How To Dropship Using a Tax Free Offshore Company


By “Dropshipping” we mean a business where the customer orders something either via email or directly via your website and you then arrange for the manufacturer to post or airmail or courier the item direct to the customer.


In principle here’s how dropshipping can/will work via a tax free Offshore Company :


  1. A nil tax offshore company (commonly an International Business Company ie “IBC”) is incorporated (Let’s say the Company is called “IBC Trading Limited”)
  2. IBC Trading Limited (hereinafter “IBC”) owns/operates the business (eg it owns the web-domain and the website/artworks or trademark/s or any sole distributor rights are held by or transferred to the IBC)
  3. You post terms and conditions on your website and or in your order form that effectively say the client is buying from IBC and that the contract is concluded Offshore (ie in a nil tax environment).
  4. The client submits his order via the website or via email
  5. IBC sets up an Offshore bank account, in a nil tax banking centre, which receives customer payments (including ultimately those made via a merchant account)
  6. Ideally the website and server are hosted/located in a country which does not tax business on the basis of server location (eg Singapore)
  7. Customers contract with and pay IBC. All such monies are banked free of tax in the first instance
  8. IBC pays the manufacturer for the goods. The manufacturer ships (or couriers or posts or airmails) the product or goods direct to IBC’s customer
  9. You or your local company would be contracted by IBC to manage sales/delivery of product/website maintenance/whatever.

10.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 expense against this income (eg home office, equipment, travel, phone/internet/utilities etc) to significantly reduce the amount of tax payable on this income.

11.Often there is some kind of intellectual property (“IP”) created or behind the website based 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 would 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

12.Ideally once you start to grow, and to add substance, you would be wise to set up your MD/Board and or a sales team onshore to take orders and receive income in a low tax onshore environment (eg Hong Kong, Ireland, Singapore, Cyprus etc ie 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 including a Nominee Director etc as part of the Corporate structure. See this page for details of how that can work:


To get around local CFC (“Controlled Foreign Corporation) laws and or prevent the existence of IBC’s bank Account coming to the attention of your local authorities you will also want/need to set up a Foundation to hold the shares of your tax free IBC/Offshore Company.


Local laws can have an impact. Hence you should seek local legal/tax/financial advice before committing to set up an Offshore Company for such purposes.


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