Setting up a business overseas especially if you are running an online business can give you many benefits that likely to outweigh any local domestic formation structures. The rise of online e-commerce and the digital marketplace has created a surge of businesses looking for alternative solutions for incorporating.
If you are reading this article, then chances are you already know what an Amazon FBA seller is, and why you would want to consider selling on Amazon FBA with your new or existing business.
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There are a variety of advantages to being an Amazon FBA seller, such as:
Of course, all this comes at a cost (Amazon charges for both storage and fulfilment). But for many, the convenience, potential for increased sales volume, and other benefits is enough to convince them to start their journeys as Amazon FBA sellers.
Assuming you have already weighed things up and decided to start your own Amazon FBA business, it is important to then consider how best to structure this business, and where, so as to maximize your benefits, reduce your taxes, and mitigate the risk of liability. Let us explore these considerations in more detail, and the numerous options which are available to you.
Because selling via Amazon FBA requires little in the way of physical premises and/or infrastructure, these type of e-commerce businesses lend themselves particularly well to a predominantly online/remote setup with an offshore corporate structure. This immediately gives you greater freedom as to where to incorporate your Amazon FBA business, as location will not be dictated by physical requirements alone.
One of the primary considerations when deciding where to set up your Amazon FBA is how best to structure it to optimize taxes and reduce liability. This involves carefully planning exactly where to incorporate, the form of corporate entity to choose, and how best to receive/distribute the profits generated.
The level of legal liability that you and your business are exposed to is an important factor when planning your corporate structure. In general, this is strongly influenced by the nature of your business as well as where you do this business. The US, for example, is one of the most litigious societies in the world, with disproportionately high rates of liability cases appearing in court. This means that selling your products in the US, even if you don’t actually reside there, could expose you to greater liability risks if your business is not properly structured. The same goes for countries like the UK and Australia.
Protecting yourself from undue liability is quite straightforward. It simply entails incorporating a proper company through which the owner/s are protected by limited liability. This means you should not operate your business activity as a sole proprietor in your own name.
It may seem convenient when starting out, but it means that if your business is sued, you are entirely personally liable and could risk losing everything. Therefore, forming a Limited Liability Company (LLC) or Corporation is crucial to ensure you are only liable to the extent of your investment in the company. This may seem obvious, but it is important to mention nevertheless.
The next thing to consider is tax. This is what we will primarily be discussing from here on out. Setting up your Amazon FBA or other online company to minimize tax generally boils down to two factors:
Unfortunately, setting up a company in a low or no tax jurisdiction is not enough, if you are still a tax resident of a high-tax country like the US though will still provide a number of benefits that will be determined by your residency and nationality as well as the nature of your business.
These will determining the nature of your tax obligations and whether you are ale to fully take advantage of a 0% offshore tax structure or whether you may ned to take more drastic measures, such as moving house and establishing residency in a country that has no income tax.
Let us look at how to create a holistic structure that minimizes your total tax liability.
There are many jurisdictions to choose from for offshore company incorporation which offer substantial tax benefits. Some are genuine offshore tax havens which offer zero corporate taxes of any kind, such as Belize, Antigua, and the Cayman Islands.
Others are more substantial and reputable onshore jurisdictions like Hong Kong, Singapore, Malta, Cyprus, and Georgia, which offer extremely low corporate tax rates or even zero taxes in certain circumstances.
In recent years, there has been a move toward these “onshore” tax-neutral jurisdictions as opposed to the traditional tax havens. This is because they a better reputation, offer a more stable environment, and a greater range of economic and business opportunities because their sole purpose is not only to act as an offshore tax haven.
It is important to note that Amazon does not accept sellers from all countries, and the list of countries which are accepted is intermittently changing. It is therefore important to ensure that, if you specifically want to incorporate for the purposes of being an Amazon FBA seller, the country you choose to incorporate in is accepted by Amazon.
See: Offshore Company For Startups
Once you have decided where to incorporate your offshore company, you then need to carefully plan how to create a structure whereby the least taxes are actually paid on its profits.
Set up a structure whereby you act only as a consultant for the business, which in turn pays you consulting fees on a regular basis. This means you need only to repatriate a portion of the profits in the form of these consulting fees, money which you use for daily expenses, of which you can have a tax-deductible on all expenses related to your work as a consultant.
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Your tax liability will be only for the money that is brought into the country that will be taxed as an income tax. The remainder of the profits can stay offshore and be reinvested in the business tax-free.
This is assuming you live in a country other than the US where the country has territorial taxation. This is a system of taxation that only taxes income that is made within the country.
In the case of online/remote businesses, tax liability lies primarily in the jurisdiction from where the company is managed. If you, the actual owner, do not live in a tax-free jurisdiction, it is then advisable to make use of a nominee shareholder/director who is based in a tax haven. This will ensure that the profits which have been generated online are subject to little or no direct taxes.
The next question is how to actually utilize these profits yourself whilst still avoiding unnecessary taxes. In this regard, by far the most effective means of eliminating taxes is to physically become a tax resident of a low or zero tax country. This requires a willingness to relocate to one of the many offshore tax havens where you won’t be taxed on income generated from your business.
For many, this is not a terrible idea, as most of these countries offer beautiful climates and scenery, affordable and high-quality lifestyles, and plenty to see and do.
Choosing the right country to relocate to will therefore not only depend on business factors, but also personal preference as to where you would like to live. As mentioned, this is the surest way to really minimize or even completely eliminate your taxes. Furthermore, the need for a nominee director will also be removed as you can act as the director yourself if you so choose.
However, this option might not be everyone’s cup of tea. For those who are not ready to take the big step of physically relocating their lives to a foreign country. For most individuals, the former strategy is likely to work well.
Moving residence is likely to be for US passport holders specifically or individuals who want to pay absolutely zero taxes. However, it should be noted that it is possible to pay zero taxes while living in a high tax jurisdiction.
This will be dependent upon the country where you live, its CFC laws, and if the country is a member of the Common Reporting Standard (CRS).
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*Note for U.S. citizens: US citizens are limited in their tax reduction possibilities due to FATCA and CFC laws. Opening an offshore company can increase privacy and asset protection, but you can not eliminate your taxes without giving up your citizenship. If you are a US citizen you are obligated to pay taxes on all worldwide income. Read more here about FATCA and CFC laws.
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