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 explain why overseas incorporations benefit from being operated overseas, and how to go about using an offshore company for your online business.
What Type of Online Businesses Can You Incorporate Overseas?
While nearly any type of business can incorporate an offshore company in a country overseas, it does not necessarily work best for every business. 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 are an online stock trader and live in Europe for example, then it's likely you could really benefit from a corporate structure in a low tax environment.
Whether you can incorporate overseas depends largely upon the type of business, its business structure and how much revenue the business is making. If its making 1,000 USD a month, then maybe now is not the time, but if you are making upwards of five figures and more at then it might be something to look into.
The benefits that come along with incorporating online in an offshore jurisdiction is largely dependent on where you are a resident, your nationality, the type of, if you need a payment gateway to accept payments from customers, and the tax laws of your 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.
1. Sell Digital Assets Using an Offshore Company - Online Store, eBay, Amazon FBA,
The sale of digital assets online whether that's an online e-commerce store, selling ebooks, physical products, digital products etc. What distinguishes this kind of e-commerce business is that involves the sale of assets and/or commodities that can be entirely marketed and delivered online, as they are without a physical substance.
Go deeper: Offshore Companies for Amazon
Other digital assets that can be sold online include music, films and videos, images, designs and logos, software dev, 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.
2. Setting Up a Digital Marketing or Affiliate Marketing Business Offshore
Digital marketing involves any type of online marketing services, including:
- Content marketing services – this involves writing articles, blog posts, and other content-driven material for a company to market their products/services directly or indirectly.
- Email marketing – this involves writing promotional emails that are sent to a business’ existing and/or potential customers
- Social media marketing – this is a specialized form of digital marketing that involves putting posts on a business’ social media account with the intention to attract customers and market the business’ products/services.
The common characteristic of digital marketing services is that they can all be created and delivered online, independent of location and physical presence. Digital and Affiliate marketers can offer their services to clients from any country and location. As such, digital and affiliate marketing is another type of online business that can be easily set up with a favourable offshore structure and is able to reap the many benefits this kind of strategy offers.
3. Setup an Online Consultancy Business for Solopreneurs & Entrepreneurs Offshore
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.
Being a Freelancer or small-scale startup allows you to leverage the flexibility that comes with small scale businesses ownership. Being able to move locations and take advantage of local conditions in countries overseas that offer global advantages to online businesses.
4. Other Types of Online Remote & Non Local Businesses
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.
- Important-export Orientated Businesses
- Freelancers and Digital Nomads
- Entrepreneurs
- Life coaches
- Teachers
Why Should you Legally Incorporate your Online Business?
Many entrepreneurs starting out their online business endeavors 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, from the get-go, is to protect yourself from undue liability. Though there may be a time when it doesn't make sense, for many types of businesses that start to make some serious cash it is recommended.
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:
- 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, and your personal assets attacked under your companies financial problems should things go awry.
There are other benefits that a separate corporate entity provide such as:
- As a separate legal entity, the company will be able to initiate lawsuits, enter contractual obligations, negotiate loans etc. in its own name.
- It will be able to buy, sell and own property and assets.
- It will be able to remain in existence beyond the owner’s personal involvement in it. This will give you the ability to sell part or all of your business in the future, or even pass it on to your heirs.
What are the Main Factors to Consider When Choosing a Country to Start an Online Business?
Whilst deciding on a jurisdiction in which to form your online business, you may want to consider the following important factors:
- Tax
- Banking and Finance
- Incorporation Requirements
- Reputation
- Human Resources
1. Tax Burden
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.
2. Banking & Finance
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.
3. Incorporation Requirements
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.
4. Reputation
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.
5. Human Resources
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.
See more: Offshore Companies for Freelancers
How To Incorporate Online?
There are a few steps you need to take in order to set up your online business offshore.
- Step 1: Structure
- Step 2: Country
- Step 3: Name
- Step 4: Documents
- Step 5: Taxes
Step 1: Finding a Business Organizational Structure
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:
- Corporation
- Limited Partnership
- Limited Liability Company
Corporation
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.
Limited Partnership
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.
Limited Liability Company
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).
Learn How To Protect Your Assets With The Strongest Offshore Asset Protection Structure In The World.
Step 2: What Country to Incorporate your Online Businesses
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
- Residence
- Nationality
- Business Type
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.
Which are the Best Countries to Incorporate an Online Business?
