Building an offshore company: Your thoughts

[poznahv]

Hello everyone, I'm not going to present myself too much since it's not that interesting but you might want to know that I live in one of the worst countries to start a business: France.
High taxes, lots of fees and paperwork... To give you an idea when an employer pays 100 for the salary of an employee, the employee gets 30! It's in addition to taxes and fees that the company has to pay each year. The irony is that big companies manage to evade taxes, so only small business are impacted.

There is however the possibility to create an offshore business: No taxes, almost no paperwork, etc. It is legal as long as your business doesn't have any materialised activities in any country. So it suits well for most internet business. The problem is when you want to get the money, then you would still have to pay the 70 percents rate (in case of France). My plan is to start the business while I live in France and in case of success immigrate to a country like Ireland where taxes are low and get a salary.
An alternative would be creating a regular company in the UK or Ireland but you have to be a resident first, so I would have to find a temporary job there (not that easy).

There are plenty of offshore incorporation websites but I'm not really sure they are trustworthy. What are you thoughts?

 

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[911Carrera]

First of all, you won't pay 70% taxes anywhere in the world, not in France, not in Belgium, not in Finland and those countries have the highest tax rates, they are all below or slightly above 50%.

The reason an employer pays that is because of other fees they have to pay to the gov and other companies for benefits like health insurance, disability, retirement etc. It's the same here in the states, whatever your salary is as a full time worker with benefits, it costs your employer twice that to employ you. Offshore businesses are a dangerous thing if you're not an expert at this kind of thing or don't have the money to hire the experts. It's very complicated and you can end up losing money or owing taxes to your resident country.

Whatever you do, don't use a website for that kind of stuff. Consult with real offline experts.

 

[poznahv]

Thank you for your answer. So the solution might be having something in france as an auto entrepreneur (basically a sole trader status with income limited to 30k a year) to test its viability and then starting the company for real as soon as possible going abroad.


Yes by taxes I meant fees.

This is on average :

So according to this chart, france is more than 3 times more expensive (the accuracy of the number doesn't really matter here, it's more the ratio). I agree that is doesn't matter if you make a lot of money but you have to get started.

This is not the only problem though. There are fixed fees also, so you have an entry barrier which makes it very difficult for small businesses without capital to just start. And as I said the paperwork is terrible. You end up losing more time doing paperwork month after month than actually working on your company.

 

[GlobalWealth]

911 is correct. This can be tricky to set up. It is not inexpensive either.

You need to seek quality advice.

For an online business, it is very doable, but if done incorrectly you can end up in trouble.

 

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[poznahv]

Okay, I agree it's a little risky but I was wondering if it was something used by startups or not. The problem is I think most startups don't really need that because they are not in France, so you are a little biased . Okay okay I stop complaining.

I'm completely newbie to the matter, but if I create a company in france (a sole ownership kind of thing), how hard is it to "convert" it to something else in a different country?

 

[tincho1492]

I've consulted with the Chamber of Exterior Commerce and they told me that (in Uruguay) I don't have to pay personal taxes selling software to other countries. If I had some kind of membership website, does it still applies? Because I'm charging for using my web app. They told me that not but, what do you think?

 

[GlobalWealth]

I agree it's a little risky but I was wondering if it was something used by startups or not.

That depends on your expected income. If the business is to stay very small, then the benefits are not likely worth the cost. But if you are talking about something more substantial, then offshore planning can be very beneficial.

 

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[GlobalWealth]

(in Uruguay) I don't have to pay personal taxes selling software to other countries.

Uruguay has recently changed their tax law regarding worldwide income. They now assess income taxes on its citizens for all worldwide income.

 

[pro]

Contact at least 5 different accounting firms and compare.

 

[gabrielpark]

...My plan is to start the business while I live in France and in case of success immigrate to a country like Ireland where taxes are low and get a salary.
An alternative would be creating a regular company in the UK or Ireland but you have to be a resident first, so I would have to find a temporary job there (not that easy).

