Offshore vs UK for Ecom Business

[hometowng]

Hello,

I'm from the UK and currently run a very successful dropshipping website, which produced over 7 figures in rev at the end of last year. Everything I have done so far has been as a sole trader, as the company exploded in growth in such a short period of time.
For the following tax year I want to ensure my business is properly registered, but am having trouble deciding if registering offshore is the right choice for me.

• With the business model, cash moves very fast, and I need to be able to spend 25k+ GBP per day on ads and transfers to fulfilment partners. This has proven problematic in the past with the amount of paperwork required in the UK.
• I also plan on coaching in the coming months, and privacy is quite important. The UK's abundance of information available on Companies House would require me to disclose a lot of things which I'd just prefer to not.
• I want this company to act as an umbrella for other business ventures I am working on. Less paperwork associated with this would give me more time to focus on these ideas.
• Tax isn't the biggest of my priorities, but it would be very beneficial as I am expecting to generate 8 figures this year.

The most important thing is getting this set up in the right location which doesn't hinder my business. I do use PayPal, and need access to Stripe as a payment gateway. I need security and an easy to access bank which doesn't compromise the cashflow. Of course, I want everything to be above-board and legal.

I was learning towards Belize, as it does seem to tick a lot of these boxes, but this is a very new area to me, so any advice and tips would be appreciated.

I'm also curious about how taxes work if you pay yourself from an offshore company? All my employees are freelancers, so they would get paid like normal, but as I am a UK citizen, how would I best pay myself? Would I get taxed harshly and just have to declare this on my self-assessment?

Thank you in advance.

 

[James Turner]

Hi @hometowng

It is worth mentioning a number of things from your message.

1. If you do decide to operate through an offshore company rather than a UK one, any banking should enable you to transact quite normally and spend the £25k per day that you need to spend.
2. If privacy is important then this cannot be achieved in the UK realistically.
3. An Offshore Company can do this and could limit the paperwork on an annual basis that you needed to do. The paperwork for the other companies will depend on their location.
4. Tax is probably an issue for you as the offshore company (let's work on Belize for a minute) will be considered a Controlled Foreign Company (CFC) by the UK so if you own more than 24% of the shares this would be an issue. (This subject probably requires more discussion to be honest).

I'm quite sure there are better options than Belize in your case, particularly if you are using Stripe and Paypal which will not like Belize. Again this probably requires much more consideration and discussion to ensure that whatever is created works specifically for you.

The pay situation is quite simple really. You pay yourself and declare the income on your tax return. You will not be taxed harshly, just at the normal rate applicable to you. Tax on profits will depend on the ownership/UBO situation.

I hope this helps.

James

 

[hometowng]

Hi @hometowng

It is worth mentioning a number of things from your message.

1. If you do decide to operate through an offshore company rather than a UK one, any banking should enable you to transact quite normally and spend the £25k per day that you need to spend.
2. If privacy is important then this cannot be achieved in the UK realistically.
3. An Offshore Company can do this and could limit the paperwork on an annual basis that you needed to do. The paperwork for the other companies will depend on their location.
4. Tax is probably an issue for you as the offshore company (let's work on Belize for a minute) will be considered a Controlled Foreign Company (CFC) by the UK so if you own more than 24% of the shares this would be an issue. (This subject probably requires more discussion to be honest).

I'm quite sure there are better options than Belize in your case, particularly if you are using Stripe and Paypal which will not like Belize. Again this probably requires much more consideration and discussion to ensure that whatever is created works specifically for you.

The pay situation is quite simple really. You pay yourself and declare the income on your tax return. You will not be taxed harshly, just at the normal rate applicable to you. Tax on profits will depend on the ownership/UBO situation.

I hope this helps.

James

Many thanks for the response, I'm glad to hear that it seems like my ideas were on the right track. I will look more in-depth at the CFC rules in the UK. I'd presume these usually mean I'd be required to be paying taxes on this foreign company?

If Stripe and PayPal wouldn't be fond of Belize, are there perhaps better options which provide the simplicity and privacy of Belize but would be more acceptable in the eyes of my payment processors?

Thanks again

 

[hometowng]

Many thanks for the response, I'm glad to hear that it seems like my ideas were on the right track. I will look more in-depth at the CFC rules in the UK. I'd presume these usually mean I'd be required to be paying taxes on this foreign company?

