International Business Companies (“IBCs”) are commonly used as Offshore Tax Minimization vehicles for businesses that source product in one country and sell it in another.
Often I’m asked how such a business might be structured.
Essentially there are three different ways such a business could be run:
- As an import/export business ie where instead of your onshore business buying stock from an overseas supplier you have your tax free Offshore Company buy it and on-sell it to your onshore business for a substantial mark-up (thus enabling you to potentially bank the majority of the ultimate sales profit in a nil tax environment). See here for details of how that can work: http://offshoreincorporate.com/how-to-use-an-ibc-for-international-trade-import-and-export/
- As a website based business. In this situation you set up a zero tax Offshore Company to own the domain name/website/server. All orders are placed either via the website or via email and all payments made direct to the nil tax Offshore Company (eg via card through a merchant provider or payment gateway such as paypal). Packages once ordered would be airmailed or couriered direct to the customer by the manufacturer (albeit with your packaging/branding).
- Where the tax free Offshore Company (“IBC”) buys the stock and keeps a warehouse in your home country/city – but pays you (or your local business/company) a modest sales commission /percentage to distribute the stock. If that is your preferred option you’ll need to get legal and or taxation advice (a) firstly to see whether the IBC will require some kid of business license in your home state and (b) to find out whether having a warehouse in your home city/state will make the IBC liable to pay tax there on its sales profit.
Note these are generic structuring models. Local law can impact on viability hence legal/tax advice should be sought prior to commencing such a business.