Do you offer and deliver services online and or to an International Clientele?
Tax Free Offshore Companies are commonly used to own/operate online businesses.
In principle here’s how it can work:
- A nil tax offshore company (commonly an International Business Company “IBC”) is incorporated to own/operate the business
- You design/launch a website which is owned by the Offshore Company
- The IBC also owns all proprietary items (including also the/any Trademarks, Operating software/systems, soft products to be delivered to customers etc)
- The website ideally would be hosted in a nil tax/private Jurisdiction (Iceland is currently the most popular destination for such web hosting, Singapore is also often favoured)
- Your 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 may be 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 customers 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 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 services 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 a contract of sale at law)
- The Services that your Company has been contracted to provide are then delivered online.
- An Offshore account (which can/will also be set up to receive card payments via a merchant account) is opened in a banking centre that does not tax bank deposits or interest paid by banks on bank deposits
- 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 as tax deductions/write offs against this income (eg home office, equipment, travel, phone/internet/utilities etc) to significantly reduce the amount of tax that would otherwise be payable on this income (Assessable Income less Allowable Deductions = Taxable Income)
- 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 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 minimize 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 (nil tax jurisdiction based) “Nominee” Director as part of the Corporate structure. See these pages for details of how that can work:
Ideally – so you can swear on oath in the event of a law suit tax investigation, or regulatory inquiry – I am not the beneficial owner of this Company, you will probably 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).
The end result? With such a bespoke legal/admin structure in place (a) Vultures should not be able to get their claws into any assets/income streams owned by the Offshore Company and (b) you should only be liable to declare/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 Offshore Company’s earnings you should be able to accumulate, and or reinvest, Offshore in a nil tax environment. Tax should only be payable when you sell the business (unless at that time you’re living in a nil tax country) enabling you to grow your capital far quicker during the lifetime of your business thanks to the power of compounding.
Similarly, if a service you provide doesn’t meet a client’s expectations and the client tries to sue you the good news is your personal assets should not be at risk – as the client 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 to potential claimants (Have you ever tried to sue/get money out of an “Offshore” Company? It’s the Litigation Lawyers equivalent of climbing Mount Everest!)
Local laws though can have an impact. Hence you should seek local legal/tax/financial advice before committing to set up an IBC for such purposes.
Would you like to know more? Then please Contact Us:
info@offshorecompaniesinternational.com
DISCLAIMER: OCI is a Company/Trust/LLC/LP/Foundation Formation Agency. We are not tax advisers or legal advisers. You are advised to seek local legal/tax/financial advice in regards to your local reporting/tax requirements before committing to set up or use an Offshore Company or other entity.
