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Best Business Structure to Incorporate for an Amazon FBA: Setting up a Tax-Free Foreign Company

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. There are a variety of advantages to being an Amazon FBA seller, such as:

  • Increased potential for growth and sales volume because of Amazon’s huge customer base (whereby FBA sellers are usually preferred),
  • Greatly reduced requirements for your own physical infrastructure and storage space,
  • Access to Amazon’s world-class shipping and fulfillment services,
  • Fewer logistical difficulties and considerations
  • The ability to sell low quantities
  • Amazon’s customer service management
  • Reduced shipping rates due to the substantial shipping discounts which Amazon receives, and thus passes on to their sellers.

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.

What is the Best Business Structure to use for your Amazon FBA

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. 

Limited Liability Company 

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 other similar corporate entity 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. 

Tax

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: 

  1. Where to incorporate your company to eliminate or minimize corporate taxes.
  2. How and where to legally receive the profits which are generated in such a way as to optimize taxes.

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, UK, or Australia, then you will inevitably have to pay exorbitant income taxes on all the profits which you repatriate from your offshore company, therefore nullifying the benefits altogether. 

So, let us now look at how to create a holistic structure which actually minimizes your total tax liability.

How to Set Up a Tax-Free Foreign Company to Reduce Taxes

Where to incorporate Your Company

There are many good 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 offer greater accountability and reputability, more stable environments, 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. 

How to minimize taxes on your offshore company’s profits

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. 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 / receive 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, there are a few other ways to utilize the profits from your offshore company in such a way as to minimize overall tax, even for those living in a high-tax country.

Other strategies to minimize taxes on your offshore company’s profits

  1. 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, on which you will be liable for income tax. The remainder of the profits can stay offshore and be reinvested in the business tax-free. 
  2. Repatriate the money in the form of a loan or other type of financial vehicle. Structuring this in the proper way can be subtle and complicated, but it can be done so as to reduce overall taxes.
  3. In the case that you are not yet ready now to relocate to a tax-haven, but are willing to do so at some point in the future, you can allow majority of the profits to be reinvested or held as capital in the company (i.e. without distributing them). Then, at the time when you are ready to shift residence to a new low-tax home, you can sell the company or withdraw all the profits from there. 
  4. There are other potentially clever and/or dubious methods, but not all of them may be completely above board, and one should make use of them at their own risk. 

As you can see, there are other methods and workarounds for using a tax-free company to reduce the taxes that you incur on your online business’s profits. Some may work better than others depending on your situation. However, by far the most reliable way to completely eliminate your taxes is to go the route of relocating to a proper offshore tax haven, whilst incorporating your company in a reputable onshore tax-neutral jurisdiction like Hong Kong, Singapore, or Georgia. 

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