There are plenty of offshore incorporation websites but I'm not really sure they are trustworthy. What are you thoughts?

My experience has been that the offshore incorporation websites will help you to incorporate offshore, but that is all. They might tell you whatever legal mumbo-jumbo that you want to hear in order to make that sale, but as far as evading or minimizing taxes, that's an issue you should consult a tax attorney for. I'm somewhat familiar with US laws myself, and as far as we are concerned most states make it fairly simple to change the domicile of a company so you can change it according to your needs as the company, and your income, grows. Generally speaking, the laws of the corporate domicile are what govern the operation of the business, no matter where the company sells its product, while humans are subject to both the tax laws of their home country and the place where they reside. There are other reasons to go offshore, though - litigation, privacy, credit lines, and - well, for lack of a better word... paranoia.

panamalaw.org, nestmann.com and sovereignman.com are some websites you might look into.

 

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[H. Palmer]

Poznahv, greetings from tax haven the Netherlands.


Your problem seems to be the taxes and insurance premiums for a worker or for someone who works in his own company.

I think you have 2 options.

1. Start as a sole proprietor. I am not familiar with the fiscal treatment of sole proprietors in France, but in most countries they enjoy all kinds of tax benefits. In the Netherlands e.g. there are facilities such as the "entrepeneur deduction", "old age reservation reduction" and "SMB deduction".

2. Incorporate. In this case you become an employee of your own company. Although the tax burden on your salary is fixed, it is you who decides how high your salary is. The rest of the money remains in the company.

However, there are 2 catches.

2.1 Of course, the profits of the company are taxed too. It is for this reason that establishing offshore corporations can be attractive. E.g. in the Netherlands the corporation tax for SMB's is 20 percent. This is not high, but in Ireland I believe it is around 10 percent. In offshore tax havens like the Bermuda's it is a few percent or non existent.

2.2 The laws of the country you live in sometimes require you to assign yourself a salary of a certain amount. E.g. in the Netherlands the director of a BV (is equivalent to a French SARL and similar to an American S corporation) is required by law to earn at a minimum 41.000 euro's per year. (There is room for dispensation, but this requires an agreement with the fiscal authorities).

For a long time I thought the Netherlands was the only country with this kind of idiotic requirement, but just recently I discovered that countries like Germany and the US have similar laws.

In any case, the director of a corporation not always has the freedom to assign himself any kind of salary that he wants to.

In your case, I think the most important thing is to start. At this point you really don't know what your revenue will be from your company. Only with more information, feedback from the market, will it get more clear for you which path to choose.

 

[poznahv]

Poznahv, greetings from tax haven the Netherlands.


Your problem seems to be the taxes and insurance premiums for a worker or for someone who works in his own company.

I think you have 2 options.

1. Start as a sole proprietor. I am not familiar with the fiscal treatment of sole proprietors in France, but in most countries they enjoy all kinds of tax benefits. In the Netherlands e.g. there are facilities such as the "entrepeneur deduction", "old age reservation reduction" and "SMB deduction".

2. Incorporate. In this case you become an employee of your own company. Although the tax burden on your salary is fixed, it is you who decides how high your salary is. The rest of the money remains in the company.

However, there are 2 catches.

2.1 Of course, the profits of the company are taxed too. It is for this reason that establishing offshore corporations can be attractive. E.g. in the Netherlands the corporation tax for SMB's is 20 percent. This is not high, but in Ireland I believe it is around 10 percent. In offshore tax havens like the Bermuda's it is a few percent or non existent.

2.2 The laws of the country you live in sometimes require you to assign yourself a salary of a certain amount. E.g. in the Netherlands the director of a BV (is equivalent to a French SARL and similar to an American S corporation) is required by law to earn at a minimum 41.000 euro's per year. (There is room for dispensation, but this requires an agreement with the fiscal authorities).

For a long time I thought the Netherlands was the only country with this kind of idiotic requirement, but just recently I discovered that countries like Germany and the US have similar laws.

In any case, the director of a corporation not always has the freedom to assign himself any kind of salary that he wants to.

