Today’s modern economy and technological era has shifted the way we live and work. An increasing number of people are taking up a ‘freelance’ lifestyle, working remotely and becoming less bound by physical location. Those who have embraced this new way of living get to carve out their lifestyle in a way that was not really possible a few decades ago. The freedom to travel, work on the beach, and make your own hours is a lifestyle that a new generation of entrepreneurs are gunning for and we are here to help make that happen.
In this article, we will explore the benefits of using a tax-free offshore company for freelancers as a way to structure their business activities, the best options available, and some final considerations to really ensure the greatest tax reduction possible for their unique situation.
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Freelancers can all benefit from the use of an offshore company structure as a vehicle to store and receive their payments. There are plenty of good reasons to form an offshore company in a low tax jurisdiction compared to simply conducting your business activities in your own name, in a high tax country, where you reside.
If you are a freelancer and making upwards of 250,000USD, it may be risky to operate without the protective layer of a corporate entity. If you work under your own personal name, you are directly responsible and liable should anything go wrong, such as in the case of litigations occurring during the course of business.
Forming a Limited Liability Company (LLC) separates and protects your personal wealth from that of the company. Furthermore, offshore company structures can provide even greater protection, as they are removed from domestic risks, in a separate legal jurisdiction and can be opened in favourable jurisdictions with greater asset protection mechanisms.
Offshore companies are especially worthwhile for those who live in countries which are economically or politically unstable, as any wealth generated and stored locally is under increased risk. Instead, forming an LLC in stable offshore jurisdictions such as Hong Kong, Singapore, or the UK, can provide greater stability and security.
Properly structuring your freelance activities with the use of a tax-free offshore company can enable you to greatly reduce or even completely eliminate your tax burden. This is a massive incentive when one considers the fact that a third or more of your income can be swallowed by exorbitant taxes which are prevalent in many developed nations.
Forming a tax-neutral or tax-free offshore company, along with intelligent personal tax planning, can enable you to eliminate all taxes on your freelance work. However, it should be noted that the amount of taxes that you are able to save is dependant upon where you live and the tax laws that you are bound by, if the country where you reside has CFC laws and if they adhere to Common Reporting Standard (CRS) financial practices.
One extremely practical advantage of conducting your freelance work through a separate corporate entity is that it can greatly improve your image and business reputation. Many clients will not be eager to enter into contractual arrangements and business agreements with individuals, even more so if you live in a war-torn, corrupt, or low-income country, and so you will need to create a recognised business entity so as to gain access to these client-bases. Unfotuenly in business image matters.
In this respect, it is advisable to form a company in a more recognised and reputable offshore jurisdiction, so as to quickly gain the respect of prospective clients, customers, and financial institutions. Fortunately, there are some tax-efficient offshore jurisdictions which also have solid global reputations. Examples include Switzerland, Singapore, and the UK. Conducting your freelance work through the medium of an offshore company in one of these jurisdictions will give your professional image an instant boost.
In addition to the improved image and respectability of operating through a recognised company, you will also be able to maintain much greater privacy. All business interactions will take place through the company’s name and address, meaning your personal details and identity will be protected.
The degree of privacy varies greatly across different offshore jurisdictions. Some jurisdictions, such as Puerto Rico, Labuan, and even states like Delaware and Wyoming in the USA, offer increased confidentiality to business owners, whereby your personal name will not be publicly available.
This increased privacy is a major benefit for freelancers, regardless of the nature of their business. It means that your name will not appear all over the internet and on contractual arrangements. This is more important than ever in today’s society of increased data sharing and privacy concerns.
The use of an offshore business structure can provide access to new and more efficient payment processing options that wouldn’t otherwise be available to you as an individual. Different countries have varying access to high quality payment processing services like PayPal, Stripe, and Square. This can be an important factor for freelancers living in countries where some of these services are not available. Furthermore, the fees and range of services available to business accounts are often far better than processing payments as an individual.
