How to correctly setup a payment agent company

[frankx1]

Hello,

I've searched for info about the following topic with the forum search but couldnt find sufficient information.

The situation: Person X is living in country Y. Payment processors dont like country Y, and because of that, Person X cant accept payments for his company (which is based in his country).

The proposed solution: Person X opens a "payment management/processing/VAT managing/whatever" company in a payment-friendly (or at least payment-possible) location, lets say HK, and onboards his company in country Y as a client (the first and only) to his newly founded payment company in HK.

From now on Person X funnels a few million USD through that scheme every year, stays in his lovely homecountry happily accepting payments from all over the world while paying the payment company 1-2% for its service. He pays all taxes on that 1-2% in HK and of course in his homecountry. His homecountry company just invoices the payment company for the amount the company earned with its service.

This looks like the ideal solution to me for payment troubles. Does anyone run something like this? Do you guys see any pitfall in this?

 

[Marzio]

Instead of a billing company have you tought about using a transparent entity?

This means that all income is taxed at partners level, not company level.

If partner lives in a tax free jurisdiction no tax is due.

 

[frankx1]

Instead of a billing company have you tought about using a transparent entity?

This means that all income is taxed at partners level, not company level.

If partner lives in a tax free jurisdiction no tax is due.

Thanks for the input Marzio Person X maybe also cares about a certain level of anonymity. I guess if he uses a tax transparent entity (like US LLC), serious Anonymity wont be hard/impossible to get, or am I wrong here?

 

[Marzio]

I guess if he uses a tax transparent entity (like US LLC), serious Anonymity wont be hard/impossible to get, or am I wrong here?

When you form a LLC in New Mexico the name and address of your New Mexico registered agent is the only information that is publicly known. If this isn't anonymity i don't know what else is.

 

[Gediminas]

Hello,

I've searched for info about the following topic with the forum search but couldnt find sufficient information.

The situation: Person X is living in country Y. Payment processors dont like country Y, and because of that, Person X cant accept payments for his company (which is based in his country).

The proposed solution: Person X opens a "payment management/processing/VAT managing/whatever" company in a payment-friendly (or at least payment-possible) location, lets say HK, and onboards his company in country Y as a client (the first and only) to his newly founded payment company in HK.

From now on Person X funnels a few million USD through that scheme every year, stays in his lovely homecountry happily accepting payments from all over the world while paying the payment company 1-2% for its service. He pays all taxes on that 1-2% in HK and of course in his homecountry. His homecountry company just invoices the payment company for the amount the company earned with its service.

This looks like the ideal solution to me for payment troubles. Does anyone run something like this? Do you guys see any pitfall in this?

Yes, your described model is widely used.

You can benefit from a favorable banking environment in the country where this payment agent is established, but still, pay taxes to the main company which is eventually responsible for sales.

Since payment agents collect money on behalf of the main company the model has some disadvantages as well.

Banks and payment processing companies usually don’t like these structures because the agent owns funds that belong to another company, i.e. account becomes a custodian account.

Agent companies usually cannot control the delivery of services and goods. It causes additional risks to payment institutions.

Other issues are related to licensing. At least per PSD2 in Europe if an agent company processes payments on behalf of the main entity in certain cases it is required to obtain a payment license.

But generally, all these issues are manageable with the preparation of good structure and proper agreements.