Reader Question today… An Internet Entrepreneur from the US is concerned about getting sued and wants an incorporation that protects against lawsuit liability, aka asset protection.
I am interested in asset protection I am also just starting out my business and want to do asset protection and plan for tax liability before it becomes an issue. Here is a little breakout of what I have and what I’m planning on doing.
I have some Adsense sites that bring in a small income – I would like to move those off shore (hosting, domain register, Adsense account, etc.) I had some issues with branded sites that cost me a ton in legal bills because they were registered to me personally (stupid I know I bought some domains in bulk and was assured there were no TradeMark or Copywrite issues).
I am in the process of creating some information products and would like to launch them on Click Bank or a network like that, again I want to avoid personal liability I know you can do this with a US LLC or
Corporation but it seems like people are less likely to file a frivolous suit if you are off shore. Are there any issues with CB and say a BVI company?
I am also planning on launching a few eCommerce site selling digital products for now, then drop ship down the road. So I’ll need to do/support payment processing
My concern is the IRS is there any red flag for offshore how do you handle them without getting in trouble or raising any flags?
Going offshore for asset protection purposes is a very intelligent and prudent move. Unfortunately most people only consider this after they are ‘burned’ so to speak. Usually it takes a lawsuit or legal proceeding to wake people up to the reality of doing business. Business is risky, in and of itself. If you are doing business in the US, you are doing business in a developed society with millions of lawyers willing to work on contingency fees.
Going offshore is a great way to protect you from a liability standpoint for several reasons:
Out of State, Out of Mind… I’m Just Plain Harder to find…
Your assets will be harder to find, and will most likely not appear in a preliminary domestic asset search. The way they will be able to find you is by examine your tax returns during a discovery phase of a lawsuit. Ideally you never reach this point because your creditor sees you are offshore and you don’t appear an attractive target because…
Foreign Courts and Laws… You understand? Tu comprendes? Est-ce que tu me comprends?
If someone decides to move forward with a lawsuit, they need to sue you in the jurisdiction in which your legal entity registered. Let’s say you have a company in a Spanish or French speaking country – now they will have to lodge a lawsuit in a different language.
Want to sue me? I’ll see you in Nevis.
Courts in Nevis, for instance, won’t recognize foreign proceedings, and the parasite trying to take your money has to journey to Nevis. When they do, they will be far, far away from home dealing with a lawsuit dealing only with your business assets (and those held in the LLC), and not your personal assets.
Want to Sue Me? Pay For My Lawyer.
For illustrative purposes, let us play devil’s advocate and drag out the lawsuit vignette to its full conclusion. Say for instance a parasite finds your assets held offshore, and the evil person who is suing is so infuriated he follows you all the way to Nevis. Not only does he has to pay for his lawyer, he is also forced to pay for your lawyer, and needs post a bond to file the lawsuit.
A far cry from the US system where lawyers often will take a case on contingency, where there is no money exchanged up front, but they are likely to take 50% or more if successful with the lawsuit.
Fact: You are much less likely to receive a frivolous lawsuit if you set up your business offshore.
No matter what your business, you are far less likely to be sued if you set up in a different jurisdiction. This is because as previously mentioned; your creditors will need to journey to the distant and faraway land to sue you. It effectively places your business outside of the millions of American lawyers and courts.
Make Sure You Properly Transfer Your Assets Offshore
You will want to transfer the intellectual property to the offshore company. The company must legally own the assets – and if you transfer them they must be sold to the company at fair market value. This is complicated tax stuff so I won’t get bogged down on it for the moment, but you want to keep records, and hold paper on these interactions.
Let’s say that you own a series of websites that you want to transfer to an offshore company in Nevis, because you have heard that Belize is the best place for Internet Entrepreneurs to set up offshore.
This means that you need to create a bill of sale to the company, properly conveying the web properties. You’ll also want to have the billing flow to an offshore bank account (so that all parts of the business are offshore) and You should also host offshore, and if you want to take the last step, transfer the domains to an offshore registrar (ie. get them out of Godaddy’s control).
