What are the advantages of an offshore company and where should I incorporate one?

December 27, 2008 11:53 AM

I am a British Internet marketer and need advice on setting up an offshore company and bank account to avoid tax. Details inside!

I am a british citizen, but have never submitted a personal tax return due to not living in the country for most of my life (and also never being requested to complete one). Regardless, I now live outside the UK and move around far too often to ever become permanently resident anywhere. I guess i'm somewhat of a 'global citizen'. Ive recently started making a little money doing affiliate marketing online. At the moment, I use my personal UK bank account to make and receive payments. I want to avoid ever having to be liable for paying tax in the UK, and It seems that most people in this business form companies, so I thought I should incorporate an offshore company. As I understand it, I can open an offshore company and bank account and pay zero tax (until I remit money back to the country where I am living).

1. From what I understand, the benefits of an offshore company for me would be increased privacy (everything is being traded in the name of the company and I could even remain totally anonymous if I used bearer shares, nominee directors etc), limited liability and lastly because I couldn't open an offshore bank account without one. Is this basically correct?
2. Is there any reason (other than cost) to operate an offshore bank account in a different country to the country the company is incorporated in?
3. Are there any jurisdictions that particularly suit my requirements (i.e. no double taxation agreements with UK etc)?
4. Where in the world is the cheapest place to open an offshore company and bank account given the above? I'm not yet earning very much, so I'm looking for the cheapest solution which protects me. From the few hours Ive spent researching it seems that the Seychelles offers extremely good value. Panama is also attractive.

Thanks for any help!

Kai

posted by Kai2 to Work & Money (10 answers total)

Best answer: First things first: Who gets to charge you tax is determined by several factors: 1. Where the tax authorities think you are resident 2. Where the tax authorities think you are domiciled 3. Where the 'services' were rendered and consumed that gave rise to the profits.

It is usually not a major issue which bank account you use unless there is a direct implication of using it on the factors above.

If you are certain that you are not resident in the UK (using Inland Revenue definition)and have not been for several years then they cannot tax you even if you use your personal bank account in the UK. You will already have notified your bank that you are non-UK resident and you should not be paying tax on the interest you earn on your money. Typically, banks will get you to sign a declaration or you need to recover the tax they pay on your behalf.

Having an offshore company will cost you anything from USD2000 a year with a set up cost of USD3000. In addition you will need to set up contract between the companies to make the whole thing sensible.

If you are certain that you are not liable for taxation in the UK for reasons of non-residence then all this structuring is an unnecessary cost and hassle. Running offshore companies is not as glamourous as it may seem from the outside. Everybody in the value chain wants to extract their pound of flesh.

I am not a lawyer or tax advisor and the above should not be relied upon as such.
posted by london302 at 12:38 PM on December 27, 2008

My advice would be to pay taxes, preferably in your country of residence (default=Britain), and minimize your exposure that way. In many countries, paying taxes is based on the "honour system", which is probably why you have never been "asked" to submit a tax return in Britain. Be advised that you do not want to be "asked" by the tax collectors to do anything, because the entire apparatus of government will be aimed in your direction, and they are very very nasty people. So, pay taxes in your country of residence, minimize your exposure, and document it.

You may wish to adjust your expectations about having to pay as little tax as possible. Somewhere, someday, some government is going to lay claim to the uncollected taxes on your income, and when that bill comes due, it will be tough to pay without being ruined. Some people are smart and clever enough to set things up so they never have to pay taxes, but such people rarely resort to asking an anonymous group of Internet strangers for advice.
posted by KokuRyu at 12:58 PM on December 27, 2008 [3 favorites]

Response by poster: Just to confirm, i've never not paid taxes when I have been legally obliged to do so. Ive' likely paid more in taxes than most people earn in a lifetime, just not to the UK government because I have not been living there.
posted by Kai2 at 1:29 PM on December 27, 2008

Get some proper advice from people qualified to do so.
posted by koahiatamadl at 1:47 PM on December 27, 2008

For some people it is a way to save a lot of money. But this is a severe case of "Don't ask the Internet". Find an international business attorney or three. This advice will not come cheap.

Any country that is a tax haven knows it's a tax haven and therefore will kick the crap out of you for fees, representation, etc. Unless you're pulling in hundreds of thousands of US dollars worth of income, it's not worth it. The amount of anonymity depends on where you're incorporating, the more you want the higher the fees. If you want to incorporate in a country where you don't have residency you will pay through the nose. And even then your corporation is pretty much at will of the host country.

At least you're not from the US. Americans get taxed on every dollar they earn as an American citizen wherever in the world they earn it. (More or less.)
posted by Ookseer at 2:14 PM on December 27, 2008

Ive' likely paid more in taxes than most people earn in a lifetime

Sounds like you can afford to hire a qualified international taxation lawyer who can give you an informed opinion.
posted by applemeat at 2:19 PM on December 27, 2008 [2 favorites]

i would think that ideally you would have everything in britain. tax laws are set up to protect the citizens of the country and provide certain necessary funds. i'm not sure about law in the uk but i know that here in america taxes pay quite a bit of the funds for the school system. so, think about it that way, it's actually hurting your economy. (maybe, i don't really know, this is just based on what i know from college.)
posted by big open mouth at 3:23 PM on December 27, 2008

Ive' likely paid more in taxes than most people earn in a lifetime

I don't believe this.
posted by KokuRyu at 6:56 PM on December 27, 2008

In short:

1. I agree with koahiatamadl and with Oosker that you will need professional advice if you go down the route of setting any structures up. It is not just about structuring but also knowing what structures IR will respect.

2. If the above is true then UK is least of your problems. You need proper advice about the country you currently live in. Generally, in Europe you are liable to tax in the coutry you spend more than 90 days. It is getting harder to fudge your residency. Tax authorities are known to nail people down for the smallest issues.

3. If you dont spend more than 90 days in any EU country then as an extreme case UK authorities can argue that you are UK resident due to your past links. Which makes 1 above even more important.
posted by london302 at 5:38 AM on December 28, 2008

Your questions kinda sounds like you are fishing for a far more complicated setup than your particular earnings and living arrangements call for. It is perfectly possible to open an non-resident UK bank account with any of the UK's big banks. Call them 'offshore' bank accounts if you like - they are based in branches in the Channels Islands and Isle of Man.

There's nothing special about these - if you are British but non-resident, these accounts exist to allow you to bank with them but not get taxed on interest at the source.

To address the other questions you have, start by reading some of the dozens of websites aiming at people who think they want to live 'off the grid'. Search for terms like 'second passport' and 'perpetual traveler', you'll soon find them.
posted by Xhris at 7:22 PM on December 28, 2008