Don't go offshore for small growing business?

[baio12]

For a small business is it sensible to go offshore? Advice is don't think about it until $20k per month or more but it can have more impact for small business to save money because they make less.

Advice is just start in your home country and move later. But most countries now have corporate exit tax from ATAD if you want to take your company out of that country. If you grew business to $200,000 per year and they value it at $800,000 for exit tax you will have extreme tax bill. So is better to set things up correct from beginning.

Going offshore can be expensive when you are not making much money. What should someone do for small growing business that is all online and run by 1 person? Because company isn't making much money moving to another country isn't sensible yet. Would you just start the company in your home country and just pay the extreme exit tax bill when you can afford to take the company to another country? Or is there better structure to start with for such small setup?

 

[Sols]

I think you're blowing the ATAD exit tax out of proportion. No one is going to value your 200,000 USD business at 800,000 USD.

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This is the probably the answer to your question.

 

[Don]

Location-independent online business is generally one of the best cases for establishing offshore, not only for tax but also for asset protection purposes.
It depends on what you do precisely. You need to be more specific for anyone to give you meaningful advice.
Consider where your customers are, where you're adding value, and where you're performing essential business activities.
There might be excellent tax planning opportunities available.

 

[baio12]

Don said:
Consider where your customers are, where you're adding value, and where you're performing essential business activities.
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Customers are around the world. All customers are businesses so can pay to bank account therefore credit card processing not necessary. But bank account needs to be in country that customers banks in most countries like US, Australia, Europe and Asia won't have a problem sending transfers to.

Business is registered in small EU country and owner is tax resident and living in same country and all work is from owner no employees and everything is done from that country. And need to stay there until there's more revenue to pay for more expensive planning options and moving.

 

[wellington]

baio12 said:
Customers are around the world. All customers are businesses so can pay to bank account therefore credit card processing not necessary. But bank account needs to be in country that customers banks in most countries like US, Australia, Europe and Asia won't have a problem sending transfers to.

Business is registered in small EU country and owner is tax resident and living in same country and all work is from owner no employees and everything is done from that country. And need to stay there until there's more revenue to pay for more expensive planning options and moving.
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Stripe + Country.

 

[Mike Forman]

baio12 said:
For a small business is it sensible to go offshore? Advice is don't think about it until $20k per month or more but it can have more impact for small business to save money because they make less.

Advice is just start in your home country and move later. But most countries now have corporate exit tax from ATAD if you want to take your company out of that country. If you grew business to $200,000 per year and they value it at $800,000 for exit tax you will have extreme tax bill. So is better to set things up correct from beginning.

Going offshore can be expensive when you are not making much money. What should someone do for small growing business that is all online and run by 1 person? Because company isn't making much money moving to another country isn't sensible yet. Would you just start the company in your home country and just pay the extreme exit tax bill when you can afford to take the company to another country? Or is there better structure to start with for such small setup?
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Don't bother to go offshore and save yourself the risk, hassle and costs. 10 years ago it was easy and you could stay under the radar, nowadays offshore beside few exceptions is not recommended anymore, onshore in a low tax jurisdictions and having actual operations and substance there is what works.

Taking risks with setting up tax heaven or offshore jurisdictions while still living in your home country in the EU will increase dramatically after a fee years to risk of being investigated and pay high tax fines, interest and legal fees.

We talk out of experience and the tax bills we received are almost as much as the total revenue with all interest and fines, so paying 35pct just on profit is peanuts. This not including the legal fees which cost depending on the complexity of the structures 30k eur a month. Even you win against the authorities you will end up losing all in legal fees.


The only scenario where setting up low tax structures abroad makes sense would be if you move out of your home country and live in a jurisdiction where they don't care much and make sure you set up in a smart way.