These are the 5 points of doing business offshore:
1. Websites (property, the business etc)
2. Bank Account
3. Merchant Account
5. Domain Registration
Get all 5 points offshore (outside the high liability country) and you have properly structured your business outside your jurisdiction.
A Word on Merchant Accounts
Everyone I talk to about moving offshore has concerns with 2 payment processors: Paypal and Clickbank. While there are some set ups that afford these companies – these are US companies (primarily) that somewhat defeat the purpose of going offshore in the first place. There are literally thousands of different merchant accounts, payment processors, payment gateways etc for all countries, legal entities and so forth.
You’ll oftentimes even get a better deal on rates and keep a bigger percentage of your profits by using an offshore merchant account if you are an internet entrepreneur.
How to avoid red flags and stay on good terms with the taxman:
Since move your assets offshore is completely legal if it’s done for asset protection purposes – the main thing you will need to do is properly report the offshore legal entity, and the offshore bank accounts with the proper forms.
You will have to keep proper records and report all of your earnings and financial information to the IRS each year.
In addition to the company forms (which vary, and you should discuss with an accountant) You should be very careful to file your FBAR forms as well – which is a yearly form filed to the treasury if the cumulative holdings across all foreign accounts exceeds $10,000. This is form TDF 90-22.1
In layman’s terms: if you have more than 10k in foreign bank accounts, you need to file an form called an “FBAR” to Uncle Sam to let him know about your bank accounts.
As long as you file the correct forms (which are relatively easy) and you properly report your income, then you are well within your rights to journey offshore for asset protection purposes. Once you journey offshore you can enjoy doing business in an environment where you can take risks to generate profit, rather than wait in anticipation of the next frivolous lawsuit…
Is the price tag on this year’s tax return still stinging? Are you tired of a high tax rate eating away at your hard-earned business and investment income?
Bankrupt governments are waging war on success. The “lands of opportunity” have rolled up the welcome mats for business.
So, what are you paying? Is 35%? 40%? 50% of your income going to taxes? That’s an awful lot of your money going to greedy politicians who clearly don’t value your success. But do they have a point? After all, they’re letting you create jobs and build wealth in their country. Right…
If you’re tired of paying so much for the “privilege” of running a business in the west, and you want to reduce taxes and protect your assets, then it’s time you explore your options with offshore companies.
Lucky for you, you’re in the right place.
The story behind offshore companies
Setting up an offshore company is a legal, effective way to protect your income from any greedy mouths (like that of whatever western government you call home).
Apple, Google, Microsoft, Starbucks–These businesses use offshore corporations to save a lot of money and grow their businesses on their own terms. Saving money with low tax rates means more money to reinvest in their companies
And your company doesn’t have to make billions of dollars in order for you to apply the same principles to your business and get the same low tax rates. There are legitimate strategies that international business owners and investors can use to reduce taxes and grow their business.
The most important part of these strategies is they’re 100% legal. You just need the right advice (and a little bit of money).
The right advice for your offshore business
If you’ve found your way here, then you’ve probably already tried Googling “offshore company.” And you’ve probably encountered blogs and articles with conflicting information.
“You need an X offshore corporation in Y part of the world.” “No, you need a Y offshore company in X part of the world!”
This information is likely written by people still living in the USA, still paying high taxes (you know, the same high taxes you’re trying to get out from under).
This bad advice will not show you the legal path to low tax rates.
And there’s another red flag to watch out for from these “experts in theory”–there isn’t a single approach that will work for every business. You need to get advice from someone who understands the global tax market, who understands your business, and who understands your goals behind starting an offshore company.
Each type of business has specific needs, and these needs are best served by personalized solutions. Many of the offshore company “service providers” out there are either ill-informed or outright frauds. And if you don’t know what to look for, it’s easy to get caught in their appealing, misleading pitch.
What makes my advice different from the endless stream of “armchair expat” blogs out there?
I’ve personally taken my tax rate from 43% to single-digit numbers with the help of the global tax market. And I’ve helped many others reduce taxes for their business (and continue to do so through my exclusive coaching program).
