I’ve spent the past twelve years learning as much as possible about the offshore world.
You see, I started my venture into offshore business much like everyone else – I gently dipped my toe in, and I then largely did nothing for a while after that.
However, what I’ve since learned by helping hundreds of people put together high-level offshore strategies is that the answer to most questions – whether it’s where to incorporate, where to move, or where to get a second passport – is that it depends.
But when crafting your ideal offshore strategy, there are a number of common considerations that you need to take into account. While no blog article can tell you exactly where you should incorporate based on your needs, I can give you a couple of things to consider when making your decision.
WHAT TYPE OF BUSINESS DO YOU RUN?
The first issue to consider when incorporating offshore is the type of business that you run.
For example, you may run a consulting firm where you work with a small number of clients at a high price tag. In that business, you’ll likely be talking to your customers personally, and your customers will likely be directly sending you bank transfers.
That means that switching your clients over from paying your local company to paying a new company elsewhere may not be too difficult since you can speak directly to your clients and explain what you’re doing.
If you’re running an e-commerce company, on the other hand, you’re likely going to be taking credit cards. Therefore, you’ll need some kind of credit card processing solution, meaning that you’ll likely have some kind of onshore-offshore hybrid.
Understanding the kind of company that you’re running and how it collects payment is therefore crucial to choosing where to incorporate your offshore company.
WHAT’S YOUR PRICE POINT?
When people think of incorporating offshore, they often assume that going offshore means fewer rules and fewer taxes.
So, they’re often surprised when sometimes there are more rules and there are more regulations.
In the US, for instance, pretty much anyone can get a merchant account, and most banks won’t bat an eye even if you’re charging large amounts.
However, if you decide to set up your company in Hong Kong, then you’re going to have a more difficult time with your merchant account. Although Hong Kong finally has a working stripe solution, you can’t really use it if you’re charging people thousands of dollars for your services.
So, while basing your company in Hong Kong might be a good idea if you’re just selling e-books, it’s going to be a lot more difficult if you’re selling high-end products or expensive consulting services.
Basically, the more money you charge, the harder it’s going to be to find a solution.
WHERE ARE YOUR CUSTOMERS BASED?
Your customer base also highly influences where you should incorporate your offshore company – as well as your tax planning.
To see how this works, let’s return to the example of Hong Kong. You might be one of the lucky few that can still get a bank account there, but if most of your customers are in emerging jurisdictions like India, you may have a lot of explaining to do with your bank. Banks in Hong Kong have been actively de-risking their client base, so they prefer people who get payments from jurisdictions that they know, like the US or mainland China.
Similarly, if you’re running an Amazon FBA business and nearly all of your customers are in the US, then you’re going to need to be careful with how the US piece of your corporation is structured.
In the end, you want a solution that speaks to your customer base.
ARE YOU FUTURE PROOFED?
The final issue that you need to consider when setting up your offshore corporation is whether your offshore structure will stand the test of time.
Over the past few years, I’ve received plenty of calls and emails from people who are panicking because they set up a corporation in the Seychelles, Mauritius, or the British Virgin Islands, and their banks have decided to close or freeze their accounts.
The reason for this is because that the offshore world used to be focused on “hacking the system” and cutting corners, and let’s be honest – a lot of offshore service providers still present it this way, which is why a lot of governments still have negative views of businesses that make the move offshore.
Additionally, in most reputable banking jurisdictions like Hong Kong and Singapore, de-risking is a major issue. Just the other day, I had a big company come to me and say that their bank account in Singapore was closed because they’re based in Mauritius. High-quality banks no longer need to deal with offshore companies in opaque jurisdictions.
This is why I’m always telling people to stop cutting corners and looking for hacks.
Going offshore isn’t impossible, but you need to put in the work and build an offshore structure that’s legal, transparent, and will stand the test of time.
You have to set up your offshore structure correctly from the beginning to avoid problems later down the road.
However, setting up an offshore structure that stands the test of time goes beyond just making sure that you’re legal – you also need to be aware of what’s going on in the world and how it will affect your company.
