Posts Tagged starting an offshore business

Starting an enterprise that will do business globally or restructuring an existing one by setting up an offshore subsidiary to handle all non-domestic business is probably the most effective way to reduce and/or defer taxes for any business that can market its products and services overseas.  The strategy is to set up the company in a country that does not tax income derived from outside of its borders.  Any country like Panama, which only taxes income generated from domestic sources, becomes the perfect location either for your international subsidiary or global headquarters.

For U.S. taxpayers this is probably one of the few and best loopholes to take advantage of.  The Obama administration has recently abandoned its plans to go after overseas corporate income.  Current tax code allows US corporations to defer paying taxes on income earned overseas until that money is repatriated to the United States.  Obama wanted to change this law, but has recently abandoned his plans.
Entrepreneurs with overseas income can greatly benefit from this tax rule.  With a properly planned business structure, businesses can defer paying taxes on overseas income, indefinitely, until the funds are brought back to the US.  The same rules apply if you are a taxpayer from any other country of the world that we know of where income derived from overseas operations can remain tax free until repatriated.  The reason why the U.S. government backed down on this is that US companies forecasted another round of deep job cuts if the tax hike were passed, citing the fact that companies from other countries enjoy these same tax benefits, and it would put them at a severe competitive disadvantage were they to be put in place.

For U.S. taxpayers there are still some reporting requirements involved if you have an ownership interest in the business in excess of 50% so we recommend forming a foundation to place the shares into, and for the foundation beneficiary to be someone other than yourself and family members.  Also there are much more complicated and cumbersome rules if some of the business income is derived from passive investment sources. More guidance on this strategy can be found in our IBC/Panama combination section.

If you are ready to go global, all that needs to be done is to choose one of our quick and easy offshore corporation and banking packages and you can be ready to start operations in as little as two or three weeks. In the event of an audit the tax authorities in some countries like the U.S. and Canada may require actual proof of a physical office structure as well as other domiciliation documents as evidence, such as a company utility bill, although an offshore virtual office arrangement ill usually suffice for most uses. In the case of internet businesses web hosting should be contracted for overseas and anything else that would show a domestic connection on the website should be as far as possible avoided.  See our offshore E-Commerce solutions page for information specific to setting up a global e-commerce related business in an overseas location.