With renowned privacy features, relatively low maintenance costs (ie compared to similar onshore entities) and ease of establishment the classic privacy haven International Business Company (eg Belize, Panama, BVI, Nevis, Samoa, St Vincent, Seychelles etc) has risen to become the preferred International Business entity for discerning investors and International/Digital entrepreneurs the world over.
- Exemption from most taxes, including income/business tax, stamp duty and capital gains tax
- Shareholder, Underlying Beneficial Owners and Directors’ details are usually not publicly available
- No need to hold annual general meetings, or to file annual returns
- No need to file annual returns
- No need to keep audited accounts
- Low set up and admin costs
- Can carry out a wide variety of activities as of right
IBCs for selling Web Domains
IBCs are commonly used by Web Domain Resellers.
It makes no difference whether you are producing/registering/selling new Domain names or whether you are buying existing Web domains from different providers, trading profits resulting from the sale of such Domains should be taxed in the country of incorporation.
Generally speaking, pursuant to the principles of International Tax law:
1) The purchase of the product in the above example should not give rise to taxation in Country 1; and
2) Provided that the IBC does not have a “permanent establishment” or a fixed business address/office in country B, then no tax assessment should be levied against the IBC in country B
How it Works Practically
Here’s how such a setup usually works:
- 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 creates or acquires all proprietary items (including also any Trademarks, Operating software/systems, Domain names and other soft products to be sold/delivered to customers etc)
- The website 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 world wide web. All comms are web based. All products are delivered via the web
- A web based business has no physical store that a tax man/regulator can point to as the point of sales generation. Hence such businesses are usually taxed in the country from which they are seen to be managed/controlled.
- The IBC should seen to be managed and controlled from (and ideally beneficially owned from, see below) Offshore. This is achieved via the deployment of a (nil tax jurisdiction based) “Nominee” director.
- You are appointed, via an arms-length Consultancy Agreement, as the IBC’s authorised trader (ie you negotiate the deals and place the buy and sell orders on behalf of the Company)
- Your Company’s 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 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 also 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 (nil tax jurisdiction based) “Nominee” Director as part of the Corporate structure.
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, (which should enable your lawyers to be able to argue, in the event of an investigation, sorry this is tax deferral not tax evasion) you might 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); as regards the remainder of your Offshore Company’s earnings you should be able to accumulate, and or reinvest, those 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 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 Lawyers 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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