If Stripe and PayPal wouldn't be fond of Belize, are there perhaps better options which provide the simplicity and privacy of Belize but would be more acceptable in the eyes of my payment processors?

Thanks again

Seems that the CFC rules are quite specific to a particular situation and entity. From what I understand, with the current position, and me being the sole owner of the business, I'd just end up getting taxed in the UK as if my offshore company was a normal UK company? How would I be able to get around this for some tax benefits legally?

 

[Offshorenerd]

Seems that the CFC rules are quite specific to a particular situation and entity. From what I understand, with the current position, and me being the sole owner of the business, I'd just end up getting taxed in the UK as if my offshore company was a normal UK company? How would I be able to get around this for some tax benefits legally?

The key phrase here is economic substance. You get around cfc rules by actually having an office where your offshore corp is registered as well as a local director. In that case you would only pay dividend tax in the UK if and when you make a distribution.

 

[fshore]

1. If you do decide to operate through an offshore company rather than a UK one, any banking should enable you to transact quite normally and spend the £25k per day that you need to spend.

This seems misleading. A number of banks, especially offshore would cause a lot of trouble and require documentation for all outgoing and incoming payments.
If he wants less trouble from banks then onshore is the best. Some countries better than others.

 

[hometowng]

This seems misleading. A number of banks, especially offshore would cause a lot of trouble and require documentation for all outgoing and incoming payments.
If he wants less trouble from banks then onshore is the best. Some countries better than others.

Most payments are taken by Facebook for social media ads. If I set this up via direct debit, I don't suppose this would cause many problems, right?
There's usually only one/two international transfers that must be made each week.

Most of the documentation I've had to provide in the UK has been regarding the source of funds, and also detailing the business model as a result of the fast moving cash.

 

[fshore]

Most payments are taken by Facebook for social media ads. If I set this up via direct debit, I don't suppose this would cause many problems, right?
There's usually only one/two international transfers that must be made each week.

Most of the documentation I've had to provide in the UK has been regarding the source of funds, and also detailing the business model as a result of the fast moving cash.

By using direct debit are you suggesting to bank the Belize Corp in the UK? And you belive that will cause less problemes than with a UK company?

 

[hometowng]

By using direct debit are you suggesting to bank the Belize Corp in the UK? And you belive that will cause less problemes than with a UK company?

Please excuse my ignorance, as I am new to the idea of an offshore corp. But surely if I use a private bank in a country such as Belize, Mauritius etc who provide a debit card, wouldn't I just be able to use that as normal?

 

[fshore]

Yes, you wrote direct debit that means charged from bank account.

It is possible, but one of your main points to of all this seems to be to get less trouble from banks but it will most likely be more trouble banking an offshore company in an offshore country.
US banks might be a better option. You could try opening an account there for your UK company. Or open a llc there.

 

[James Turner]

I don't seen an issue banking the offshore company offshore and operating as you need to with Visa or MasterCards being available with most accounts now. I think the reference to Direct Debit may just be a term mis-use and you would actually pay by card most of the time. With regards to CFC rules, as a UK resident if you control the company, the substance while it can help, may not change things for you. I would suggest discussing in more detail the methods of avoiding creating a CFC, which may be the case naturally for you anyway. i.e. Shares may be split between different individuals residing in different countries, you may choose Trust Shareholder, in which case foreign Trustees may be the shareholder. There are many things to discuss on this front to ensure that the company is structured correctly to suit your circumstances.

 

[lory]

Will a UK Ltd safe me taxes if I live in Italy or Greece? I mean the costs is only $100 to setup how much can I safe in company tax?

 

[CaptK]

I don't seen an issue banking the offshore company offshore and operating as you need to with Visa or MasterCards being available with most accounts now. I think the reference to Direct Debit may just be a term mis-use and you would actually pay by card most of the time. With regards to CFC rules, as a UK resident if you control the company, the substance while it can help, may not change things for you. I would suggest discussing in more detail the methods of avoiding creating a CFC, which may be the case naturally for you anyway. i.e. Shares may be split between different individuals residing in different countries, you may choose Trust Shareholder, in which case foreign Trustees may be the shareholder. There are many things to discuss on this front to ensure that the company is structured correctly to suit your circumstances.

As James said, the issue you face is where the business is operated from and the shareholding of the directors.