If you are thinking of setting up an online business establishing a company in a country overseas can be more advantageous than incorporating domestically.
While not every company stands to benefits from incorporating offshore, those that do are primarily online businesses that do not have a local or physical presence. In this article we will provide an overview of these different categories of online businesses, why they can benefit from being operated by means of an offshore company, and how to go about using an offshore company for online business.
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While that is not an easy question to answer, largely because there are a number of moving factors that make every situation different and every answer depends upon the circumstances. What determines the applicability of incorporating online in an offshore jurisdiction is largely dependent on where you are a resident, your nationality, the type of business, and if you need an associated payment gateway to accept payments from customers.
While nearly any type of business can incorporate an offshore company in a country overseas, it does not necessarily work for everyone. However, that being said online businesses are often best suited for this type of arrangement largely because they do not have a physical storefront and so are not immediately tied to a specific country.
If you live in a country and all your customers live in another and all transactions are done digitally through an online platform then it would not make much sense to incorporate a company in a high tax country where you live, even more so since there are likely to have low levels of privacy, are prone to lawsuits and creditors, require loads of paperwork, as well as high reporting and financial requirements.
Let's look into some examples of companies that are a perfect fit for offshore company incorporation.
The sale of digital assets online falls under the category of “e-commerce”. What distinguishes this kind of e-commerce business is that involves the sale of assets and/or commodities which can be entirely marketed and delivered online, as they are without a physical substance.
Examples of digital assets which can be sold online include eBooks, music, films and videos, images, designs and logos, software, marketing and other online services, and intellectual property. Due to the current “stay-at-home” conditions which have been imposed as a result of the worldwide Covid-19 pandemic, these sorts of digital assets are becoming increasingly demanded and valued.
Businesses and/or individuals which sell digital assets online are particularly independent of physical location, as there is no physical element to the products/services which they sell. As such, this is one of the best types of online businesses to consider forming with the use of an offshore company structure.
For more information on setting up an offshore company for online e-commerce go here.
Digital marketing involves any type of online marketing services, including:
The common characteristic of digital marketing services is that they can all be created and delivered online, independent of location and physical presence. Digital marketers can offer their services to clients from various countries and locations. As such, digital marketing is another type of online business which can be easily set up with a favourable offshore structure and is able to reap the many benefits this kind of strategy offers.
An increasing amount of consulting companies and startups are taking to the online space to take advantage of this growing business area and the numerous opportunities it offers. Those who offer consulting services to international clients, and internet entrepreneurs forming online startups, can consider a beneficial offshore company structure for their businesses to maximise their performance and returns.
The exact procedure for setting up an online consulting or startup business online is similar to the other categories of e-commerce businesses previously looked at. We will now explore the basic steps which should be taken to practically set up an online business offshore.
Other types of business that also work include any business that operates between countries or does not have any financial transactions that are based within the country are great for this type of arrangement.
For information on setting up an offshore company for online forex trading go here.
For those of you who understand the importance of creating a separate corporate entity as a vehicle for conducting your online business activities, the next question to consider is:
“Where should I form my online business?”
This might come across as a strange question, because having an entirely online business should mean it doesn’t really matter where you decide to legally incorporate it, right?
Wrong. In fact, this is a critical decision when it comes to forming an online business. And in fact, online businesses are at a unique advantage in that they are less physically bound to a certain location, which actually makes it easier to legally form your business where it suits you so as to maximise the associated benefits and profit-making potential.
Here is where deciding to form your online business in a favourable offshore jurisdiction can put you and your business at a massive advantage. Each business jurisdiction differs wildly and has its own unique set of regulatory requirements, economic environment, consumer behaviour, level of reputability, investment opportunities, and many other factors to consider.
There are so many options out there that it is unlikely that your own country is actually the best suited as a home for your online business. What’s more, many offshore jurisdictions have become specifically geared to creating favourable corporate environments for foreign company formation. That’s where it is worthwhile doing extensive research to find the best offshore jurisdiction to legally register your online business.
Many digital nomads and entrepreneurs starting out their online business endeavours make the mistake of thinking it is easier to simply start selling products and/or services in their own name, without the need for a separate legal business entity. This can be a fatal mistake that can be far more costly than you might realise.
The main reason why it is so important to legally incorporate a separate corporate entity for your online business activities, right from the get-go, is to protect yourself from undue liability. Operating a business comes with many risks, and one of these is liability claims faced in the course of business operations. There are other reasons why a business might face liability, such as bankruptcy, inability to repay loans, loss of assets and/or property etc.
The most common types of corporate entities that any online entrepreneur should consider forming is either a Limited Liability Company (LLC), Limited Partnership, or Corporation. The exact structure will depend on factors such as the jurisdiction of choice and the individual requirements of the business owner/s. In the case that liabilities arise, having put yourself at arm’s length by incorporating an LLC or Corporation, means you will not be held personally liable for your company’s obligations should things go awry.
