Have you ever wondered what an LLC is? Or what an IBC is for? Or what the difference is between those and an Ltd?

Today we are going to discuss the characteristics, advantages and disadvantages of the three most popular types of offshore companies.

When we last discussed the issue of offshore companies, I explained what an offshore company was.  As you will remember, regardless of what the media says, in most cases offshore companies are neither illegal nor illegitimate.

You won’t have any problems using offshore companies if you live in a country which is free from CFC rules, otherwise, it may have some difficulties.

Anyway, just because its difficult doesn´t mean it´s impossible, in the article on CFC rules you have all the information you need to avoid problems with them.

So, you should know what the Flag Theory is by now and that there are different tax systems in the world, including many that allow you to live without paying hardly any taxes.

However, you probably still have a lot of questions about the possible legal structures of offshore companies. The most common structures for offshore companies are:

  • Limited Liability Companies (LLC)
  • International Business Corporations (IBC)
  • Limited Company (Ltd)

Obviously, there are a lot more, but these three are the most popular and they should be much more thoroughly examined.

I will begin by briefly discussing some of the characteristics of the companies in general (if you are already familiar with them, you can skip this part). It is first paramount to understand what a company is in order to differentiate between an Ltd, IBC and LLC.

Following this, I will discuss each offshore company type in more detail and I will give you an example of a particular jurisdiction. With this information, you can then promptly establish your business if you wish (as long as you reside in the right country or you are a perpetual traveller).

By the end of this article I hope I will have cleared up everything a little more for you, so that many of the “secrets” of the offshore world are no more.

Characteristics of the companies

Although there have been similar concepts throughout history, the concept of a business or company as we know it today is relatively new since it originated from Britain in the sixteenth century.

It was introduced to help stimulate the emerging transatlantic trade by reducing costs and risks. Thus was born the idea of companies and limited liability.

Many things have changed since then, but the idea of limited liability remains, which seems to be the most important characteristic of a company.

While the owners of personal business associations have unlimited liability, the liability of companies and corporations is limited to the value of an initial deposit.


Companies today have legal personality, i.e. , they are viewed as being people (this was not always the case).

It´s important to understand that companies have rights and obligations, as well as being able to own property, like any other human being.


What does responsibility mean in the field of business? As we mentioned previously, companies are entities with the same (or similar) rights and duties as legal persons.

Therefore, a company can sign contracts, receive loans, get into debt, sue others and be sued, if something goes wrong.

You can sue the company for what it has done, but you are unable to sue its management or partners (as long as they are not directly involved in said illegal actions). Moreover, even in this case, the company’s management would be the only party responsible, not the partners (owners of the company).

Partners benefit from limited liability.  They are only responsible for the actions of their “creation” with the initial amount deposited when setting up the company.

If you already own a company you probably already knew this and it may seem silly to you, but it´s not.

There are many entrepreneurs who are self-employed or similar and are fully responsible for what their business does. This means that a potential creditor could appropriate all of your real estate, house, car, money…

Meaning that you could lose everything (which won´t happen provided you have taken the necessary measures to protect your assets, of course).

This is why every freelance worker, whether they are an adviser or they are engaged in any other activity, should do business through a company that allows them to limit their liability (or at least ensure it in some way).


Companies are always owned by someone. Although companies may own other companies, there are always one or several individuals behind the ownership of these entities.

In the case of companies there are different definitions of the term “owner”, but it generally refers to natural persons who own at least 20 to 25% of a company.

Shares allow you to determine the specific degree of ownership that shareholders or associates have over the company. The more shares a shareholder has, the more of the company he or she owns.

Companies have a certain amount of social capital. In the case of an IBC for example it could be $100,000, which could potentially be converted into 100,000 shares. However, it is not necessary for the social capital and shares to correspond precisely. There could also be 500 shares at $20 each, for example.

Depending on the jurisdiction, differences may exist between the social capital and the amount of monies deposited. As soon as the company goes public, this becomes more and more complicated.

