Offshore E-Commerce Solutions
E-commerce can provide you with a good opportunity to set up an internationally based business. Such a business can be operated at arms length from your own home (high tax) jurisdiction or from anywhere in the world. Depending on what is being sold, an e-commerce business is the ultimate portable venture.
Offshore eCommerce Business Strategy
By following the tactics outlined below, you can create an offshore corporate structure that has literally no business activity taking place on your home territory. What you want to achieve is a genuinely international business, one that exists and operates outside your own tax jurisdiction, in a tax haven country (aka, offshore financial center). The basic elements include:
A “non-controlled” offshore corporation (IBC) and an offshore bank account
Offshore web hosting (using an offshore server)
Offshore merchant account with the capacity of accepting credit cards online and, preferably, directly with a bank
Offshore distribution of your products or services
1. Offshore eCommerce Company
To take advantage of the e-commerce opportunity for tax avoidance purposes, you need to set up an offshore corporation that you neither own nor control. This then can be your platform for an international business with great tax benefits.
The corporate structure (IBC) forms the basis for this strategy as it provides you with the legal framework for doing business.
2. Webhosting Offshore (Server)
The web-hosting location adds another layer of protection and enhances your international location.
Sovereign can provide you with a reliable offshore server-hosted platform from which to operate the back-end of your business.
3. Offshore Merchant Account (Accepting Credit Cards Online)
The third element of the strategy is your merchant account, by which you are authorised to take people's Visa, MasterCard or other payments online. Getting a merchant account in your home country should not be difficult, but that is NOT the best option.
You need a merchant solution that is outside your jurisdiction. Why? Because the proceeds of all sales should bypass your own country‘s banking system. Remember, this is an “international” business you're setting up, so you need an international payment solution.
To activate your international merchant account, you need the services of a bank or clearinghouse. The latter is a third-party service that will allow you to bill using their merchant status, although many e-commerce businesses will qualify for their own bank-direct merchant account where the billing will be in their name. As you would expect, this type of service costs more that one in your country of residence.
Most domestic merchant accounts will require a 2.5%-3% discount rate which is the percentage they take of your turnover. However, with an offshore merchant account the discount rate is higher. You can expect to pay anywhere from 4% to 12%, dependant on the average ticket size. The higher rates would be for the riskier businesses.
Additionally, the clearinghouse or payment gateway processor will require you to put up a security deposit, to protect itself and the bank from any fraudulent use. This is usually collected in the form of a “rolling reserve”, which means they retain usually 10% of your sales revenue for a period of six months. Thereafter, your funds are released on a pro-rata basis.
Your sales proceeds (less discount and reserve) will be wired to your offshore corporate account or, if you are fortunate enough to hold a bank-direct account then, the deposits will be made directly into your regular bank account which you will also have with that bank.
4. Offshore Distribution of Goods or Services
To make this arrangement even more secure, you should also ensure that whatever product or service is being provided is also based in, or distributed from, an offshore location. If you are selling information services, then it's even easier, as you can have the actual information located offshore as well. Even better, you can employ people offshore.
You can also contract with third party fulfillment companies anywhere in the world to ship your product or service, and many will provide you with credit card payment options as well. Drop-shipping is also a very commonly used option since you will have no inventory costs to consider, although many merchant credit card processors may require you to ship from your own stock.
What that means is that you have no trading base in your home country. You have no operations, no stock, and no transactions—nothing.
Getting Your Profits Back Onshore Without Tax Liability
The clandestine way, of course, is to use a non-associated offshore card to draw funds from an ATM, but this is neither a long-term solution nor one we would recommend, especially if you need to show some income to justify your lifestyle.
The easiest solution is to treat this e-commerce business as a secondary income stream and build up an offshore nest egg. However, if this were indeed your primary income, then you would need to repatriate funds at some stage. This “drawn” income would be taxable in your home country (and you'd need to have proper paperwork to justify this income) - leaving undistributed profits to accumulate offshore.
For instance, let’s say that you are selling a magazine. The company publishing this magazine would be the IBC and all the accompanying business arrangements already discussed would be in place. You may be contracted as the editor of this magazine and, therefore, receive remuneration accordingly. That income would be taxable in your home country, but would not represent the full profit picture of the company as a whole. The balance of your profit would be retained offshore.
TurnKey eCommerce Solutions from Sovereign
Sovereign Management & Legal can assist you in all the steps to set up an e-commerce business, based virtually or physically in Panama. We would always recommend a direct bank merchant processing relationship, whenever possible, and Panama has some banks that specialize in e-commerce merchant accounts. Your credit card transactions are deposited into a regular bank account that is also opened in the same bank.
We also work with several clearinghouse credit card processors that will work with almost any type of business including start-ups with the exception of pornography. They will wire payments into any bank account you designate and they have no problems with “virtual” offshore e-commerce businesses without a physical commercial location. Once your structures have been set up we can assist you with the setting up of a bank account to receive payments from the credit card processor.
If you are ready to start an international e-commerce business or are ready to transform an already existing one into an internationally-based one, click the button below and get started.