- United Kingdom
- United States
- Nevis
- Singapore
- Isle of Man
1. United Kingdom - Easiest Place Incorporate an Online Business
This choice of our is likely going to draw alot of surprises. As most people would generally first consider Caribbean countries some of the best places to start an online business. However, the UK and followed by the US, are the easiest because of the ease of connecting a payment gateway. In the world of online businesses having a reliable and most of all easy way for customers to pay for their products. Unfortunately, many offshore merchant accounts do not work well, instead using services such as Stripe and Paypal make dealing with payments incredibly easy.
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:
- An offshore jurisdiction with an excellent global reputation.
- Easy, affordable, and incredibly fast incorporation process (can be set up within half a day).
- A variety of tax breaks and benefits, with the potential for offshore entities to reduce corporate taxes to 0%.
- Offers good solutions for e-commerce and payment processing.
2. United States - Cheapest Country for Non-Resident Online Businesses
The United States is one of the best 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:
- It offers various tax advantageous and tax exemptions for LLCs.
- There is no requirement to obtain a special business license, and the incorporation and filing fees are low.
- Non-residents are not subject to personal income tax in Delaware.
- Non-resident shareholders and directors are permitted.
- It has flexible incorporation laws which allow business owners to tailor their company bylaws to suit them.
3. Nevis - Most Secure Country for Online Businesses
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:
- High degree of confidentiality.
- One of the best and easiest countries to obtain a second passport through their world-famous citizenship by investment program.
- Good banks and a thriving economy.
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.
4. Singapore - Most Reliable Country for Online Businesses
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:
- Zero capital gains tax.
- Singapore follows a territorial tax system, meaning that all income sourced from outside Singapore is exempt from taxes.
- Strong and stable economic environment for businesses to thrive, with access to top quality skilled labour, and excellent investment and trade opportunities.
- Home to one of the best offshore banking jurisdictions in the world.
- Convenient and friendly incorporation rules for foreign business entities.
5. Isle of Man - Most Versitile Country for Online Business
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:
- Sound banking system.
- The possibility to incorporate an offshore business with only one shareholder/director.
- No residency requirements.
- Good investment and trade opportunities.
- Its independence from the UK and the EU have further international trade advantages.
UPDATE This country has been taken off our list due to the changes that have been introduced that is affecting most all British Overseas Territories. They now are more difficult to set up, do not have the same tax benefits and Economic Substance requirements that make this jurisdiction not as welcoming as it once was
Step 3: Choosing a Business and Domain name
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.
Step 4: Incorporating Your Business
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:
- Articles of Association or Incorporation
- Corporate bylaws or Operating Agreement
- Stock certificate or Shareholder Agreement
- Meeting minutes
- Board Resolutions
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.
Step 5: Understand your Tax Obligations
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
How To Start Your Online Business Incorporation Process Offshore
A Detailed Step-by-Step to Achieve Zero Taxation
- Incorporate an offshore company A
- Company A structure owns the online business
- Website hosting address is set up in a separate tax haven jurisdiction
- A second offshore company B or Foundation if formed that is the corporate director/owner of company A
- Company A takes payment from the customer and is sent to Company B
- Having a corporate bank account held by Company A in a highly reputable jurisdiction ensures a smooth transaction process from customers to you
- It is important that the bank account is in a country that is reputable else it will be difficult when dealing with corresponding banks.
- Company B can hold the funds which acts as a tax-free holding company
- You receive money through a monthly disbursement as a salary from company B
- As an independent contractor/manager you oversee business activities and manage the website and invoice the company and receive an income for your services.
- This income is subject to taxes in your local jurisdiction, but it would ideally only be a fraction of the total profits generated by the business whereby the rest of the profits can accumulate offshore tax-free until you bring funds into the country or you decide to reside in a country that does not tax worldwide income.
This kind of two-tiered approach is different from a single layer approach in several ways
- Having two structures one owning the other removes your personal name from financial transactions
- Setting up payment system in onshore jurisdictions is easier whereby funds can be transferred to an offshore holding company
- Two structures given you more security and confidentiality
Offshore Incorporation Examples: How To Put This All Together?
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 Americans Only) 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 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 where the company is located and/or transactions are made.
However, offshore incorporation can have other benefits that include offshore asset protection, security, privacy, legal protection etc...that can still be utilized if you are an American and hold an American passport.
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 including Canada, Australia and EU countries) and if it has favorable Controlled Foreign Corporation CFC laws then you are likely able to start an IBC or LLC in an overseas country (like Panama or Nevis) 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 company 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.
TakeAway
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.