Years ago, I felt trapped underneath a hefty tax bill while trying to run my first successful company. Unlike most business owners, I decided to do something about it. Now I travel the world, paying single-digit taxes and helping others build this lifestyle for themselves.
Think about it–every day that goes by where you sit in the US, or Canada, or Australia, reading a blog about starting an offshore company, is another day you lose money to high tax rates.
How does starting an offshore business really work?
The “why” behind offshore companies
A prevailing image of the offshore company industry is one of money laundering, gangsters, drug money, and villains wearing white linen suits (that are–somehow–never stained by the cognac they always seem to be drinking).
In reality, it’s not that sexy (although your particular cognac consumption and linen suit-count may vary). Offshore companies are entities that people create in order to legally take advantage of the global tax market.
The benefits of an offshore corporation can include protecting assets from impending litigation, shifting the tax burden imposed upon the company, and protecting the company from political unrest and economic instability within the country of the owners.
Protecting assets from impending litigation
Frivolous lawsuits, ex-spouses, crazy family members, ex-business partners–money leeches are everywhere and you never know when they’ll come gunning for your assets. Setting up an offshore company can provide increased protection for your assets against the crazy people who want to sue you for them.
Shifting the tax burden imposed upon the company
Think of profit taxation as an expense that can be reduced. The global tax market is the legal, lawful system you can use to reduce taxes. Every nation has different policies and budget requirements. That means you can find much lower tax rates offshore than what you currently pay in the western country you call home.
Let’s be clear here: legally reducing your taxes through an offshore corporation is not the same as trying to evade taxes altogether. The former is legal, the latter is not. If you’re trying to evade taxes, you’re in the wrong place (and also, you’re an idiot).
What could you do for your business with the money you’d save if your tax rate legally went from a steep 40% to a low tax rate like 5%? If you could greatly reduce taxes on your business this year–what would that mean for the future growth of your business?
Protecting the company from political unrest
Political unrest, inflation, and hyperinflation–you can’t control any of these occurrences. But you can insulate yourself against them. Forming an offshore corporation can act as a safeguard against any potential turmoil in your home country.
Good businesses for starting an offshore company
Intelligent business owners create offshore corporations to protect their hard work, protect their shareholders and maximize the potential profits of their business.
I say “intelligent” because tax law is a complicated beast. The truth is, offshore companies won’t work for every person and every business.
There are plenty of businesses that would be well-served to go offshore, including e-commerce or web based businesses, international businesses, consultants and coaches, stock and forex traders, international investors, and those holding intellectual property rights. If you have a location independent business, going offshore could be the biggest no-brainer out there.
Online businesses are an excellent fit for an offshore corporation because they can operate anywhere. With an offshore company, you can process payments in one country, host your website in another, keep accounting records in a third, and pay low tax in a fourth.
If you’re a digital nomad or location-independent entrepreneur who earns money while traveling or living overseas, forming an offshore company could make things much easier for you. Onshore incorporation usually means a litany of paperwork and high taxes–but starting an offshore corporation could mean fewer hoops to jump through.
As I mentioned earlier, inflation or hyperinflation in your home country could drastically reduce the value of your wealth. Having an offshore company with an offshore bank account can keep your business assets insulated against this threat.
If you own a patent or trademark, registering it in the name of an offshore company can allow you to buy and sell these rights. Having these registered under an offshore company also makes it easier to grant these rights to third parties.
What type of offshore company should you set up?
Low taxes, secure business assets, and insulation against unrest at home–starting an offshore corporation is probably sounding pretty good right about now.
But starting an offshore corporation isn’t as easy as going online and signing up. Speaking with an expert will help you figure out which type of offshore corporation strategy will work best for you.
Maybe a Limited Company in Hong Kong is the right move for your offshore corporation–foreign profits aren’t taxed and local Hong Kong profits are only taxed at 16.5%.
A private limited company in the UK or Australia might make sense for you, or even an offshore PLC in Singapore (it won’t get you to 0%, but it will reduce taxes). Each type of offshore company and each jurisdiction have their own unique strengths and appropriate uses.
