Online business and offshore hosting

[Bond]

Reading another post about setting up an offshore company i was wondering how this can be applied to offshore hosting.
I've read a while ago about how the IRS wanted to have some piece of Plenty of Fish revenues, but since his servers were in Canada there's nothing the IRS could do.

1- Let's say i have a company outside the US and the hosting with a US company. Will the IRS go after me because i also sell to us citizens and my servers are in the US? Even if my company isn't registered there?

2- Company Outside US and hosting in another country not the US. Will I have to pay taxes to the government where my hosting is even if the company isn't registered there?

How do we do this? What's the best strategy?

 

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[GlobalWealth]

Reading another post about setting up an offshore company i was wondering how this can be applied to offshore hosting.
I've read a while ago about how the IRS wanted to have some piece of Plenty of Fish revenues, but since his servers were in Canada there's nothing the IRS could do.

1- Let's say i have a company outside the US and the hosting with a US company. Will the IRS go after me because i also sell to us citizens and my servers are in the US? Even if my company isn't registered there?

2- Company Outside US and hosting in another country not the US. Will I have to pay taxes to the government where my hosting is even if the company isn't registered there?

How do we do this? What's the best strategy?

Bond,
I see you are from Portugal. Are you a Portugese citizen? Are you a US citizen or resident? These are important questions.

For non-US citizens, the US is the best tax haven in the world. Its a bit ironic considering their attack on offshore now, but hypocrites be damned, the US is one of the best places in the world for non-US citizens to form their company for offshore business.

But to answer your question, if you have an income producing site, like 'plenty of fish', you definitely don't want the hosting in the US, whether or not your company is based in the US. Like in the mentioned example, you never know when the US will decide they want a piece of the action, so its best to host offshore. If your site is merely informational, then it really doesn't matter.

for question 1, if you are a non-US company selling into the US, you could possibly owe US taxes on the US based income. It would certainly be best to host offshore to remove the risk factor.

for question 2, not very likely. For example, if you are a Portugese citizen with a web business and the company is registered in the US but the servers are hosted in Estonia, you could potentially defer your income taxation indefinitely. You wouldn't owe Portugese tax until your repatriated it, you wouldn't owe US taxes because you aren't a US citizen, and you wouldn't owe tax in Estonia because you are just outsourcing your hosting there.

With all of this said, this is fairly complex stuff and takes some planning and a bit of work to devise the best plan for your situation. Unless you have this kind of knowledge already, this is certainly not a DIY project as you could end up in hot water and potentially owe huge taxes and fines. But if done properly, you can really save a lot on your taxes while diversifying your assets at the same time.

 

[lindowjackson]

no, i dont think the irs can go after companies that are not from the us. for example, you can set up a offshore (shell company) based in another country and operate it from the u.s.. like if you have a shell corp that you are trading out of and maby trading in forign markets. why should the u.s. be able to tax the company. you can pay yourself a paycheck from your company and pay tax on it though. say you trade in a financial market in other countries and make $500k in one year. you can pay yourself a paycheck for lets say $50k for the year and pay taxes on it. the cool thing is, your company can buy you a benz or what ever you want as your company car(from the remaining untaxed $450k)and you can have a company credit card..

 

[GlobalWealth]

no, i dont think the irs can go after companies that are not from the us. for example, you can set up a offshore (shell company) based in another country and operate it from the u.s.. like if you have a shell corp that you are trading out of and maby trading in forign markets. why should the u.s. be able to tax the company. you can pay yourself a paycheck from your company and pay tax on it though. say you trade in a financial market in other countries and make $500k in one year. you can pay yourself a paycheck for lets say $50k for the year and pay taxes on it. the cool thing is, your company can buy you a benz or what ever you want as your company car(from the remaining untaxed $450k)and you can have a company credit card..

This actually depends on your citizenship. I think Bond is Portugese, and in this case he would be safe as long as he properly structured his business.

But this is not the case for US citizens. You owe tax on worldwide income no matter where you live or where your company is located. An offshore company that only manages your investments is considered subpart-F income and you must legally report any income from the company and pay US tax on this money.

