With the slow decline in the popularity of (&, post Covid, the practical challenges of using) traditional classroom based educational institutions, ever increasing amounts of students are looking for Online learning/educational opportunities.
As a result a new substrata of entrepreneurs has begun to emerge, ie persons & businesses offering direct education products/courses (eg Literacy programs, numeracy programs, financial educational products, online learning tools etc).
With such a business typically the services are offered Online (ie via a website and/or an active online direct marketing campaign) and delivered online (ie via download or via email) or via post/courier.
A business where goods or services are advertised for sale, and/or delivered, online lends itself (rather) well to an “Offshore” Corporate Structuring Plan.
Here’s how such a business will typically work from an “Offshore” Perspective:
- A nil tax offshore company (commonly an International Business Company “IBC”) is incorporated to own/operate the business
- You design/launch a website or Online Product/Sale portal which is owned by the Offshore Company
- The IBC owns all proprietary items (including also the/any Trademarks, Operating software/systems, soft products to be delivered to customers etc)
- Your website/landing page should ideally should be hosted in a nil tax/private Jurisdiction (Iceland is currently the most popular destination for such web hosting, Singapore is also often favoured)
- The clients find you and/or contact you via the web
- The IBC is seen to be managed and controlled from (and ideally beneficially owned from, see below) Offshore. This is achieved via the appointment of a (nil tax jurisdiction based) “Nominee” director.
- Your standard sale agreement/website terms and conditions should provide (a) that a contract is not formed until the customer’s offer is accepted by you (ie the Offshore Company) and (b) that the source of the income is the contract. Before the client clicks buy he/she clicks on a button acknowledging that he/she has read and agrees to be bound by your terms & conditions
- Acceptance of the buyer’s offer would be provided by the Company (which is seen to be managed from “Offshore” via a nil-tax-jurisdiction resident Nominee Director) sending an email or text to the buyer, after he/she has paid online; In simple terms what that means is that the situs of the Contract ie the place where the contract of sale (ie the agreement between you and the buyer for you to supply goods in consideration of the buyer paying), at law, is formed is the director’s location ie a nil tax environment…
- Hence the income – from which the contract of sale is the source – has been/is derived, prima facie, in a zero tax jurisdiction (every time a client buys and you send an email thanking him for payment that concludes as contract of sale at law)
- An Offshore account (which can/will also be set up to receive card payments via a merchant account) is opened in a nil tax banking centre
- Customers/clients contract with and pay the IBC; All such monies are banked free of tax in the first instance
- You or your local company would/could be contracted by the IBC to manage sales/delivery of product/website maintenance/whatever
- (If you need a regular income) 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
- 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).
As alluded to, in order to minimise the chances of the IBC being taxed onshore, ideally, the IBC should/would be (and be seen to be) managed and controlled from Offshore. How this can be achieved is by including a Nominee Director as part of the Corporate structure. For details of how that can work click on these links:
Ideally – so you can swear on oath in the event of a tax investigation, law suit or regulatory inquiry – I am not the beneficial owner of this Company, (which could get you around what might otherwise be a substantial tax or legal liability eg imprisonment for tax evasion) you will want to set up a Private Foundation to act as the shareholder of your IBC. (This should also assist you to get around CFC rules ie if you live in a country which has such regs).
With a bespoke legal/admin structure in place you should only be liable to declare and pay tax on income paid to you by the company (and/or on any distributions paid to you by the Foundation); The rest of your Online sales earnings you should be able to bank, and or invest, Offshore in a nil tax environment.
Similarly, if a product that you sell doesn’t perform and a customer tries to sue you the good news is your personal assets should not be at risk as the customer has contracted with a limited liability Company (ie the Company carries the legal risk, not you personally). Moreover, having your business incorporated Offshore in a foreign/strange land is of itself a deterrent. (Have you ever tried to sue/get money out of an “Offshore” Company? It’s the Litigation Lawyer’s equivalent of climbing Mount Everest!)
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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