But what does that entail?
For one thing, you should stop playing with what I call “classic offshore jurisdictions” – Belize, the Seychelles, Samoa, the Marshall Islands – because few (if any) reputable banks will want to deal with companies based in those areas.
I mean, you might be able to find some tin can strip mall bank on a remote island that will open an account for your Marshall Islands LLC, but it’s not going to last even if the bank continues to work with you.
Even Vanuatu has trouble with things like correspondent banking relationships, which makes it difficult for them to remit US Dollars.
So, even if your company can keep a bank account, it might not be a particularly good one, and you may not even be able to send and receive money. In fact, I even had a guy two years ago come to me and say that he had his bank account with half a million dollars in it frozen in the Seychelles.
Therefore, it’s critical that you future-proof your offshore strategy to avoid serious problems down the line. Here are a few tips for doing just that:
DO THINGS RIGHT THE FIRST TIME
To have a successful offshore structure, you need to invest time and money into setting things up on a holistic level.
Being cheap and cutting corners will only hurt you in the long run. The fact is that you need something that will work for you long-term. For example, the BVI still works for certain people since it has some reputability, and while the Cayman Islands is expensive, it still works and gives you access to a handful of decent banks – even in places like Singapore.
“But my friend incorporated in the Seychelles for half the price, and they opened an account for him in Singapore!”
Yes, and they’ll close it sometime within the next three months.
In the offshore world, you get what you pay for, and it’s just worth it to set everything up right the first time.
ONSHORE IS THE NEW OFFSHORE
In the modern world, going offshore isn’t about trying to hide your business dealings on some far-flung island in the Pacific – it’s about finding the jurisdictions that work best for you and your business.
Some places that you could consider are what I call “mid-shore” jurisdictions, which are business- and tax-friendly while also offering transparency and trustworthiness.
For some people, this may mean setting up a US LLC, which can be quite tax efficient if structured correctly. Similarly, a company in Hong Kong can also be quite structurally efficient.
You can also look toward low-tax jurisdictions in white-listed countries. Estonia is great if you have a cash flow business, and if you want access to the EU, you can consider Bulgaria.
Another tax haven that no one ever talks about is Macedonia, which has even better policies than Estonia.
So, while you may end up paying a limited amount of tax, it’s often worth it to be based in a stable, reputable jurisdiction.
CONSIDER A MULTI-PART STRUCTURE
Many people believe that because they only have one company, they only need to set up one offshore corporation.
However, having a multi-part structure can be highly beneficial in some instances. You might have one company where you employ and pay your workers while you may have related companies or subsidiaries that handle other issues, such as billing.
While this may depend on your company’s needs, you should consider the possibility that you may want to set up multiple entities.
MAKE YOUR PERSONAL LIFE TAX-FRIENDLY
All too often, I see people who think that they can simply set up a company in the BVI and keep living in Canada or Australia.
However, to optimize your taxes, you can’t just move your business and your assets – you need to move yourself, too.
While you might be able to stick around in a high-tax jurisdiction if you’re a part of a massive operation, that’s not going to work if you’re just a one- or two-man show.
Your tax planning therefore not only needs to include your business, but also your personal life.
FOCUS ON COMPLIANCE
If a country doesn’t require anything of you – no taxes, no audits, no regulations – then that’s generally a red flag.
Even Turks and Caicos is trying to be more transparent, so zero compliance regulations is a bad sign.
The fact is that in this day and age, you need to be compliant. You need to complete your CRS and FATCA paperwork, and you should never lie to banks.
I’ve known plenty of people with perfect corporate structures who lie to their banks and ruin everything. Don’t be that guy.
REMEMBER: DIFFERENT PEOPLE WILL HAVE DIFFERENT SOLUTIONS
Finally, as you plan your offshore strategy, keep in mind that there’s no one-size-fits-all solution to your offshore strategy.
While I personally am a big fan of “mid-shore” jurisdictions, you might be served best somewhere else.
What it all comes down to is your personal goals and needs – not what seems hip or easy.