HOW TO SET UP AN IT/WEB SERVICES BUSINESS OFFSHORE

 

Offshore Companies are commonly used to own/operate IT Services Businesses. In principle here’s how it can work:

 

  • A nil tax offshore company (commonly an International Business Company “IBC”) is incorporated

 

  • The IBC owns the web based business (ie it owns all proprietary items including website, IP, operating software, soft products to be delivered to customers etc)

 

  • All services are provided/delivered via the web or via email

 

  • The IBC is seen to be managed and controlled from – and is seen to be delivering services from –  a nil tax jurisdiction

 

  • Any commercial agreements entered into (and/or terms and conditions agreed to) should clearly state that services are being delivered from x country (ie the Offshore/IBC jurisdiction) and that the contract is formed/closed in that jurisdiction

 

  • An Offshore account (which receives payments via a merchant account) is set up in a nil tax banking centre

 

  • Ideally the server is located in a country which does not tax business on the basis of server location (eg Singapore)

 

  • Customers contract with and pay the IBC. All such monies are banked free of tax in the first instance

 

  • You or your local company would be contracted by the IBC to manage sales/delivery of product/website maintenance/whatever.

 

  • You would invoice the IBC periodically (eg monthly) for this service which income would be assessable income in your home state – though a smart Tax Accountant should be able to assist you to claim a series of expenses against this income (eg home office, equipment, travel, phone/internet/utilities etc) to significantly reduce the amount of tax payable on this income.

 

  • Often there is some kind of intellectual property (“IP”) created as part of or underpinning such a  business (even if it’s just the website/design). It may be advantageous to you down the track if ownership of the business and the IP were held by 2 different entities. What you can do there is set up a 2nd IBC to own the IP. The first IBC (ie the Trading Company) pays license fees periodically to the 2nd IBC which fees wold be receipted tax free. This could be advantageous if you wanted to bring ownership of the web-business onshore or if you wanted to sell the business but keep a passive (potentially tax free) income stream

 

  • Ideally once you start to grow you and to add substance you would be wise to set up your MD/Board and or a sales team to take orders and receive income in a low tax onshore environment (eg Hong Kong, Ireland, Singapore, Cyprus etc as per the Amazon/Google model).  

 

To minimise the chances of the IBC being taxed onshore ideally the IBC should be (and be seen to be) managed and controlled from offshore. How this can be achieved is by including a Nominee Director etc as part of the Corporate structure. For details of how that can work click on these links:

 

http://offshoreincorporate.com/faq/should-i-engage-nominees-or-should-i-direct-and-hold-the-shares-in-my-offshore-company/

http://offshoreincorporate.com/faq/how-can-i-protect-my-underlying-ownership-of-my-offshore-company-where-a-nominee-is-engaged-to-act-as-director-or-shareholder/

 

Local laws can have an impact. Hence you should seek local legal/tax/financial advice before committing to register such a structure.

 

 

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