Let me see if I can help a little here
It may be better to incorporate an
offshore company before you start your business for one or more of the following reasons:
a) You want to avoid paying tax once you have grown your business and have started to make a substantial amount of money. Doing so would require you to have a holding company to own the trading company, so that the dividend can be moved between the two entities without any tax complications. If, for instance, the holding company is not in place before the trading company makes money, but is set up later on, once the trading company has made some sort of profit, there will be tax involved. This means that most tax authorities will want you to pay tax for “shares” sold to the holding company because the net worth of the trading company is more than before it made profits. In many cases, this can involve a ridiculously high amount having to be paid.
b) You don’t know if you will make any profit right now, so you don’t want to spend money on any sort of advanced offshore structure at this time. It’s usually a wise decision not to spend any money before you make any profit, at least for most parts of a business – but not in this instance! Why? Because of the scenario in point a) above, and because it is far easier to start doing business from an
offshore company and then only “take home the money” you need to live on. Doing it that way, no-one will ask any questions –*which would not be the case if you took the opposite approach. You’d be 100% correct to say that if something were to go wrong, and you did not made any money at all, then only expenses would be left; but that’s part of the game of
starting a business.
c) Let’s say you are lucky, and get a good portion of profit in the local trading company, which is taxed at your local corporate tax rate; and once you figure out that you are making a profit, and you want to move this all offshore. At that point, what do you say to the tax authorities? You could tell them that you closed the business because it was proving difficult to
make money; or you could say that you closed the company because there was too much work to do. That’s fine; at first, I suppose they would believe you. But how, then, do you explain how you are still able to drive the same car, and live in that big house, or spend all the money you get through in any other way? That’s where most people walk into the trap: they can’t simply fail to explain all that.
I would say that any entrepreneur needs to have the will to believe in hard work, and the entire business they’re starting; but, with that said, it is difficult to offer any advice about what will be the best approach. Only the entrepreneur can know what he or she feels about the business: will there be huge money to be made, or only enough for day-to-day living?