Differences between the Limited (Ltd), International Business Company (IBC) and the Limited Liability Company (LLC)

We just finished discussing the three basic features of every company: legal personality, responsibility and property. Now let’s look at the really interesting stuff, the comparison of the three most popular legal offshore structures.

While the Ltd and the IBC are quite similar, the LLC differs somewhat more from the usual structure of an offshore company.

What is an IBC?

Generally, the IBC is a company with limited liability without any obligations. It is the most used business structure in the offshore world and is characterized by being exempt from taxes, accounting (perhaps not officially, but in practice) and by the anonymity of its owners.

As far as the internal structure is concerned, there are no major differences between the IBC and the Ltd. They both have their administrators and partners, social capital, limited liability and share many of their other characteristics.

Here are some of the specific advantages that the IBC has over the Ltd:

  • The administrators do not appear in any public record.
  • The company’s partners aren’t registered publicly either.
  • You only need one administrator and partner it’s enough (they can also be the same person).
  • Social capital and the distribution of shares can be determined freely.
  • You don’t usually have to deposit more than one dollar of the share capital (the rest remains in a promise of payment).

In addition to the aforementioned advantages, IBCs also have the following characteristics:

  • No corporate taxes or at least the exemption from them.
  • There are minimum or non-existent regulations for accounting.
  • It´s not mandatory to publish your annual accounts.
  • There is hardly any communication between you and Administration (with the subsequent saving of time and money).

A disadvantage (which is generally irrelevant) compared to most of the Ltds is that IBCs cannot operate in the jurisdiction of origin, i.e. if they sell in the country in which they are registered they have to pay taxes.

However, this disadvantage doesn´t really matter because the Jurisdictions in which you set up IBC´s usually consist of small islands with few potential customers.

Another disadvantage is that depending on where you live, it´s possible that due to the fiscal transparency system and CFC rules you cannot set up your IBC company without having to create a business substrate too (i.e. having offices and a manager) to avoid them making you pay taxes for it in your country of residence.

So, what is an Ltd and when should you set one up?

Now that we´ve seen all the advantages an IBC has to offer, we might ask ourselves why anyone (i.e. a resident in the right country) would go for an Ltd.

The main disadvantage of an Ltd is also their biggest advantage.

I´ll explain myself.

The fact that you must manage and present an Ltds accounting improves the company’s reputation (apart from the fact that a Limited type of company is much better known in the world of business).

When you need a bank account for your business, working with a Limited company will make things easier for you.

On the other hand, when IBCs sell to companies in countries of high taxation or with greater controls, these companies are usually required by those Countries to withhold a part in taxes. Moreover, in some cases IBC invoices are not tax-deductible (it depends on the country, as the Treasury doesn´t always accept invoices from companies that are located in tax havens).

And finally, Ltd´s can also be exempt from taxes. This is especially true in countries with territorial taxation, those in which only income obtained from the country is taxed, but not income obtained from abroad.

Hong Kong and Singapore are well-known examples of countries where you can have a Limited company and avoid paying taxes (lesser known examples like Georgia or Malaysia are even more intriguing).

In fact, for those who would prefer to pay some taxes on their Ltd, you can actually do this on a voluntary basis in some countries. In this way, double taxation agreements will allow you to reduce the taxes you end up paying in your country of origin.

This is something that you can´t usually do with IBCs, since they can only really be established in tax havens and within jurisdictions that don’t often have such useful setups.

Of course, the tax exemption with a Limited comes at a price.  You will have to ensure your accounting is accurate and well-detailed, and in the case of a Hong Kong Limited your company will even have to be subjected to annual audits.

The local authorities are much stricter and you may even have to maintain a real office within the country, as a virtual address or address of the agency with which you have set up your company is not enough.

As previously mentioned, no official will ever question your IBC´s accounting or what you do as long as you punctually comply with the annual payments for the companies maintenance, in the very jurisdiction in which you established it.