And certain offshore company types are only available in specific jurisdictions. For example, if a SARL makes sense for your business, you’ll be setting up in a French-speaking country. (It rarely does make sense, though.)
Low tax or no tax?
As tiny tax havens become impossible to deal with, people are actually moving into strategies in places like the US. There are ways for non-residents with LLCs to legally pay no or low tax. Same result, different structure–and another reason why a little expert advice is the right way to go.
What are the best countries for an offshore company?
Your goals will determine the best place for setting up an offshore company.
One business might do well forming an offshore corporation in a country with no accounting or audit requirements and zero tax.
A slightly larger, more diverse company might be better off going to Hong Kong or Singapore and paying a small amount of tax to get the benefits of a great international reputation.
A company seeking to raise venture capital funds might go somewhere else entirely.
While it is often possible to pay zero tax, sometimes it makes sense to pay a little tax. You won’t see me whining that I was able to legally reduce my taxes from 43% to 1%. The savings have put a rather substantial sum back into my pocket.
For some companies, paying a low tax is better than paying no tax. First, low tax locations often grant you more access to world-class banking, financial opportunities, and merchant services.
And paying small tax amounts can make the difference between your home country leaving you alone and giving you a hard time. As the global war on tax havens heats up, setting up your offshore corporation in a respected jurisdiction might be the best strategy for you. And in some cases, it might not even cost you anymore.
Common countries for offshore corporations
Common traditional offshore jurisdictions include Nevis, Seychelles, Mauritius, the British Virgin Islands, the Cayman Islands, Antigua, Anguilla, and even the Gambia in Africa.
Other low-tax jurisdictions popular for offshore companies include territories like Gibraltar, as well as low-tax European countries like Ireland, Malta, and even “zero tax” Estonia.
In Asia, places like Hong Kong and Singapore offer the potential for zero or single-digit tax rates for foreign business, as well as a network of global tax treaties.
Meanwhile, the Middle East is growing as an offshore hub, with Dubai and Bahrain offering their services to those interested in that region.
Tax implications of offshore corporations
We’ve talked a lot about how a big part of forming an offshore company is trying to reduce taxes or eliminate your tax burden entirely. In order to get the best legal results, you need to have the right team in place to manage your business.
Having the right team in place to manage your business once it is set up does two important things–It makes sure you are 1) in compliance and 2) making the most of all tax benefits.
Some higher-level offshore jurisdictions will require you to file annual accounts showing your transaction history. These include places like Hong Kong, Singapore, Cyprus, Gibraltar, etc.
Many traditional offshore jurisdictions may require you to keep books on your own, but they don’t require you to file them. Even if you don’t have to file reports or pay tax offshore, you might be required to declare your interest in any offshore company to the country where you’re a citizen or resident.
Forming an offshore corporation is about saving money and protecting assets legally, not hiding away or evading taxes. You want to make sure you’re not only aware of all the rules and regulations surrounding your home country and the jurisdiction of your offshore company, but that you’re complying with these rules, too.
Offshore company requirements for US citizens
The US government has some tight restrictions on offshore companies.
As a US citizen, you’ll need to disclose any interest in an offshore corporation on your taxes each year. The same goes for any offshore bank accounts you are an owner of or signer on, in most cases.
Failure to comply with these rules in the US (or any other western country that requires them) can lead to steep penalties. You can reduce taxes with an offshore corporation, but you won’t benefit from a low tax if you get whacked with penalties and fees.
Tax deferment is one way for offshore companies to reduce taxes. The system in place lets you defer the taxes that will be imposed upon your company indefinitely.
You can take the money you’re no longer putting towards taxes and reinvest it in your company. You won’t have to pay these taxes off until you sell the company.
If you’ve been deferring taxes for a number of years, and using those funds to either continue to build your business or invest otherwise, you will be coming out far ahead of those who never start an offshore company. Try as those homebodies might to reduce taxes, tax-free compound interest from your offshore company will blow their onshore earnings out of the water.
