debt are shown to be net creditor nations.^[10] However, despite being widely quoted, the methodology used in the calculations has been questioned,^[11] and the tax policy director of the Chartered Institute of Taxation also expressed skepticism over the accuracy of the figures.^[12] Another recent study estimated the amount of global offshore wealth at the smaller - but still sizeable - figure of US$7.6 trillion. This estimate included financial assets only: "My method probably delivers a lower bound, in part because it only captures financial wealth and disregards real assets. After all, high-net-worth individuals can stash works of art, jewelry, and gold in 'freeports,' warehouses that serve as repositories for valuables—Geneva, Luxembourg, and Singapore all have them. High-net-worth individuals also own real estate in foreign countries."^[13] A study of 60 large US companies found that they deposited $166 billion in offshore accounts during 2012, sheltering over 40% of their profits from U.S. taxes.^[14]

(all purple text is from wikipedia.org)