IBCs do not pay taxes, but are usually subjected to annual fees (in addition to the company’s establishment). Depending on your IBC´s jurisdiction you will pay 500 and 2,000 dollars annually (you can check our IBC establishment prices here).

All in all, these amounts are probably well below what you would otherwise pay in taxes (without including accounting services and tax advice).

Setting up a Limited Company

Without a doubt, the most common country to establish a Limited company is in the United Kingdom. This is a very popular option among Europeans because with it you can easily manage the company even if you live in countries with high taxation, such as Spain, Italy or Germany.

The British Limited company is extremely fast and cheap to set up. If you wish, we can help you set up this type of company, it will cost 100 GBP to establish it and then it´s 400 GBP a year including all the necessary forms and records (this does not include accounting).

Of course, the United Kingdom isn´t the only option, you can also choose to set up your Ltd in Estonia, Ireland or Malta, among others.

Setting up an IBC

As we mentioned above, Tax Free Today can also help you to set up an IBC. If you go to offshore jurisdictions and establish your IBC there directly, you will certainly find cheaper prices than what we can offer, but for those who want to avoid the trip and Administration problems, asking for our help could be an interesting alternative.

Generally, the cheapest IBCs cost around $500 in its basic variant, to which you must add a similar amount for administration costs and annual fees. If you also want to open a bank account (which is essential in order to receive payments from your customers), this will cost around $1000.

For these prices, you could open an IBC in one of the typical legal safe havens which all have very bad international reputations, such as Belize, the Seychelles or on some of the small Caribbean islands.

Although the characteristics of IBCs don´t differ much in other countries, you can also set them up in jurisdictions which have better reputations. For example, you could set up your IBC in the Bahamas, Panama or on the Mauritius Islands (IBC´s are known as Global Business Corporations there (GBC2) and cost around $1,500.

The most expensive jurisdiction to set up an IBC is in the Cayman Islands, where their establishment costs alone come to around 4,000 Euros. The annual rates are also higher than in other countries, although not that much.

Limited companies are the most expensive companies in the world of tax optimization, and not IBC´s.  We have already spoken previously about companies in Ras-al-Khaimah, in the United Arab Emirates, where the establishment of a company costs around 2,700 Euros (with the administration costing around two thousand Euros on top of that).

Find out more about what to do

Before setting up your company, it´s important to learn more about what is being offered to you. With this I don´t only mean that you should compare prices, but, above all, that you find out if you actually need what the offer or “offshore package” that has caught your attention is trying to sell you.

Agencies will often try to sell huge packages that, even if they look good, are not always necessary and involve huge expenses.

So, keep in mind that if you want to compare the different options being offered to you, you can use our independent consultation service (as well as the free and in-depth information found on the Tax Free Today blog).

Now, before you rush into setting up an IBC or Ltd let me tell you about your third option; the LLC.

What is an LLC?

An LLC is a mix between a partnership and a limited liability company.

Just like a Limited company, LLCs limit liability but instead of creating their own legal personality they are fiscally transparent, i.e. their revenues are treated as if they were going directly to the owners, thus avoiding taxes on dividends and double taxation (taxes are avoided at source).

Owner(s) of an LLC

The ownership of an LLC is established through an Operating Agreement. LLCs don´t have shareholders or directors, only members. These members own a certain percentage of the company, similar to what happens with shares.

The great advantage of LLCs is the considerable flexibility they provide in their structure. Imagine that two people, James and Elisabeth, created the company. Both invest 10,000 Euros into the company, but agree that Elisabeth will own 75% of the business. They decide this based on the fact that Elisabeth is going to actively run the business, while James will remain on the sidelines as an advisor and investor.

Moreover, LLC´s allow the easier creation of more complicated structures. An LLC with 10 members for example could distribute 20 “units of participation” to each of them. But for the members who have a more active role within the company, they could receive 20 “super units” that are worth twice as much as the other units.

