E-commerce setup for EU citizen

[Kecil]

Dear All,

I am seeking for advice.
Could you please help me to choose the right model of business for my situation:

I am EU citizen and I live in Europe. I am willing to trade physical goods online. My clients are retail customers mostly from Europe and USA / Canada. I purchase my goods from South East Asia from private individuals. The goods are small items, which could be delivered by document courrier parcels such as DHL/ UPS. But the cost of goods itself quite expensive, approximately EUR 50 for 1 gram.

At the moment I use Wise private account to purchase goods and sell it on Etsy and Ebay as a private individual. I have to make a customs clearance in Europe before to sell my goods. Also turnover is too high to leave it like that.

What could be the right setup in this situation? Should I incorporate UK LLC with Wise account or something else? How it is possible to optimise customs clearance expenses, taking into account parcels are small (for an instance weight is 100 grams on average with some 10x10x10 cm dimesions.)?

Thank you very much in advance.

 

[Marzio]

the cost of goods itself quite expensive, approximately EUR 50 for 1 gram.

Hey i’m interested in selling cocaine too!

 

[Kecil]

No, it's absolutely legal stuff. It has just small physical weight. It doesn't require special storage facilities and can be stored anywhere.

It doesn't matter whether it costs €50 per gram, or €10, or €100. What i meant, it's expensive given it's weight.

 

[troubled soul]

No, it's absolutely legal stuff. It has just small physical weight. It doesn't require special storage facilities and can be stored anywhere.

It doesn't matter whether it costs €50 per gram, or €10, or €100. What i meant, it's expensive given it's weight.

Nice Try!!!!!

 

[Kecil]

Nice Try!!!!!

I appreciate that you guys have a good sence of humour.

Actually, taking into account weight and dimensions, the easiest way is to buy a return flight ticket from Europe to SEA and to collect my goods in person to avoid any customs taxes at all, if I would have imported these goods as a company. But wouldn't it be too much gross to sell the goods online from UK LLC and to ship further to my clients from private individual from Europe? Wouldn't tax officer knok my door one day? Is there more smooth way to do that?

 

[Sols]

Just going back to basics: how about forming a company locally where you live, import the goods (sort out customs stuff upfront), and then sell to customers?

Why do you want a foreign company? What's the goal?

 

[Kecil]

Just going back to basics: how about forming a company locally where you live, import the goods (sort out customs stuff upfront), and then sell to customers?

Why do you want a foreign company? What's the goal?

The answer is obvious. I want to pay as less taxes as possible. Acting as a legal entity incorporated in my country i have to pay VAT and and income taxes. I have to pay for customs clearance. Why on earth should I incorporate company in my high level tax country, when my business doesn't have any tie with my country?

Very strange to read such comments on the forum like that.

P.S I meant UK ltd company

 

[Sols]

The answer is obvious. I want to pay as less taxes as possible. Acting as a legal entity incorporated in my country i have to pay VAT and and income taxes. I have to pay for customs clearance. Why on earth should I incorporate company in my high level tax country, when my business doesn't have any tie with my country?

Ask your tax authority. Call them up and ask...
Hi, I'm going to form a company in overseas but continue to operate the company from here, I don't have to pay any taxes here on that, right? And VAT magically disappears?

Report back what they say.

The reality is that any company you form will become tax resident where you live. So unless you're also planning on also relocating, you're not going to be saving on taxes. If anything you're doubling the amount of paperwork that has to be done and might be subject to double taxation.

Very strange to read such comments on the forum like that

It sounds like you haven't read enough here, if you're surprised by the question. Setting up a foreign company just to pay less tax (without taking several additional steps) just isn't feasible anymore.

 

[Marzio]

Very strange to read such comments on the forum like that

It's not strange, it's that after some time you'll discover that OECD f*****s are closing all the doors to operate offshore companies without substance.

You have 2 options:

1. move physically in a state with lower taxes where you would run your business
2. stay where you are now, form a business in a low tax country, hire at least a director to run the business on your behalf, rent an office, take out dividends on which you will pay taxes

There are really no other "legal" ways to operate.

To begin with just research your competitors where are operating from.

 

[Kecil]

1. move physically in a state with lower taxes where you would run your business
2. stay where you are now, form a business in a low tax country, hire at least a director to run the business on your behalf, rent an office, take out dividends on which you will pay taxes

There are really no other "legal" ways to operate.

Why it's illegal for offshore company to deal with e-commerce?

 

[Marzio]

It's not illegal for an offshore company to deal with ecommerce.

It's illegal to operate an offshore company withoud substance from your country without paying taxes where the company is managed from.

You should really do your homework and learn as much as you can before doing any move that involves opening an offshore company.

 

[Kecil]

Ok, let's assume they can track me down if the goods are shipped from Europe.
What if the goods are shipped from outside of Europe directly to the final customers? I can't apply classic dropshipping model to my business, because it's high margin retail business and I can't let the seller know who is the final customer, since he would be willing to deal with the cunsomers directly without any middlemen, but I can try to ship the goods through a middleman in SEA.
Why offshore company wouldn't work out in such particular case?

