I do not know if this is the right forum for my question, please let me know.
I am a foreigner living in a Latin American country where regulations, invoicing, taxes, administrative procedures are oppressive even for a single freelancer like me.
I would like to automate the invoicing/collecting process for my web design products (web sites) with the minimum legal, administration, tax overload/overhead.
Local regulations are so huge and changing frequently, that running a freelance business is really tough. It is really a headache and I would like to operate in an easy and if possible free administrative/accountant/legal/tax environment. I do not know if I am asking too much.
Here even a single freelancer has to present to the state a monthly revenue/VAT/Tax formal declaration, plus the annual Tax forms, signed by a registered/authorized accountant, so I need:
1.- To invoice/charge my fees via web, that is easy with the available resources for invoicing, any suggestion on a nice web tool is very welcomed.
2.- An offshore or other type of legal company in a country/jurisdiction that allows me the minimum administrative/tax forms paperwork, minimum taxes and operating expenses, minimum everything, except the income
3.- I was told to open an offshore in the Delaware US state or Panama country, a lawyer told me that in Panama do not charge income taxes, I do not know if it is true.
4.- To spend the minimum fees in opening the "ideal" company and the minimum year operating expenses.
5.- Of course I have to create and run the company remotely from any country where I decide to live.
6.- Any other considerations and precautions I might overlook.
I consulted various opinions and they are different. I appreciate a lot if someone would like to share their successful experience and advise in this issue.
Thanks a lot
Offshore companies are far more complicated than you can even begin to imagine. I would imagine that this is well outside the area of expertise that you are likely to find on SP especially as you do not even say which Latin American country you reside in. I am in Britain where the laws with regard to off shore companies are entirely different from say those in America or Ireland. You need a lawyer and a very good one at that, few countries like to see their tax revenues circumvented and in most it is a criminal offence unless it is all absolutely above board. IANAL
Hello mobyme, and thanks for your reply.
My main objective is cut the unnecessary amount of paperwork and administrative procedures and expenses. Years ago I visited some websites that sells the offshore incorporation services, and claimed that was easy. But you state the opposite, so if it is complicated it is no good for me.
I am very clear that a person has to pay Taxes in the country where he lives, I am not thinking in avoiding Taxes, pay taxes in the country of residence is mandatory.
What I want to prevent is paperwork and to pay for double or triple taxes, I am a single person: my country of origin fortunately do not requires me to pay taxes if I do not live there. And for an offshore company, as far as I know in jurisdictions like Panama or Delaware, in case there is only one shareholder, the shareholder do not pay the tax to the jurisdiction, if he/she do not go physically to that jurisdiction to make business there. The shareholder of course has to declare everything he made with the offshore company in his country of residence and pay the tax there, that is clear. IANAL neither.
For me paperwork cut and automation would be a relieve, with more time for my job. Anyway I would see how I handle this.
You are looking for a way to reduce taxes AND reduce paperwork? If you find anything, let us know
Per your posts I would recommend that you take some more time to understand how an entity in a place like Delaware will help you. I don't think it's quite as simple as you think!
Thanks for your post, would you suggest some really qualified links to read and understand how this type of entities work? There is a lot of information in internet but, how to identify what is is true from scam?
If you open a company in Deleware, then your company does not need to pay State taxes as long as you are not living in the US. Your company must still pay Federal taxes.
If you open a company in Panama, then your company does not need to pay any taxes as long as you are doing selling to customers in Panama.
Please keep in mind that any bank who sees wire transfers coming in or from Panama is most certainly going to inform the tax authorities of your country... and you will most likely suffer an audit as a result.
Reason? No country likes to think they are losing taxes. Panama is a known tax haven, and any kind of link to you personally is going to end up causing you a headache, regardless of whether your setup is legal or not.
Tax Evasion = Prison.
Tax Avoidance = Eventually (when the auditor comes) a big headache.
I hope that helps.