You also need to consider nexus. Does the company have a physical presence in the US? Does the majority of the income come from the US? Does the company own investments in the US? If yes to any of these, you will owe US taxes on the company income.

As I stated previously, this is complicated and requires a lot of planning. But if done correctly, can save you a lot of money. If done incorrectly, can cost you 10x more.

 

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[Bond]

Thanks, yes i'm Portuguese.

In nº1 i would not be selling to the US, i will have clients form the US coming to my site and buying a service/product(don't know if there's a distinction from a service or real product). Does this constitute selling into the US?

In nº2 the example you put a us company, how will that work it it was a Portuguese company or from other country but not the US?
Thanks.

 

[GlobalWealth]

Thanks, yes i'm Portuguese.

In nº1 i would not be selling to the US, i will have clients form the US coming to my site and buying a service/product(don't know if there's a distinction from a service or real product). Does this constitute selling into the US?

In nº2 the example you put a us company, how will that work it it was a Portuguese company or from other country but not the US?
Thanks.

for Q2, a portugese company with US servers selling to US customers could potentially owe US taxes. also, a portugese company with offshore servers selling to US customers could potentially owe US taxes, but it would be next to impossible for the US IRS to collect. but in either case, you will owe portugese taxes because you are a portugese citizen. the better option would be to have a US LLC, and offshore servers. Then you could defer any income you didn't bring home and not pay any tax anywhere on the deferred income.

 

[lindowjackson]

Thats crazy that the gov can do that. what if you were to have a company under a assumed name, lets say in the grand caymen. lets just call this company diamond investments. lets say that you are using a swiss bank for this company not under your name. if the company makes lets say $500k in one year trading in forign markets. lets say that you are just a empolyee of this company, or a limited partner. like a master feeder set up.off shore llc with a domestic partnership. the llc should not have to pay taxes on the money it makes in other countries. the money that your domestic partnership claims should be the only money taxed by the u.s. gov.
i know this sounds like money laundering, but a lot of hedge funds are structured like this. this is so if you have forign clients, they dont have to pay american taxes on money made in other markets through the offshore llc run in the u.s.

 

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[Bond]

for Q2, a portugese company with US servers selling to US customers could potentially owe US taxes. also, a portugese company with offshore servers selling to US customers could potentially owe US taxes, but it would be next to impossible for the US IRS to collect. but in either case, you will owe portugese taxes because you are a portugese citizen. the better option would be to have a US LLC, and offshore servers. Then you could defer any income you didn't bring home and not pay any tax anywhere on the deferred income.

Right now i have a Portuguese company so that's why i was asking.
My plan right now is to have the servers off US soil and run it as Portuguese company and pay taxes here, but it i get some traction i would prefer to get out of here and form a company elsewhere...
I read that Delaware is a good place to form a US company.

I've found this slide where the guy(Canadian) does something like you say, watch it from slide 89 to see how he does it, or from the beginning to see the whole story : How I founded, bootstrapped, grew and sold my web startup(s) - MeshU 2009

 

[GlobalWealth]

Thats crazy that the gov can do that. what if you were to have a company under a assumed name, lets say in the grand caymen. lets just call this company diamond investments. lets say that you are using a swiss bank for this company not under your name. if the company makes lets say $500k in one year trading in forign markets. lets say that you are just a empolyee of this company, or a limited partner. like a master feeder set up.off shore llc with a domestic partnership. the llc should not have to pay taxes on the money it makes in other countries. the money that your domestic partnership claims should be the only money taxed by the u.s. gov.
i know this sounds like money laundering, but a lot of hedge funds are structured like this. this is so if you have forign clients, they dont have to pay american taxes on money made in other markets through the offshore llc run in the u.s.

This is extremely complex and I cannot begin to touch the surface of all of the requirements.

Yes, hedge funds do this, but they have more than 10 shareholders and no Americans are more than 10% owner.

But you seem to be talking about a company you own alone. If this is the case, your company income would be classified as subpart-F and would be taxable in the US to you, as the owner.