 

[banafinfodafuggiano]

Mike Forman said:
Don't bother to go offshore and save yourself the risk, hassle and costs. 10 years ago it was easy and you could stay under the radar, nowadays offshore beside few exceptions is not recommended anymore, onshore in a low tax jurisdictions and having actual operations and substance there is what works.

Taking risks with setting up tax heaven or offshore jurisdictions while still living in your home country in the EU will increase dramatically after a fee years to risk of being investigated and pay high tax fines, interest and legal fees.

We talk out of experience and the tax bills we received are almost as much as the total revenue with all interest and fines, so paying 35pct just on profit is peanuts. This not including the legal fees which cost depending on the complexity of the structures 30k eur a month. Even you win against the authorities you will end up losing all in legal fees.


The only scenario where setting up low tax structures abroad makes sense would be if you move out of your home country and live in a jurisdiction where they don't care much and make sure you set up in a smart way.
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Alright, name a few liveable low Tax jurisdictions that give you an easy residency without investing too much money, because other than the UAE, I don't know any.

 

[thomasparra]

banafinfodafuggiano said:
Alright, name a few liveable low Tax jurisdictions that give you an easy residency without investing too much money, because other than the UAE, I don't know any.
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Depends on your requirements but there are not many if you are looking at a reputable juridiction based on the business you are in (B2B services). Depending on your sector, some clients might trust your service more if located in London, HK, SG versus Georgia, Estonia, Macedonia or even UAE.

I chose HK as I have a client base here, lived there before and I could get a residence visa pretty easily (and almost for free). Setting up my company was also very cost effective (8-9 times cheaper than UAE).

If you set up a company elsewhere you have to establish some residence/substance there. Generally not a smart move to create a company overseas if you stay in your EU country.

 

[bibing]

Not easy to get a visa in HK. You just got lucky because you had some chances (employed there before?)

Things are easier said than done

If HK or SG had the same visa processing as UAE (register a company pay your fees and get your visa), nobody would live in UAE, let's be honest.

 

[banafinfodafuggiano]

thomasparra said:
Depends on your requirements but there are not many if you are looking at a reputable juridiction based on the business you are in (B2B services). Depending on your sector, some clients might trust your service more if located in London, HK, SG versus Georgia, Estonia, Macedonia or even UAE.

I chose HK as I have a client base here, lived there before and I could get a residence visa pretty easily (and almost for free). Setting up my company was also very cost effective (8-9 times cheaper than UAE).

If you set up a company elsewhere you have to establish some residence/substance there. Generally not a smart move to create a company overseas if you stay in your EU country.
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How hard was it to open a local Business Hong Kong bank account though?

bibing said:
Not easy to get a visa in HK. You just got lucky because you had some chances (employed there before?)

Things are easier said than done

If HK or SG had the same visa processing as UAE (register a company pay your fees and get your visa), nobody would live in UAE, let's be honest.
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In Hong Kong and SG everyone already live in horrible tiny Condos. Can you imagine if getting a residency Visa was easy like in UAE?

 

[bibing]

banafinfodafuggiano said:
In Hong Kong and SG everyone already live in horrible tiny Condos. Can you imagine if getting a residency Visa was easy like in UAE?
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I was implying if you have a sort of business. If you are poor better stay home

 

[Cloudbanck]

