Offshore structuring for e-biz

[PC60756]

Quick question. I was reading over MJ's "Sold the Biz" thread the other day and found his pro-con list of selling versus staying in the business and collecting cash flow. One of the reasons for selling was that he would only be taxed a 15% capital gains tax on the lump sum of the sell rather than a 40% tax on the yearly cash flow. My question is this; would it have been possible for MJ (btw MJ, be nice to hear from you on this) to have set up his lead gen. business offshore (Panama, BVI?) as an IBC or some other structure to avoid these taxes altogether? I know a little bit about this subject but not enough to answer my own question. From what I know, an IBC is essentially exempt from certain forms of taxation. Is this expensive to do or is it even feasible for someone bootstrapping an online business? Any replies would be appreciated. Thanks.

 

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[MJ DeMarco]

The administration/IRS is cracking down on these types of entities. I don't have experience in offshore entities so my answer is only opinion and conjecture: I think you can do it and possibly fly low on the radar assuming you aren't making a lot of $$. However, if you aren't a primary resident of Panama and your web business serves US based customers, the IRS might conclude it is a circumvention.

In other words, creative tax strategies, including offshore entities, is always a risk. Just because you say it is so, doesn't mean the IRS is mandated to conclude the same.

Now if you are a citizen of Panama (and you relinquish US citizenry) I dont think there is an issue. <--- NOT LEGAL ADIVCE NOR TO BE CONSTRUED AS SUCH

 

[PC60756]

Thanks for the reply. I agree all the offshore stuff sounds risky but from what I've read there seems to be an awful lot of people doing it and getting away with it for now. But the administration/IRS is definitely in crackdown mode.

 

[Jill]

I've not read about this stuff for many years, so take this with a grain of salt. But last I knew of it, you could retain US citizenship, while living in an offshore "tax haven" . As long as you were there something like 300+ days (don't remember actual number) consecutively, you could earn $80k from an offshore-based business, without having to pay US income taxes.

I also understand that even if you DO renounce your citizenship, you still have to pay US taxes for the next 10 years (if you ever want to return!!!) I believe there is only one other country in the world that imposes this.

As far as ownership, I know that's changed a lot too. But if your server is based offshore (for a web-based business for instance) and you live offshore, then it is considered to be an offshore business. But see above! You still have to pay US income taxes if you want to continue to be welcomed here.

There are more complicated strategies involving partial ownership arrangements (not to exceed 10%, I think) but this is where it started getting way to "gray" for me, so I stopped paying attention!

Disclaimer: I am not an attorney, thank God, and nothing I'm saying should be considered legal or financial advice!! :nono:

 

[GlobalWealth]

I help clients open IBC's for several business purposes. For a US citizen, you are taxed on worldwide income no matter where you live. If you live outside of the US for 330+ days in a calendar year, you are exempt from the first ~$90k. there are strategies to avoid taxation with IBC's, but they are very complicated and not for most people. There are also some insurance products that can help with tax reduction. The US is one of the few countries that taxes citizens on worldwide income however and this makes it difficult for for this reason. Most IBC's I create for clients are not for US citizens.