 

[Marzio]

You are asking the wrong question.

As i said the offshore company is not the problem here, the problem is that you are operating the offshore company from your high tax country and pretend not to pay taxes there.

Your offshore company needs a bank account and your company bank account has a beneficial owner: you

Given that opening an offshore bank account is a matter in iteself and probably the biggest problem as of today lets imagine that a bank will open a bank account for your company.

The next step for the bank will be to pick up the phone and call the taxman and say "Hey taxman, did you know that Kecil openend a bank account here? We only wanted to make sure that you knew that"

This is called automatic exchange of informations between countries

Guess what will happen next?

Taxman will knock to your door and ask WTF are you doing.

Right now you don't know what you don't know but you landed in the right place.

Just take the time to learn about all those instruments that governments put in place to close all the tax avoidance loopholes.

 

[Kecil]

@marzio ,

Thank you very much for detailed answer. Yeah, I even don't hope to get a bank account, but I condier to get EMI account such as wise or paysera instead. Also I am not going to hide income and I am willing to pay income tax from dividends extracted from offshore company. Let's say goods will be shipped from outside of EU to direct sustomres. Where is drawback here? What is illegal?

If I run this business from EU incorporated company and if I import goods to EU physically, then first i have to pay for customs clearance then, then I have to pay VAT shipping to EU customers and after all i have to pay income tax on top.

What's wrong in my reasoning?

 

[Marzio]

What's wrong in my reasoning?

Your are making plans without knowing the rules of the game.

I am willing to pay income tax from dividends extracted from offshore company.

For example you don't know that managing an offshore company from your country will make it a taxable entity in your country. So you'll pay taxes like it was a local company + sanctions + income tax on dividends.

Yeah, I even don't hope to get a bank account, but I condier to get EMI account such as wise or paysera instead.

Even if Wise isn't a bank account sooner or later will start reporting.

Relying your business on publicly traded company not obeying to international standards is naive at best.

I already gave you the only two options you have at your disposal:

1. move physically to a country that you think will be beneficial to your business
2. form a company in that country and hire people to do the job, pay taxes there and income taxes on dividends in your home.

 

[Sols]

Let's say goods will be shipped from outside of EU to direct sustomres. Where is drawback here? What is illegal?

If I run this business from EU incorporated company and if I import goods to EU physically, then first i have to pay for customs clearance then, then I have to pay VAT shipping to EU customers and after all i have to pay income tax on top.

For tax purposes, it makes no difference whether the company is incorporated in EU or outside the EU. If you live in for example Germany or Spain or Sweden, any UK, BVI, or other company you form is tax resident where you live and must pay taxes like a local company (minimum, there might be additional considerations).

So you're not breaking any laws by setting your business up this way (unless you do it with criminal intent). It's just completely pointless for tax purposes. Once you start not complying with the tax laws of where you live, that's when you start breaking the law.

 

[Kecil]

@marzio , @Sols

Thank you very much for clarifications.

If, let's say i would get UAE residence permit and extract dividends from offshore company with 0% taxes, am I legally exempted from taxes in my European Union country of origin? Or they don't recognize residentship in low tax country as a legal right to be excempted from European taxes?

Also what does it mean residence? Do i need to prove my day by day location in other country with utility bills / bank statement, or residence permit is enough?

 

[Sols]

If, let's say i would get UAE residence permit and extract dividends from offshore company with 0% taxes, am I legally exempted from taxes in my European Union country of origin? Or they don't recognize residentship in low tax country as a legal right to be excempted from European taxes?

If you take up residence in UAE, you and your company are subject to UAE taxes, which are 0% in most cases. Completely legal.

However, you still have the issue with VAT. If your buyers are in the EU, either you or the customers have to pay EU VAT on anything that is imported to the EU/EEA. If your packages are inconspicuous enough, they might not be held up and go right through customs. But there is always a risk of a customs inspection.

Also what does it mean residence? Do i need to prove my day by day location in other country with utility bills / bank statement, or residence permit is enough?

Residence means you live there; that it is your full-time, primary, permanent home. It usually involves deregistering as resident in your home country.

 

[johndunham]

The answer is obvious.

Very strange to read such comments on the forum like that.

Lol. Okay, Mr. know-it-all.
Good luck with your offshore company and the efficient tax planning you're setting up. You're going to need it.

Also what does it mean residence?

 

[JohnnyDoe]

@marzio , @Sols

Thank you very much for clarifications.

If, let's say i would get UAE residence permit and extract dividends from offshore company with 0% taxes, am I legally exempted from taxes in my European Union country of origin? Or they don't recognize residentship in low tax country as a legal right to be excempted from European taxes?

Also what does it mean residence? Do i need to prove my day by day location in other country with utility bills / bank statement, or residence permit is enough?

Simple explanation: move your a*s where you can pay less taxes, or comply with your country’s tax laws. Don’t try to be a smartass or you will be hurt badly. And don’t be cheap: you are supposedly making a ton of money with a cocaine-like but legal product, so you shouldn’t be concerned about paying 10-20% taxes and a good tax adviser.