Offshore Companies are commonly used to own/operate all kind of online based businesses. Please check out these links for some examples of how certain kinds of businesses can be set up “Offshore”:
If your product involves selling EBooks – or any kind of Information based product – then you’ll be pleased to know that such a business lends itself well to an “Offshore” Corporate Structuring Plan.
In principle here’s how it can work:
- A nil tax offshore company (commonly an International Business Company “IBC”) is incorporated
- Copyright in the EBook or Information vests in or is transferred to the IBC
- The IBC owns/operates the web-based business (eg ownership of the web-domain and the website/artworks or trademark/s or any sole distributor rights are held by or transferred to the IBC)
- An Offshore account (which received payments via a merchant account) is set up in a nil tax banking centre
- The Company is set up with a (nil tax jurisdiction based) Nominee Director – that way management and control of the Company is seen to be taking place from Offshore ie a nil tax environment, not your place/country of residence. (Generally speaking a Company serving Online or International customers/clients is liable to pay tax in the country from which it is seen to be managed and controlled)
- The sale terms and conditions on the website provide that the purchaser’s offer is not accepted until the Company responds ie by sending an invoice or providing payment instructions which means, in so far as revenue protocols are concerned, that a/the contract is formed/the bargain is struck “Offshore” in a nil tax environment (ie the nil tax jurisdiction from where the Company is seen to be managed and controlled)
- 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 expense 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 or behind a 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 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, 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 (eh Hong Kong, Ireland, Singapore, Cyprus etc as per the Amazon/Google model)
Per above 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 (nil tax jurisdiction based) Nominee Director etc as part of the Corporate structure. See this page for details of how that can work:
Local laws can have an impact. Hence you should seek local legal/tax/financial advice before committing to set up an IBC for such purposes.
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