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IBC and LLC: what's the difference?

calendar 2/10/2023 8:00:00 AM
author Admin System

The reader has probably found these terms in many publications. It's quite obvious that we're discussing types of corporate structures that are usually used as offshore instruments. If you want to open an IBC abroad, you're probably wondering if this is the right structure for you and this is only natural. Together with the jurisdiction, the structure is an important decision that you have to make. Both the IBC and LLC are the subjects of our article.

Open an IBC abroad

Let's start with the IBC, which stands for International Business Corporation. In essence, the structure was created as a company that operates in a different place than its country of registration. Thus, the owner goes to the best offshore company jurisdiction to get better tax rates and incentives. 

When we talk about a company, we need to consider three factors: who is the owner? What is the capital of the company? What's its purpose?

In an IBC the owners are what we call shareholders. Simply speaking, the company is opened with a certain capital which is divided between the shareholders in the corresponding percentages (according to their contribution). 

These structures have different officers: shareholders (owners), directors (the person who runs the company, authorizes transactions, signs legal documents, etcetera). Now, the amount of directors, shareholders, and secretaries, if any, will depend on the rules of the jurisdiction in question. The best offshore company jurisdiction is the one that offers the highest level of flexibility in all aspects: taxes, incentives, requirements for annual meetings, requirements to have a physical office and staff, and requirements to present annual reports and audits. 

In the past, if you wanted to open an IBC abroad this meant total freedom as these structures were free of tax and didn't require reporting. They also didn't entail expenses like a physical office because the whole point of the registration was to conduct activities elsewhere. However, in the past decade, this changed through the BEPS and substance requirements regulations. 

Offshore LLC

Now it's time to present our second structure: the offshore LLC. The principle of the LLC dates back to the late 19th century but it was born as we know it today in 1977 in the state of Wyoming. 

An LLC is a structure that doesn't have owners but members. They will be the ones to create this structure by contributing a certain amount of money. Thus, instead of shares, members own membership units. Moreover, the LLC shifts ownership and liability to the structure. This means that each member is only liable for the amount that they invested, and the structure is 100% separated from the personal assets. So, if any claimant should appear or if the company has debts, the owners (members) don't have to answer with their personal assets. All in all, choosing an IBC or LLC is a matter of where the liability lies. 

IBC-LLC comparison

The main difference is that the LLC is a much more flexible and protective structure. Both an IBC and LLC would be excellent options for the international investor, which one, in particular, depends on the case.

A particular characteristic of the LLC is its pass-through taxation treatment. In other words, the LLC doesn't pay corporate tax, instead, each member must present its company earnings through their personal tax returns. 

An offshore LLC is also more flexible when it comes to ownership. If two members, for instance, invest $10,000, the company can be divided 75% against 25% if one member will be working more than the other.

This cannot happen in an IBC as each owner has the corresponding number of shares, and to change this they have to sell them as with any other product.

Finally, the LLC attracts many businesspeople for its protectiveness. The fact that their personal assets are protected against corporate claims is quite attractive.

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Open an IBC abroad or an offshore LLC 

Now the IBC-LLC comparison has come to the best part. Let’s see some examples in the real world. 

Seychelles IBC 

Open an IBC abroad in the best offshore company jurisdiction by choosing Seychelles. Here you can open an IBC abroad with only one person who can act as shareholder and director at the same time. Nationality is not an issue either. Thanks to its territorial tax system, Seychelles can bring excellent tax optimization benefits. All the assets that your company owns abroad will be free of tax in Seychelles. Finally, if you're deciding between an IBC or LLC, remember that Seychelles is one of the few jurisdictions that doesn't have economic substance. Also, its rates are among the lowest in the industry. For more information about the advantages and disadvantages of Seychelles read our article here.

Belize LLC

Here is a great example of an offshore LLC-type company. Moreover, with a Seychelles IBC or LLC in Belize, you’ll find similar advantages. Belize also has a territorial tax system and low costs. Moreover, it has some extra incentives, for example, for people that are part of the QRP program, a special residency for retirees similar to Panama’s pensionado visa. When it comes to confidentiality, Belize is one of the best options. The members of an offshore LLC do not appear in public records and neither do their financial balances. If you want to know more, check out our article about Belize LLC.

Saint Lucia IBC

Although St. Lucia doesn't have a minimum capital required, company owners usually deposit $50,000. All in all, Saint Lucia is a great place to open an IBC abroad because the structure ticks all the boxes: the names are not published on public records, the process is simple, and you can conduct all kinds of activities. To maintain your company, you have to keep the financial balances available for the authorities and present reports each year. Unlike Seychelles, Saint Lucia does have substance requirements. Is this a good or bad thing? It depends on how you want to operate and with whom: while substance requirements require more time and effort, they may be handy when it comes to proving the company's good standing, conducting international transactions, proving ownership, etcetera. The register requires you to direct and manage your structure in Saint Lucia when you open an IBC abroad. Also, you must hire qualified employees and have expenses that correspond to your activities. By the way, those activities that generate the most income should be conducted in St. Lucia.

IBC or LLC? Best offshore company jurisdiction

The corporate world is full of different shades of grey. If you want to open an IBC abroad, the corporate process is very close to the process of creating art. It's not easy to say which structure is better, the IBC or LLC, since the answer will depend on each case. In general, an IBC works well for large groups of investors with a common goal. An offshore LLC, on the other hand, is managed by a few people. 

While the IBC cannot conduct activities in the country of incorporation, the LLC doesn't have such a restriction. However, an IBC has its own income, which can be held by not paying dividends and thus reinvesting the capital. With an LLC, all financial matters must be settled within the same year. 

The reader should bear in mind that the conditions described here are merely informative. Both the IBC and LLC have different requirements depending on their country of incorporation and the client’s particular case. 

To find out which structure is best for you, don't hesitate to contact us.

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