Ultimately, LLCs offer you a lot of options in this regard, as long as this is clearly specified in the Operating Agreement.

Although being able to modify an LLC´s ownership as you wish is very advantageous at operational level, this option is often perceived as a risk by banks. For this reason, it is often quite difficult to find bank accounts for LLCs.

Regarding the partner structure of LLC´s, it is also important to bear in mind that although they were intended to be a partnership, it is also possible to create one-person LLCs (in fact, this is the most common form of LLCs found in the United States).

Even in jurisdictions where LLCs are required to have a minimum of two partners, since they can also be legal entities, you could either use another company you own or just hire someone to be a member.

LLC taxes

As we mentioned above, LLCs are fiscally transparent entities, which means they pay taxes in a very special way.

Although it is technically incorrect to say that they are completely tax-free, it is usually the case (as long as you reside in a tax-free country or one that has territorial taxation).

The profits of an LLC company go directly to its members.

The direct transfer of profits to members is very similar to what happens in the case of the self-employed. Profit is taxed through income tax in the member’s country of residence. For example, if the LLC obtains a profit of 100.00 Euros, Elisabeth (75%) and James (25%) would have to declare 75,000 and 25,000 Euros respectively in their annual statements.

But this is only in theory, since James and Elisabeth are well-prepared.

James lives in a country with territorial taxes, in which foreign income is not taxed (just like in Panama, Costa Rica, the Philippines, Thailand or Georgia). Elisabeth is a Permanent Traveller, doesn´t have a fixed residence and doesn´t pay income tax anywhere in the world.

In such cases, American LLC´s remain tax-free.

Nor do they have to worry about accounting. Although this varies depending on jurisdiction, the regulations are generally quite similar (as was the case with IBCs).

In principle LLCs should keep accounts, but since they are not required to present said accounts to any authorities, they don’t actually have anything to account for.

However, maintaining the inflows and outflows of your companies money in an excel, so you know its liquidity status and your profits and losses, won´t do the entrepreneur or company any harm.

Setting up an LLC

American LLCs are not what they used to be, they are not as simple to set up or manage as they were in the past and they don’t always allow you to save on taxes (depending on what you are looking for, LPs in Canada may be a better option).

Despite this, setting up a company there continues to be much simpler and cheaper than setting one up in many other countries. As in the past, if you meet the requirements you could be selling your products/services in almost everywhere in the world without paying taxes (one of the requirements is that you do not have clients in the US).

If you want to set up an LLC in Wyoming, Florida, New Mexico or Delaware, we can help you.

Other options include LLCs in the Cook Islands and Nieves, which are very attractive if you´re thinking of asset protection. For a fee of $900 (+ $ 900 per year) you can set up and maintain an LLC with a high degree of protection and anonymity that makes it very difficult for potential creditors to access your money.

Ltd vs. IBC vs. LLC. Which is the best option?

Even after this comparison you probably still won’t know which of these options the best is.

Unfortunately, as often happens in these cases the question cannot be answered generally, it completely depends on your personal situation, the type of business you have in hand, and your objectives and preferences.

IBCs and Ltds may be attractive for people who live in countries with residence taxation (this generally includes all European jurisdictions), but without CFC rules and company residency tests (they hinder the business administration of foreign companies).

Profit doesn´t go directly to the members, and can therefore be retained in the company and distributed at a later date.

If you live in a country with CFC rules (such as the UK), the IBC or Ltd can always help you as long as you keep in mind that there are certain limitations and you are able to create a business substrate (i.e. an office and director).

For those who live in a country with territorial taxation, the LLC, a fiscally transparent entity (as explained above), can be a great option if your income doesn´t come from local businesses.

Don´t forget, if you want us to help assess your situation you can always set up a consultation with us (otherwise, you can continue soaking up this subject thanks to our blog and subscriber material).