How to get started setting up an offshore company
Remember those bad blogs and articles from earlier? Well, offshore corporation misinformation isn’t the only thing you need to be wary of…
There are plenty of cheap “start an offshore company” service providers advertising on the internet. They offer the lowest price and the best results. Oxymorons.
Unless you’re an African warlord, you’ll want to steer clear of these service providers. Flouting the law, avoiding and ignoring sound legal and tax advice–If that’s your M.O, the lowest-priced provider will get you set up in no time (I mean, maybe…there are plenty of scams out there).
And while the process of forming an offshore corporation is straightforward (and can be done in a matter of minutes, in some countries), laying the proper groundwork before and after the official process is important.
You need to consult with a provider who understands the rules and regulations in your home country, which most so-called “lawyers” on some deserted island have no idea how to handle (since most of them are just deflated volleyballs with painted-on faces).
The best thing you can do is choose the right representative. Overpaying a little up front is a no-brainer when it comes to your peace of mind down the line. The next step after “reduce taxes” shouldn’t be “reduce jail time.” You’re asking for trouble if you don’t vet these cheap offshore corporation services before buying in.
What to do after forming your offshore corporation
Once your offshore company is approved and set up, the next step is to open a bank account (and possibly an offshore merchant account).
Whether or not you’ll have to physically travel to the bank depends on a few things, including where your company is incorporated, your nationality, and where you intend to bank.
But don’t let that turn you off. The most important first step towards an offshore corporation is to simply take action. The sooner you get your business set up, the sooner you can enjoy the benefits. And it can be a life-changing process–What other process lets you reduce taxes, insulate your assets from turmoil, and keep greedy hands away from your hard-earned assets?
Do you want to reduce your taxes?
Look, if you’re serious about starting an offshore company, I might be able to help.
Every month I personally help five people build their own Nomad Capitalist life–starting an offshore company, getting a second passport, opening an offshore bank account–whatever they need to build more wealth and live a life with more freedom and success.
If you’re ready to stop spending your time (and money) reading article after article on offshore companies, you might be ready for my help. Be honest with yourself, here.
If you’re committed to pursuing the Nomad Capitalist lifestyle, then you should fill out this application. If my team and I decide you’re a good fit, the next step is a phone call with me.
This isn’t a free consultation, and this isn’t a “sales call” where I try and convince you to do something you don’t want to do.
I don’t work with you unless you’re already convinced this lifestyle is for you, and you’re 150% committed to making it happen.
Your phone call will confirm that you’re qualified for my services and that I can help you achieve your goals. When the call checks out, we get to work.
By the way, at five people a month, I’m not cheap to work with (I don’t need to be, and you shouldn’t need me to be, either). If you’re looking for the best spot to bury your gold, or a soapbox to spout your anarchist rhetoric, or “a week to think it over” then you’re probably in the wrong place, and I can’t help you.
Having an offshore bank account — or two… or three — is an important step in planting flags around the world. As we often discuss, the actual opening of an account is relatively easy, and you don’t need a lot of money.
In my guide, The Best Offshore Banks, we discuss 55 banks that will open offshore accounts for anyone with as little as $500 to deposit. In some cases, you won’t even have to leave your living room, as a number of Caribbean and even European banks allow for remote account opening.
However, the bigger challenge for offshore banking newbies is how to move money offshore; precisely, how to get your onshore funds into your new offshore account.
To make things clear, this article is NOT about how to hide money offshore. While the media loves to do gotcha pieces about how easy it is to move money overseas, the reality is that playing by the rules is a lot better way to go.
In the era of FATCA, mutual legal assistance policies among governments, and offshore bank account reporting requirements, you don’t want to play hide and seek. When used legally, offshore bank accounts are an excellent asset protection tool to protect you from bankrupt governments.
If you don’t have an offshore bank account yet, you can learn more about how to get one here. However, if you do have an account but are confused about how to move money into it, here are several strategies for funding your offshore bank account.
International wire transfer
The most common and straightforward method is to simply wire the money from your onshore account (or your existing offshore account) to the new offshore account. Wire transfers work well because there is often no limit to the amount you can send, making it the most practical option for large transfers.