banafinfodafuggiano said:
Alright, name a few liveable low Tax jurisdictions that give you an easy residency without investing too much money, because other than the UAE, I don't know any.
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Challenge accepted!
Definitely Paraguay with territorial and low tax.
Territorial low/tax South American countries: Uruguay. Bolivia. And Argentina isnt low tax, but very easy to get into, and can be de facto low tax.
Most of Sub-Saharan Africa, which has actual or de facto territorial tax.
The territorial Central American countries arent that difficult to get residency in: Costa Rica, Guatemala, El Salvador, Belize, Nicaragua. But Panama has unfortunately made residency more difficult (except for Italians).
Not quite sure how easy it is to get residency in the other Gulf States, but they do have low tax.
If you are an EU citizen, it is super easy to get residency in low tax Malta, Cyprus, Bulgaria, (low if structured well) Estonia. And also in the low tax French-owned Caribbean islands like St Barths, and pacific islands like Tahiti.
If you are a UK citizen, it is easy to get residency in the Channel Islands, Gibraltar, Isle of Man (and maybe not so difficult for EU citizens too, Im not sure). Unfortunately even for UK citizens, it's not easy to get residency in the UK-owned low tax Caribbean islands like BVI, Anguilla, Cayman islands, Turks and Caicos, Bermuda.
Independent Pacific islands: Palau, super easy to get residency for at least 270 days a year. Not sure about how easy it is to get residency in the other low tax islands like Vanuatu, Micronesia or Marshall Islands.
Independent Caribbean islands: Bahamas is doable to get residence in I think, and Barbados. Dominican Republic. The small zero tax ones (St Kitts, Antigua etc), Im not sure.
Thailand and Malaysia used to be on this list, but they have both made residency more difficult/expensive, and Thailand has started taxing remittances.
Philippines possibly, I dont know exactly how tax works on foreigners there.
Central Asian countries, nobody knows much about them, but doubt they actually tax foreign incomes.

Oh and Switzerland of course, totally doable to get residency there if you are an EU citizen with a decent income. Not zero tax, not even exteremely low though, but very reasonable by West European standards and no capital gains tax.

And "liveable" is super subjective so couldnt take that criteria into account. I mean my favourite places to live in long term are Switzerland and West Africa.

Last edited: Oct 24, 2023

 

[Marzio]

Cloudbanck said:
and West Africa
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Curious to know where exactly as West Africa could mean anything.

 

[Cloudbanck]

Marzio said:
Curious to know where exactly as West Africa could mean anything.
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Send a dm!

 

[Juleski70]

Cloudbanck said:
Philippines possibly, I dont know exactly how tax works on foreigners there.
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Philippines is territorial tax for resident aliens, non-CRS and generally uninterested in small time foreigners. Zero tax at the personal level. But:
1. you probably wouldn't want to base your business/create official PE here (bureaucratic). However might be a good combo with a US/UK/Can LP/LLC business that flows through to the personal level.
2. getting anything more than a tourist visa in the Philippines can be a headache if you're under 50yrs old (or aren't married to a Filipina); and while you can extend tourist visas for a long time, your home country might want to see a real visa before they concede your tax residency.

 

[JohnLocke]

Mike Forman said:
Taking risks with setting up tax heaven or offshore jurisdictions while still living in your home country in the EU will increase dramatically after a fee years to risk of being investigated and pay high tax fines, interest and legal fees.
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I would strongly advise not to do that as @Mike Forman already pin pointed, I speak from personal experience.

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[Don]

Mike Forman said:
Don't bother to go offshore and save yourself the risk, hassle and costs. 10 years ago it was easy and you could stay under the radar, nowadays offshore beside few exceptions is not recommended anymore, onshore in a low tax jurisdictions and having actual operations and substance there is what works.

Taking risks with setting up tax heaven or offshore jurisdictions while still living in your home country in the EU will increase dramatically after a fee years to risk of being investigated and pay high tax fines, interest and legal fees.
Click to expand...

I'm not even sure I understand correctly what offshore means. I believe going offshore refers to moving business operations or assets to a foreign location with potentially favourable tax or regulatory conditions.
This could be to traditional offshore locations, which are usually islands, or even within the EU, where you're supposed to have free movement of capital (I think what you referred to as onshore). The implications could be quite different, especially in the context of the EU, if you consider exit taxes.
Note that it may be possible to avoid exit tax on certain assets by moving first to a destination country within the EU/EEA, forming a proper structure as a holding and then moving to a third country,

While ATAD mentions :

"Exit taxes have the function of ensuring that where a taxpayer moves assets or its tax residence out of the tax jurisdiction of a State, that State taxes the economic value of any capital gain created in its territory even though that gain has not yet been realised at the time of the exit."
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some member states also tax the capital gains on participation in foreign corporations.
Therefore, there are rumours that some taxpayers move first within the EU/ EEA to a country where the declaration does not include foreign participations before they move out of the EU/ EEA.
In countries where there is no or little gift tax, assets can be entered into foundations or trusts or be donated before the change of residency.