An offshore company is only worth the hassle if you're going to leave the company's profits offshore. If you attempt to bring the profits onshore then:
1. if you declare it, you'll have to pay income tax at the normal domestic rate.
2. if you don't declare it, you'll eventually get caught and punished.
If you're happy to leave the profits offshore though then it's worth thinking about. It really depends how much revenue you expect to generate. Don't forget that if you're working for the offshore company while onshore, then the local tax authorities will expect you to be receiving a reasonable salary or contractor fees properly declared as income locally.
By the way, you mentioned Delaware. I wouldn't recommend doing this in the USA.
There are many tax havens on your side of the world... panama, belize, cayman is., turks and caicos is., st kitts..... Further afield, there are places like seychelles, hong kong, gibraltar....
Good luck with it all!
Tax avoidance is only a headache if you aren't doing it well. I spend lots of time/money working to avoid taxes and over the last 15 years I've avoided paying huge amounts of tax - legally and without any fraud or evasion.
Tax avoidance is a good thing, when done ethically and properly.
Good for you.
John Maynard Keynes once said that "The avoidance of taxes is the only intellectual pursuit that still carries any reward."
Well how about that? I didn't know that Keynes ever said anything that could be proven as truth! But when it comes to tax avoidance I try to advise everyone to invest their time and effort into it when it makes sense. I look at it like this:
Say you make 100/year and pay 25k/year in taxes. You decide to spend 40 hours and $1000 optimizing your tax situation through incorporating or whatever works for your situation. You tax liability is reduced by 5k. That means that the time you spent on tax strategy yielded a net gain (i.e. money in your pocket that you didn't have to pay in taxes) of $4000 or $100/hr. Nothing special, but still a decent rate of return.
What makes this work is that you'll save money through the strategy you created for multiple years. So, say your revenue stays the same and you continue to pay $1000/year for accounting/fees - you are realizing a reduction in taxes of $4000 for years following the year that you actually invested that time to begin with.
Over a 3 year period, you'll have saved $12,000 on your initial investment of 40 hours time, which works out to $300/hr that you earned on that money in the form of reduced tax liability over 3 years.
And it gets better. That $12,000 reduction in taxes allows you to invest that money in your business or in your 401k, or whatever. So the gain you get on that money should also be included in the ROI of tax avoidance.
In my experience, tax avoidance has one of the best ROI's of any effort you can make as a small business owner. Once you learn the ropes, you begin to run out of tax avoidance opportunities and there is a diminishing return on that investment of time/money. But, until you reach that point it's definitely worthwhile!
Excellent advice. Hats off to you, sir.
I'll end with another quote, since you liked the last one so much...
This is for those that think tax avoidance is illegal or wrong. In the words of Lord Tomlin, in the UK House of Lords case, IRC v. Duke of Westminster (1936) 19 TC 490,  AC 1:
[I]"Every man is entitled if he can, to order his affairs so as that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax".[/I]
Excellent quote, and words to live by.
The classic response of someone who is being given tax advice but doesn't know much about how taxes work is "oh that's not worth it, because you might get audited!", but audits shouldn't be a big deal as long as you are legal.
If I save 10k/year in taxes by using an aggressive strategy (but 100% legal) and every 3 years I get audited which takes half a day and cost $1000 to my accountant, I still come out WAY ahead.
I keep my books 100% accurate and organized. I have every receipt in a folder divided by month. I have all statements. An audit is really not that bad, especially since I know I'll survive it easily. It's worth it!!
Paying more tax to avoid getting audited makes no sense. It's kind of like people who buy homes because they think that renting is 'throwing money away'. Those are just words and unless you do the math, it's not clear.
Indeed. And your accountancy costs are tax deductible too
That's right - I forgot about that one. That's the great thing about being knowledgeable tax-wise - it allows you to turn many things in your favor.
Hello and thanks to everybody for your kind answers.
Back to the original question, I will sumarize it in this way:
1.- I live in a very unstable political and economically country with no guarantees of private property.
