How to Close an Offshore Company

How to Close an Offshore Company

11/14/2014 - 12:03 PM
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IRS Data Collection

Did you form an offshore company but the business didn’t go as planned? Do you need to close an offshore company? There are two ways to go about this.

To close an offshore company that’s never done any business and has not yet opened a bank account, “allow it to die a natural death.” This is what we in the business call it when you stop paying the annual fees (usually about $800 per year).

An offshore company dies a natural death and is struck from the register of companies when you don’t pay the annual fee for two years. After 12 months, the company is listed as inactive. After 24 months it is usually deactivated.

Remember that you have no personal liability for the annual fee of an offshore company. While your incorporator (including Premier) will send you bills, you are under no legal obligation to pay them. If you have no other considerations, this is the best way to close an offshore company.

Though, let’s look at some of those “other considerations.”

You must continue to file your U.S. offshore company tax returns (usually IRS Form 5471) so long as you have a bank account or conduct any type of business. When you are ready to close an offshore company that was active, or one with a bank account but no business, you need to file a final U.S. return.

This requirement doesn’t affect your ability to allow the offshore company to die a natural death once your filing obligations are over. You can still close the offshore company by not paying the annual fee so long as you file your US forms.

The same goes for the Foreign Bank Account Form (FBAR). If you have $10,000 in an offshore bank account, even if it’s only for one day, you must file an FBAR. I suggest that anyone required to file an FBAR must also file their corporate tax returns.

Also, while you are obligated to file these forms, you should not close an offshore company. Your entity should always be in good standing in years you are obligated to file U.S. tax returns and/or FBAR forms.

So, if you have any bank accounts or assets outside of the United States held by the offshore company, it should remain in good standing. Once you liquidate those assets, keep the company active through the end of that calendar year. When you have no more U.S. filing or reporting obligations, go ahead and close the offshore company.

Of course there are exceptions to this general advice. If your business or offshore company has a carry-forward loss, or there are shareholders who demand you formally close, you need to file forms to close the offshore company. In this case, you should expect to spend $1,500 to $2,500 to dissolve the company. Additional fees may apply if your shareholders require certified documents.

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