Should I incorporate offshore since my business will focus on China/India?

Friday, October 19, 2007

Fred Greguras, Fenwick & West, http://www.fenwick.com/

This decision is driven by the likely exit strategy and the type of investors most interested in your business. Exit alternatives such as an IPO on the Indian or Hong Kong stock exchanges are not possible if you are a U.S. corporation. Some global investors will invest only in an offshore corporation such as a Cayman Islands exempted company while some domestic U.S. venture capitalists will still only invest in a U.S. corporation.

You can reincorporate from one state to another, i.e., California to Delaware, on a tax-free basis but you can’t reincorporate outside the U.S. without tax consequences. Reincorporation offshore almost always will cause the corporation to remain subject to U.S. taxes under Internal Revenue Code Section 7874. If you initially incorporate offshore you can reincorporate into the U.S. on a tax free basis so if in doubt, start offshore at the outset.

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