 

[lindowjackson]

yeah, i guess the proper way to set up one of these offshore llc's would to go through a conculting firm or a lawyer who specializes in this. i dont own a offshore LLC, but would like to one day start a Hedge Fund. thanks globalwealth

 

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[mkzhang]

Bond,
I see you are from Portugal. Are you a Portugese citizen? Are you a US citizen or resident? These are important questions.

For non-US citizens, the US is the best tax haven in the world. Its a bit ironic considering their attack on offshore now, but hypocrites be damned, the US is one of the best places in the world for non-US citizens to form their company for offshore business.

But to answer your question, if you have an income producing site, like 'plenty of fish', you definitely don't want the hosting in the US, whether or not your company is based in the US. Like in the mentioned example, you never know when the US will decide they want a piece of the action, so its best to host offshore. If your site is merely informational, then it really doesn't matter.

for question 1, if you are a non-US company selling into the US, you could possibly owe US taxes on the US based income. It would certainly be best to host offshore to remove the risk factor.

for question 2, not very likely. For example, if you are a Portugese citizen with a web business and the company is registered in the US but the servers are hosted in Estonia, you could potentially defer your income taxation indefinitely. You wouldn't owe Portugese tax until your repatriated it, you wouldn't owe US taxes because you aren't a US citizen, and you wouldn't owe tax in Estonia because you are just outsourcing your hosting there.

With all of this said, this is fairly complex stuff and takes some planning and a bit of work to devise the best plan for your situation. Unless you have this kind of knowledge already, this is certainly not a DIY project as you could end up in hot water and potentially owe huge taxes and fines. But if done properly, you can really save a lot on your taxes while diversifying your assets at the same time.

If you are not a US citizen but is a legal resident of USA, does this change your answer to #2?

Thanks

And PS to bond: don't host in China. It sucks.

 

[EastWind]

Reading another post about setting up an offshore company i was wondering how this can be applied to offshore hosting.
I've read a while ago about how the IRS wanted to have some piece of Plenty of Fish revenues, but since his servers were in Canada there's nothing the IRS could do.

1- Let's say i have a company outside the US and the hosting with a US company. Will the IRS go after me because i also sell to us citizens and my servers are in the US? Even if my company isn't registered there?

2- Company Outside US and hosting in another country not the US. Will I have to pay taxes to the government where my hosting is even if the company isn't registered there?

How do we do this? What's the best strategy?

besides hosting outside of the US, you need to be a foreign company, 100% of your business customers can't be coming from US. If you live in the US and work here, you will still have to pay taxes on your income and dividends...

Frankly, you are not making that kind of money to worry about it. You are most likely making peanuts. When you start making millions, then hire a good lawyer etc and get to figuring out how to cut down on your tax expense.

Yes, every little bit saved helps, but if you don't get it right and the govt comes after you, by the time they are done with you, you will have no business. So it's best to get it right especially if you are going to be living in the US.

good luck!

 

[GlobalWealth]

If you are not a US citizen but is a legal resident of USA, does this change your answer to #2?

Thanks

And PS to bond: don't host in China. It sucks.

From a tax standpoint, there is no difference between a US citizen and a US resident.

 

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[GlobalWealth]

besides hosting outside of the US, you need to be a foreign company, 100% of your business customers can't be coming from US. If you live in the US and work here, you will still have to pay taxes on your income and dividends...

Frankly, you are not making that kind of money to worry about it. You are most likely making peanuts. When you start making millions, then hire a good lawyer etc and get to figuring out how to cut down on your tax expense.

Yes, every little bit saved helps, but if you don't get it right and the govt comes after you, by the time they are done with you, you will have no business. So it's best to get it right especially if you are going to be living in the US.

good luck!

Eastwind is correct here. Unless you earn enough to justify the cost and complexity, it isn't really worth it for US citizens to deal with offshore issues. For non-US citizens though, it isn't that difficult or costly and can save you on taxes. The US is one of the few countries in the world that tax citizens/residents on worldwide income regardless of residency. This is what makes tax planning for US nationals difficult.

If you are making the money where it makes sense, you need to hire the right people to help you through the process or you could end up in hot water.