If you are looking for a software development company, you might be wondering what is the difference between onshore and offshore company? In truth, both onshore and offshore companies are just about the same. An offshore company can offer the same services as an onshore company and both have limited liability. The main difference between an onshore and offshore company is the tax rate they pay. Usually, the tax rate offshore companies pay is very low or zero in some jurisdiction. On the other hand, onshore companies pay normal tax rates which are higher than the tax paid by offshore companies. This article will describe the differences between onshore and offshore companies, including the pros and cons.
What is an Offshore Company?An offshore company refers to an entity that engages in offshoring activities. Many businesses in the United States have started outsourcing their services to offshore companies because of the low cost involved. In case it is expensive to hire domestic professionals, it makes perfect sense to outsource the same services to an offshore company. You can find knowledgeable, skilled, and English speaking workers in East Europe countries, India or the Philippines that you can outsource tasks such as software development.
ProsLow labor cost: The main advantage of outsourcing to an offshore company is that the labor cost is low compared to hiring domestic workers.
Quality: Offshore companies have skilled workers that offer quality services which can meet all your specific requirements.
Communication: Offshore companies always remain in touch with their customers either via phone or email.
ConsDifferent time zones: Working with an offshore company means that you have to deal with different time zones. As a result, you may experience delays in communication.
Cultural differences: You may experience cultural differences while dealing with an offshore company. Even if they speak English, it may not be their first language. Therefore, be careful while passing out instruction to avoid coming out as offensive.
Resolution issues: While it may be easy to solve a problem with a domestic company, the same cannot be said about offshore companies. You will have to deal with a foreign court if you have an issue with a foreign worker, which can be an expensive and tedious process.
What is an Onshore Company?An onshore company is an entity that is incorporated in a home country with the sole purpose of doing business within that specific jurisdiction. In case offshoring is not an option, you can choose to outsource your services to companies located in your local country. You may have to part away with more money in terms of labor cost, but the benefit of this is that you are working with local workers. That means there is no language barrier or cultural differences to deal with.
ProsProximity: The first advantage of hiring an onshore company is that they are close to your business. That means it is easy for you to monitor the projects you have outsourced to them.
Communication is easy: The best thing about working with an onshore company is that you communicate in the same language. Therefore, you can understand each other very well, and there is no time zone to bother you.
Regulations: Dealing with an onshore company means that you are both governed by the same regulations. Therefore, it is easy to tell if the onshore company does not comply with your country's regulation and raise an alarm.
ConsHigh labor cost: Domestic workers usually command a high rate for the same services offered by offshore companies. That means you have to spend more money while working with an onshore company.
Other than the tax rate which is the key with what is the difference between onshore and offshore company, there are other differences you should know. Most of the time, offshore companies cannot operate in the same country they were incorporated. The same cannot be said about onshore companies which operate and are governed in the same jurisdiction they were incorporated. Another difference is that offshore companies are quite simple to form than onshore companies. We here, at Tiempo Development, hope now you understand the difference between onshore and offshore companies.