There are other benefits, such as:
Whilst deciding on a jurisdiction in which to form your online business, you may want to consider the following important factors:
Tax implications are a key consideration when deciding where to incorporate, and for many is the primary factor that they base their decision on. This makes a lot of sense when one considers just what a major impact taxes can have on your net profits, as well as your ability to attract investors who are also looking for reduced taxes.
Corporate tax rates can vary massively: from 0% in offshore tax havens like Cayman Islands and Nevis, to tax rates in excess of 30% in countries like Japan and France. There are also more traditional “onshore” environments with favourable corporate tax regulations, some of which have territorial tax policies that specifically favour foreign corporations. Some tax-friendly jurisdictions include Hungary, Ireland, Macedonia, Moldova, Liechtenstein, Cyprus, Singapore, Hong Kong, Gibraltar, and recently Poland.
You should try to choose a country which gives you and your business access to good banking and finance services to avoid potential difficulties later on. This includes whether you are to open a corporate account, if it can be linked with major payment gateways, etc...
Banking systems vary greatly in terms of their level of safety, cost, and convenience, as well as how easy they make it for offshore account holders to open and maintain accounts. One of the most difficult aspects of starting an online business is setting up associated payment systems. While there are currently a host of online platforms such as Paypal, Transferwise, Stripe etc... that manage transactions you need to have a corporate bank account that is in a reputable enough jurisdiction that you will not have any issues in money assets in between accounts. Unfortunately, the last decade has made it difficult in some jurisdictions to All this should be considered when selecting your preferred jurisdiction.
Some jurisdictions have more complex, costly, and arduous incorporation requirements than others. This may often include excessive amounts of administration and paperwork, as well as additional time and costs. Therefore, these should be thoroughly researched and considered before deciding to open a business in any offshore jurisdiction. It is important to understand and adhere to any special requirements whilst going through the formation process.
You need to keep in mind that the country in which your business is based can have an impact on how investors, customers, and lenders perceive your business. Some jurisdictions just have better reputations than others, and are viewed as more respectable. This is where it can be advisable to rather incorporate in a highly respectable onshore jurisdiction with reasonably friendly tax treatment like Singapore or Hong Kong, as opposed to a lesser-known and less reputable offshore tax haven.
Depending on the nature of your business and whether you will need to employ local skilled labor within the jurisdiction you choose, access to good quality human resources could be a factor to consider. However, this is less likely to be a major consideration for businesses which operate entirely online, and who are able to outsource online projects to freelancers from anywhere in the world. Nonetheless, there are some jurisdictions, such as Poland for instance, that do require that a corporate entity hire local personal.
There are a number of steps you need to take in order to set up your online business offshore.
The first step you need to take in order to incorporate offshore is to decide what type of business structure works best for your situation. The main types of structures that do well for online businesses are:
The most widely used type of business is called a corporation, which offers liability though is often called different terms depending upon the country as in each country, there can be slight variations. This is good if you want t raise capital from outside whereby investors are not apart of the organisation.
A limited partnership represents a joint venture that that offers some form of liability up to the amount that is invested that otherwise wouldn't exist with a general partnership. This is an organisation structure for businesses that require more than one person to enter into a contract with shared responsibilities.
A Limited Liability Company or LLC in a hybrid structure that combines the best parts of a corporation and a partnership and acts as a pass-through vehicle for tax purposes and allows for members to enter into agreements as a partnership with limited liability. This structure usually allows more flexibility and simplicity than the others and is one that we recommend for many situations.
While there are a vast array of associated terms and acronyms for companies and their structure these three types roughly represent the main organisational structure. For added protection and security we often recommend a multi-jurisdictional setup that incorporates two different organisational structures in different countries.
For example, if you form a company you have a Foundation that owns the company that removes your name from the associated ownership and can be used for tax benefits (depending on the country where you live and its CFC laws).
Picking the right place to incorporate online business can be difficult to decide. There are a vast array of choices and combinations that depend upon your
In today's world, each country has its own tax laws that are unique unto itself. Though most of the world tends to tie taxation with residency which is often tied to how many days you spend in a place out of the year. Each country has its own set of CFC laws that deal with regulations that relate to foreign holdings and how they tie an individual with those assets.
How this will all unfold will be dependant upon your specific situation but some of the jurisdictions where we tend to recommend clients looking to form an online business are:
Ask almost any expert about the best place to form an online offshore business, and the British Virgin Islands will likely be the first place they mention. It is one of the few genuine offshore tax havens for company formation that also has an excellent global reputation. Forming an offshore company in BVI which does not conduct any of its business activities within the jurisdiction will qualify it for complete local tax exemptions, as it is deemed to be a foreign entity for tax purposes.
British Virgin Islands offers tax neutrality, strong asset protection and privacy, opportunities for international trading, and a good reputation with strong ties to Asian powerhouse economies like Singapore and Hong Kong. The only potential downsides are that it can be more costly to incorporate in BVI compared to other tax havens such as Belize, and the ongoing fees are also higher. For most, this is a small price to pay for such a top-quality jurisdiction.