In your case, I think the most important thing is to start. At this point you really don't know what your revenue will be from your company. Only with more information, feedback from the market, will it get more clear for you which path to choose.

You are right. I need to start something first. I agree I can't guess what's best at this point. I aim to start with a structure and continue with another.

 

[bernhard]

I've consulted with the Chamber of Exterior Commerce and they told me that (in Uruguay) I don't have to pay personal taxes selling software to other countries. If I had some kind of membership website, does it still applies? Because I'm charging for using my web app. They told me that not but, what do you think?

i lived in uruguay for some extended time and my knowledge is, the export of software which you develope for clients is tax free. memberships are no software, they are a service you provide.

 

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[CommonCents]

In the case of a new online biz, what are pluses/minuses of setting up offshore at the start, vs. waiting until it is a bit more established, then moving it?

 

[Kari]

Please get legal advice - many people seem to ignore the parts of the law that they see fit.

Jurisdiction of incorporation != source of taxation. If you use a HK company then it does not automatically mean that you don't pay tax. A lot of western countries have anti evasion measures and many WILL classify an offshore company as a local company unless you adhere to certain requirements. France has them, the UK has them, etc. In most cases, one of two man companies are always classified as local companies. The rule tends to be that you pay tax where you live.

However, that said, if you're not an american then there is an opportunity to optimize if you don't mind travelling all the time.

 

[tincho1492]

i lived in uruguay for some extended time and my knowledge is, the export of software which you develope for clients is tax free. memberships are no software, they are a service you provide.

Where did you lived? Montevideo? I consulted with an accountant that told me that income from outside the country don't pay taxes, but will make time to have concrete answers.

 

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[Kak]

GW. What if I were to buy a place in the Caymans for example. I hear it is low income tax... No real research.

Then I proceed to just reincorporate my company there and have my American partner companies pay the Cayman bank? They still consider me an expense and the US government knows that they are paying a Cayman LLC or the equivalent. Can they do anything about it? Will this be just taxed in the Caymans?

Does the US tax foreign companies that make money in the US online?

Id rather not help finance a government that I disagree with.

 

[bernhard]

Where did you lived? Montevideo? I consulted with an accountant that told me that income from outside the country don't pay taxes, but will make time to have concrete answers.

I lived in Montevideo and would strongly suggest, that you change your accountant.
Since 2011 most income from outside the country is taxed. Check at Paradise Uruguay Blog: Uruguay Income Tax Law and Uruguay Banking Secrecy Law Updates

The "good times" are over.

 

[tincho1492]

I lived in Montevideo and would strongly suggest, that you change your accountant.
Since 2011 most income from outside the country is taxed. Check at Paradise Uruguay Blog: Uruguay Income Tax Law and Uruguay Banking Secrecy Law Updates

The "good times" are over.

Thanks! Definitely will look for another accountant since I have a couple of customers outside my country. Thanks for the link.

 

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[GlobalWealth]

GW. What if I were to buy a place in the Caymans for example. I hear it is low income tax... No real research.

You could buy a place in Cayman and establish residency. This 'could' help you taxwise in the US if done properly.

Then I proceed to just reincorporate my company there and have my American partner companies pay the Cayman bank? They still consider me an expense and the US government knows that they are paying a Cayman LLC or the equivalent. Can they do anything about it? Will this be just taxed in the Caymans?

You would not want to 'reincorporate', but create a new company. In this case, I would create a company in another low/no tax jurisdiction that way you would further segregate assets and minimize tax burden.

An LLC is a disregarded entity for tax purposes so if you form an offshore LLC, the income would flow through to you personally so you would be taxed based on you current situation. If you lived outside the US, you would have a $95k earned income exclusion plus ~$50k in housing deduction. The key is to find a jurisdiction for residency that does not tax foreign source income and have a Seychelles Offshore Company (IBC) as your operating company.

Does the US tax foreign companies that make money in the US online?

Yes.

Id rather not help finance a government that I disagree with.

No argument here.