In some countries, sending a wire transfer is extremely simple and affordable. My Hong Kong bank charges about $11 to send money almost anywhere. The only problem is when the transfer gets rejected for some reason by the receiving party and I’m charged a large return fee. This shouldn’t be an issue, however, if you’re wiring money to yourself.
The downside to sending a wire is that it could take a while to arrive in some smaller banking jurisdictions, like Belize, that involve “correspondent banks” that are often in the US or Germany.
In countries where bankers tend to freak out about international wire transfers (see: the United States), you may need to go into a branch to initiate the wire. I know people who have had their US bank accounts restricted for daring to send an international wire transfer to themselves, so be careful. Then again, isn’t that why you wanted to move money offshore to begin with?
If you want to transfer money online, but don’t want to send a wire transfer, new services like Transferwise can help. (For a full review of the different services, read our article on the best ways to transfer money internationally coming out in September 2016.)
Transferwise is based on a peer-to-peer system that cuts out middleman banks and allegedly reduces the fees of moving money overseas. I haven’t found this to be the case; the cost to send $5,000 to a foreign bank account was as much as $50; even crappy US banks charge less to send larger wires.
In reality, services like Transferwise are a better replacement for expensive money senders like Western Union or Moneygram, not for replacing wire transfers. However, Transferwise is easier to use than a wire if your domestic bank dislikes your moving money offshore, since you send the money domestically and their service handles the rest.
Take cash from an ATM
It sounds too easy, but among the easiest ways to move money offshore is merely to take it out offshore to begin with. Sometimes, the simplest solutions are the best.
In The Best Offshore Banks, we discuss a number of high quality banks that require $2,000, $1,000, or even less in their foreign currency equivalent to open. The only catch with some of these banks is that — unlike accounts that allow you to wire money in later — you need to deposit the money when you open the account.
These banks don’t allow remote account opening, but you can literally use their ATM to take out the amount of the minimum deposit. If you’re domestic bank ATM card imposes a limit on daily withdrawals (usually $400 or $500 for US banks), you may need to plan one day ahead so you can max out the limit on two different days in order to get enough cash.
Bitcoin and cryptocurrencies
Bitcoin has been put forward as the possible “ultimate offshore bank account” due to its ability to store money securely in the cloud. Bitcoin guru Stephanie Murphy spoke extensively about the privacy benefits of using Bitcoin at two of my Passport to Freedom conferences.
However, Bitcoin can also be used as a mechanism to transfer funds offshore. If you own Bitcoin in your home country, you can access them in your destination country by using services like Local Bitcoins, or by using one of the growing numbers of platforms that connects directly to a bank account.
Coinapult, for instance, allows you to store Bitcoins and freeze their value to the value of a foreign currency, gold, or silver, reducing volatility until you want to move them into your foreign bank account. Coinbase and other services allow transfers to connected bank accounts, although many offshore jurisdictions are not yet supported.
Sell your gold and silver
If you own gold or silver offshore, such as in a vault here in Singapore, you can often sell those precious metals and have funds wired into your local bank account. Singapore is an excellent option for this as gold storage here is highly secure and Singapore bank accounts are also excellent.
If you already own gold and silver, there are ways to ship it overseas (again, Singapore is a good option) and later sell it for cash. Transporting gold on your person can be risky since customs forms are required in many cases. You should also make sure you follow all rules regarding sales of precious metals, capital gains taxes and other reporting requirements in your home country. Consult a tax professional for help.
If you’re wondering why “put money in a suitcase and show up in the Virgin Islands” isn’t on the list, it’s because almost everyone on earth — save those in Hong Kong and a few other countries — has to declare cash being taken out of the country.
While transporting any amount of cash is legal in most countries, most law-abiding citizens don’t carry large amounts of cash over borders. Those who do often make customs officials suspicious enough to go so far as to confiscate your cash. On top of the legal hassles, most banks don’t want huge piles of cash being deposited due to money laundering concerns; many banks now charge a cash deposit fee for the privilege.