Having an offshore company in a respectable jurisdiction can open the door to offshore banking solutions which would not otherwise be available to individual freelancers. It will give you the opportunity to open company bank accounts in some of the best offshore banking centres in the world, and thus gain access to their many advantages. These include:
As a freelancer wanting the optimal benefits of a tax-free offshore company, you will need to carefully consider the best location and structure for your business. There are many great options out there, and there is no ‘one-size-fits-all’ solution. The right jurisdiction and structure for you will depend on many factors related to your personal circumstances, citizenship, nature of your freelancing activities, and personal preference.
That being said, here are a few of the more popular and advantageous tax-free / low tax offshore company solutions for freelancers:
If you are not a US citizen, then forming an offshore LLC in either Delaware, Wyoming, or Nevada, can be a great option for freelancers living abroad. All three of these states offer some of the easiest and affordable corporation processes, high levels of privacy, and tax efficiency. Not to mention the fact that having your business headquarters based in the US will greatly improve your credibility, and provide access to many opportunities and payment processing services which would not be available in less respected jurisdictions.
It is important to note that a US LLC in one of the aforementioned states (similar to the structures in other favourable jurisdictions) is a tax neutral entity for foreign nationals. This means that you will not be directly subject to corporate taxes and your tax liability will instead be passed directly to your personal tax. This can be advantageous or not, depending on your personal tax structure and residency (more on this later).
An offshore UK Limited Liability Partnership (UK LLP) offers similar features and advantages to a US LLC. Even though it is a partnership, it can in fact have a single owner, so it acts in much the same way as an LLC. A UK LLP is also affordable and easy to set up. It offers even faster incorporation times (as little as 2 – 3 days in total), tax neutrality, and an excellent reputation and global presence. The only disadvantage of a UK LLP compared to a US LLC is that it offers lower levels of personal privacy for its owners. If this is an important factor for you, then it may be worth considering a different jurisdiction.
Hong Kong and Singapore also offer excellent tax efficiency, friendly incorporation, and have a top-class global reputation. Having an offshore company in one of these countries will provide easier access to their renowned offshore banking services. They are also two of the most safe and stable economies in the world.
The one downside with both of these countries is that many complain of the high levels of administrative procedures and bureaucracy involved. Hong Kong also has higher incorporation fees and ongoing compliance costs compared to other jurisdictions.
Finally, there are the many traditional tax havens and territorial tax nations in which to incorporate. Countries such as British Virgin Islands, Belize, and Seychelles (among others) are renowned for their zero corporate taxation, unparalleled privacy and asset protection, and extremely fast and easy offshore incorporation processes (no questions asked!).
It is obvious why these tax havens are traditional favourites in the offshore world. However, in recent decades, some of these countries have come under scrutiny in the global financial scene. Therefore, the one possible drawback is that they are less respected than the earlier mentioned jurisdictions like Hong Kong, UK etc. That being said, this is not the case with all of them or in all financial circles, so it is important to conduct your own personal research before choosing one of the countries on this list.
See our list of best countries to form an online business
As was previously mentioned, making use of a tax-free offshore company to conduct your freelance business activities primarily provides tax efficiency through its tax neutrality. What this means is that you will not directly incur significant taxes at the corporate level and avoids a situation of double taxation.
However, you will still be liable for personal income taxes on any or all of the income that is distributed to you through the company. There are various ways to plan and structure such an arrangement so as to optimise the amount of personal taxes you are liable for on the income received from the company. By far the most effective and recommended, especially for perpetual travellers and freelancers living abroad, is to establish yourself as a tax resident in a country with zero personal income tax, or one with a territorial tax system (i.e., a country which does not levy tax on personal income that is generated from outside the country’s borders).
This may sound like a tremendously difficult task to accomplish, but it is surprisingly more viable than you may think. There are many tax-friendly countries in which it is relatively easy to establish residence. All it takes is some time, motivation, and careful planning. There are actually many countries with either zero personal income tax or a territorial tax system. Some examples include: Malaysia, Hong Kong, Malta, Panama, Singapore, UAE, and many more.
Establishing yourself as verified tax resident in one of these nations, along with the use of a tax-free offshore company, can be a highly effective way to substantially reduce or completely eliminate your tax liability. For those of you who are invested in living the life of a freelancer or perpetual traveller, this can indeed be greatly worth your while in the long-term.
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