Singapore is undoubtedly one of the best places to conduct business in the world, and the advantages of basing your online business in Singapore are many, including:
New Zealand has long been a popular country for incorporating businesses. The numerous advantages include:
Like Singapore, Hong Kong is another Asian powerhouse economy which has gained an excellent reputation for offshore business formation over the years, as well as offshore banking. The standard corporate tax rate is Hong Kong is 16.5%, but it also has a territorial tax system meaning it is possible to obtain offshore tax exemptions which bring this rate down to 0%. Hong Kong also has one of the best banking systems in the world, along with a good global reputation.
It is important to note, however, that developments in recent years have made Hong Kong not quite as attractive as it once was. It has become increasingly difficult for smaller foreign-owned entities to open a bank account in Hong Kong, and China’s recent influences in Hong Kong make it less politically stable and economically sound as it once was.
The best type of offshore entity to set up in the UK is a UK Limited Liability Partnership (UK LLP). Through this structure, the UK offers business owners the following advantages:
Whilst the Isle of Man is effectively a British Crown dependent, it is still a self-governing state. It has strong trade agreements with the UK and Ireland, which benefits its business owners. Its autonomy has allowed it to pass some attractive corporate regulations. Firstly, there is zero corporate taxation in Isle of Man. Additionally, it has the following advantages:
If your major concern is asset and liability protection, then Nevis is probably your best option. Nevis offers the highest level of asset protection available of all the offshore jurisdictions in which to incorporate a business. Just to be able to file a lawsuit against your Nevis company, the claimant will be required to file a suit within Nevis itself AND pay for the court proceedings. This is already enough of a barrier for most. Even if such proceedings go ahead, it is difficult and rare for claims to be successful. Other advantages of Nevis include:
The only potential downside of Nevis is that it is not viewed as the most respectable jurisdiction by some nations, which could negatively impact your customer and investor base.
The United States is indeed one of the better countries to choose as a home for your online business. It provides access to a skilled and varied labour force, it is one of the strongest economies in the world, and provides a wide range of financial and banking solutions. However, as a US resident you will not receive the same levels of asset protection and tax efficiency if you decide to incorporate in the US compared to a foreign jurisdiction.
For non-US residents, the state of Delaware in the US is an especially good place to form an offshore LLC. There is a reason why more than half of all US publicly listed companies are formed in Delaware. It is by far the most advantageous state in the US for business formation, due to its following benefits:
Your business name need not be the same as your website. It's important that you choose a name that does not have a trademark, that is unique, complies with the state requirements and fits the business enterprise. It's important to check both country and worldwide copyright and patents to see if it ever been used before. Similarly, it's good to research and see if there is any company online that has is similar, in the same industry or state as it would make it marketing more difficult going in the future.
Once you have picked your business entity type, found the country where you would like to incorporate, choose your company and website name the next step is to gather all of the necessary documents that are going to be needed in order to register your company.
The documents that are needed is dependent on if its a Corporation or LLC which are:
You should be sure to obtain the necessary permits that may be required in the country you are incorporating that will be dependent upon the business sector that you are engaged in.
Your tax obligation will depend upon your nationality and where your current residence is as well as where your company is incorporated, the business structure type, what type of business are you engaging in, where your bank account is located and where your payment gateway is.
This is where the intricacies of any business plan become hazy. There can be many moving parts and to get it right requires a customised plan.
For more information about setting this up specifically to meet your requirements, it's best to speak with a legal representative or qualified international tax accountant to advise you what your tax liabilities will be. Get in touch for a one on one offshore plan
While an offshore incorporating solution will likely be different for each individual there are a few major influences that will determine its arrangement.
Example 1: For instance, if you are an American with a US passport and live in the US, then you are limited in your ability to reduce your tax liability benefits, as United States's tax laws and CFC laws make you responsible for all foreign corporation that are under your name as well as any worldwide profits that are incurred by the business entity irrespective of your the company is located and transactions are made.
Example 2: However, if you are a UK national or a resident of a country that is based on territorial taxation (most of the world) and if it has favorable Controlled Foreign Corporation CFC laws then you are likely able to start an LLC in an overseas country (like Panama) where the company can accumulate revenue tax-free. You can use a nominee director and use a Foundation to own the company so that there are no tax liabilities that are passed on to you. You act as a consultant for the proposed LLC and take a salary every month and only the money that is brought into the country is therefore taxed. This allows for the company to exist and accumulate profits in its corporate bank account without it being taxed directly. This arrangement is the solution that is most often found to work for most of our clients with variations depending upon those variables talked about above. For more information and an offshore plan, get in touch and see if your online business can benefit from incorporating offshore.
It is important to understand that no two situations are identical, and each business will have its own unique requirements. As such, it is always important to do your own extensive research to find what is best for you and your business at a particular point in time. It is even better to seek expert tailor-made advice to help you make your decision and carry out the necessary steps to complete your company formation process in the place of your choosing.
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