2.- I am thinking in selling my package of domain plus web hosting plus web design outside the country.
3.- The Question: Can somebody please recommend a serious and reliable company which are experts in Incorporating very small offshore companies, i.e 1-2 shareholders, with offshore bank account and offshore online payment solution. I only have 4 products, very symple, only 4 single payment buttons, no shopping cart.
4.- I did a Google search but there are millions of offshore related pages, whom to trust?
Thanks and regards
Wow, 2 years later you are still struggling with this?
I think that to answer your question with even a shred of relevance you'd have to give a ball-park figure of your annual revenue. Furthermore, you should probably state the country in which you are operating and you'd need to learn exactly how you can bring money into that country in a simple/easy way.
Only then could you even consider which entity to form. If you are making 10k/year it's possible that there is no offshore entity that will bring a net gain. If you are making 300k/year there are a variety of choices and you should get professional help. Then there's everything in between.
A common model is to license your work to a US-held company that would handle all distribution/sales/support, etc and would pay you as a shareholder - that simplifies the whole thing and you may be able to find such a partner rather than taking the time to learn to operate a US or Panama company.
FYI Panama can be excellent as an offshore holding location but at a minimum you need to learn and understand the business strategy and how you'll operate it to your advantage before jumping in.
1.- No, I was not struggled, I was solving other issues and projects with more priority, and this week I had some time to take back the issue.
2.- In this moment I am not living in that country although I keep my residential status on that country. Now I am in Europe due to family issues and next month I will do a marketing study here in Europe.
3.- I will not be taking the money to my country of residence, it is not possible nor worth it.
4.- I am willing to study about all the issues involved with an offshore incorporation.
5.- The idea is to beging from scratch in a new country, to contact the potential customer, I will only be presenting to the customer the offshore company websites, and he then will know about the services and he will decide if he will purchase them from my offshore company via Internet or from the other local companies. The quality and the price of the services has to be a strong incentive for the potential customer.
6.- The profit will stay in the offshore company's offshore bank account that has to be in a different country than the offshore company.
7.- Panama, Belice, Dominica, Seychelles, Marshall Islands are good choices, there are many companies offering offshore incorporation on those places but the question is, which one would be recommended?
Thanks and regards
All money that is accumulated eventually needs to be withdrawn or it has no future value. Where do you plan to live in the future? It's easy to take money in and out of the US, easier in the Bahamas, etc. But it's hard to move money in and out of India, Venezuela, etc.
If you aren't sure, Panama is OK but there are some tricky taxation laws in the works in Europe in the states that might ruin that party. Same with Belize.
There is also the concept of finding a place where you can actually just pay taxes and 'free' the money. You can do that in the states sometimes, and will then have taxed-already money in an account waiting for you.
Note that if you are operating a business remotely by domiciling it offshore, in MOST countries you are obligated to disclose that and register or otherwise claim that as an asset or interest. So in the US, if you are operating a company in Panama and making lots of money you would still be considered to have 'nexus' for that company in the states (under some circumstances) and would be obligated to register that company as a foreign corporation.
So, it will really serve you to try and predict where you will be operating the company from, where you will be living in the future, and where you want to eventually withdraw the money to when you are ready. Then you can 'back in' the right country to form your entity in based on the legalities that are specific to your situation.
You should also consider the fee overhead. Some countries are much more expensive to operate in remotely as you need a nominee officer, etc. The US is usually the absolute cheapest place to operate a company but that doesn't consider taxes, which can range from zero to very high depending on circumstances.
There is also the clearinghouse model which is more sophisticated and would apply if you have considerable revenue. A partner of mine operates a company in the Bahamas, one in the states and one in Jersey. The Bahamian company purchases goods from China and sells them to the company in the US. The US company sells them but doesn't make much profit because it's marketing/management arm is located in Jersey. The Jersey company is accumulating wealth but because of it's structure, it's easy to 'hold' money in the company which is the intention of the owner.
That's the 'sandwich' technique that governments hate and Google(s) like