As a separate topic, for example, if you are building a startup in Romania (the poorest country in the EU), you might have higher chances of raising funds with a US LLC, and an easier time gaining the trust of the potential customers. It might also make your life easier when you want to expand your operations to other jurisdictions later. So, though you would not gain any tax advantages, establishing a company in a foreign jurisdiction can offer significant benefits. I'm sure our members from riskier jurisdictions would agree with this.

 

[Gediminas]

baio12 said:
For a small business is it sensible to go offshore? Advice is don't think about it until $20k per month or more but it can have more impact for small business to save money because they make less.

Advice is just start in your home country and move later. But most countries now have corporate exit tax from ATAD if you want to take your company out of that country. If you grew business to $200,000 per year and they value it at $800,000 for exit tax you will have extreme tax bill. So is better to set things up correct from beginning.

Going offshore can be expensive when you are not making much money. What should someone do for small growing business that is all online and run by 1 person? Because company isn't making much money moving to another country isn't sensible yet. Would you just start the company in your home country and just pay the extreme exit tax bill when you can afford to take the company to another country? Or is there better structure to start with for such small setup?
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Hey,

I would advise you to run a business in your home country until it makes sense to go offshore from a financial perspective.

In order not to pay exit tax I suggest thinking about the strategy at an earlier stage.

One option to eliminate exit tax is not to close the business instantly but to start the same business abroad.

Another option is to find legal reasons why you cannot proceed with this business in your home country (in such a case, most likely exit tax is not applied).

Also, you can already start working with the financial books of the company, that book value would not be significant, at the time of exit, for example, could move IP out from the company, you issue invoices / pay a high salary so the company is not profitable (and you pay taxes at personal level for now), etc.

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[banafinfodafuggiano]

Gediminas said:
Hey,

I would advise you to run a business in your home country until it makes sense to go offshore from a financial perspective.

In order not to pay exit tax I suggest thinking about the strategy at an earlier stage.

One option to eliminate exit tax is not to close the business instantly but to start the same business abroad.

Another option is to find legal reasons why you cannot proceed with this business in your home country (in such a case, most likely exit tax is not applied).

Also, you can already start working with the financial books of the company, that book value would not be significant, at the time of exit, for example, could move IP out from the company, you issue invoices / pay a high salary so the company is not profitable (and you pay taxes at personal level for now), etc.
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Yes i agree.

However, what is the amount thresold of profit you believe is most appropriate to start the moving?

$150,000 in profit a year? $300,000? 1 Mil?

Considering that online business is always not steady and doesn't always last forever, some years we make $500,000 a year and another year we make a loss of $50,000.

 

[MrBurns]

Gediminas said:
Hey,

I would advise you to run a business in your home country until it makes sense to go offshore from a financial perspective.

In order not to pay exit tax I suggest thinking about the strategy at an earlier stage.

One option to eliminate exit tax is not to close the business instantly but to start the same business abroad.

Another option is to find legal reasons why you cannot proceed with this business in your home country (in such a case, most likely exit tax is not applied).

Also, you can already start working with the financial books of the company, that book value would not be significant, at the time of exit, for example, could move IP out from the company, you issue invoices / pay a high salary so the company is not profitable (and you pay taxes at personal level for now), etc.
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Best reply here.

I know a person that moved to a tax haven from Germany and the tax office calculated an insane valuation for his business and a big tax bill to pay.
The sooner in your life you move to a tax haven, the better.