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Where to form an International Trading Company?

OffshoreCapitialist: I didn't find anything on your blog about incorporating in Singapore. What is your opinion on Singapore? It seems like the operating costs are higher than other places but it may be worth it because Singapore has a tax treaty with Israel.

I had a preference for EEA because I felt it would be easier to managed.
 
Rarely do I find Singapore is the best option for company formation. I use Singapore banks whenever I can but for company formation it's generally an inferior choice to some other options. This being said, it's very case specific so it depends on the details of your business how it operates, the products/services, your customers, etc. Everything matters and you should invest in getting proper advice specific to you before making a big leap.
 
My tax attorney is advising Singapore. But I am not sure how well he understands taxation in Singapore. I am sceptical because it isn't a popular choice here.

Well I wouldn't call people making comments on any public forum a reliable source of information.

That being said if your tax attorney is advising Singapore I'd be really curious to know why?

Let's start with the basics:

1. It's expensive and hard to deal with - especially due to the local director requirement, not unsurmountable but definitely more complicated

2. The likelihood of getting zero tax is quite low, the alternative is tax is fairly high (17%) and what you'd need to do to get zero tax creates a whole host of other issues starting with not banking in Singapore, which defeats one of the main reasons for being connected to Singapore at all

As I said I love Singapore I think it's a great place to live and visit and bank, it's got some talented people (though the labor market is super tight so attracting and retaining those people is another matter), and a pretty robust VC scene, which is good for if you're looking for funding.

However, if you're not going to benefit from those things and if you're looking for super low taxes it's just not a great idea in most cases...I actually can't think of a case where it would be excepting the above.

What should you do?

I don't know you or your situation but let's look high level at what concerns you might have:

1. Tax - tax has relatively litle to do with where you form a company in most cases. In other words if you're thinking you'll sit in a high tax country, form a company in a low tax country and pay low taxes you're probably deluding yourself. If it was so easy then no one would form in high tax countries and all the tax departments would go out of business. It turns out they are really smart and they've created rules to make it tough for you to benefit from international tax advantages...not impossible but tough. What do you need to look at? First you need to look at corporate residency rules. Will the foreign company be considered a local company for tax purposes? If so you're already screwed. Assuming you can actually make the company foreign next, you need to consider the source income rules, will the income be taxable even if the company is foreign? If so this doesn't get policed much so you might get away with it but you're definitely at risk. If you're a one man show you'll almost certainly be taxable on this basis. Finally, you've got to look at how your residency or the residency of the shareholders in general affects CFC rules. If these are triggered you could end up being taxable locally regardless of those other points and potentially gain nothing.

Have you thought through all those elements?

2. Banking - You've expressed concerns here, let's start at the beginning. In the land of offshore today the first priority is simply to get an account open and keep it open. The starting rule of thumb is as a foreign owner it's tougher for you to open an account than a local. It's harder still to open an account for a company in another country. Keeping it open if you don't have local presence is also getting harder. If someone is sending or receiving money you'll have to consider both the country of incorporation and the country of banking, which is why I say Singapore offshore is sort of self defeating because you don't get the benefit of Singapore banking, which is very reputable.

Final suggestion. Form a company somewhere where you can have real activity. Hire some staff, have a small office if it makes sense. Make sure this country has low taxes, good infrastructure you can get good people and have decent banking.

If you do this it will be much easier for tax, much easier to get accounts, much more likely to keep them open.

Where should that be?

Depends on you, where you're from the nature of your business, etc.

For example, if I wanted to process credit cards or receive money from Paypal especially if I wanted USD or EUR I wouldn't use a company in HK or Singapore, etc. because fees will be quite high. I'd aim for the US or Europe. But if I was in a situation where I didn't have those worries maybe I'd look to places in Asia.

If you were going to be in Asia you're usually looking at:

- HK
- Singapore
- Malaysia
- Thai free zone company or similar

You might also consider Dubai in there as somewhat comparable depending.

If you're looking at the US you're looking at US or Puerto Rico.

If you're looking at Europe you're probably looking at:

- Gibraltar
- Jersey/Guernsey/Alderney/Sark
- Isle of Man
- UK
- Malta
- Cyprus
- Estonia
- Bulgaria
- Romania
- Hungary

You could throw Georgia in there (debatable where to call that Europe or not)

If you were to narrow this down most of the time out of the first 5 I'd favor Malaysia (Labuan) or Dubai. Not always again it's case by case but those are most likely to be the best options.

If Europe then usually Hungary and Romania aren't quite a good options as Bulgaria. Estonia requires some work arounds to get around the 20% distribution tax. Malta you can't really bank locally. Cyprus and Bulgaria you can have a debate about. Gibraltar, Jersey, Isle of Man are usually quite expensive for staff but it's easy to get good quality fiduciaries there.

Georgia is a decent option if you don't need payment processing since wages are low, there's some good tax options, and it's easy to deal with. You won't get a very deep or skilled talent pool though so you need surface level people.

If you want to look at the US then usually Puerto Rico is only a big advantage for Americans but sometimes it's a good option for foreigners too.

Hope that helps.
 
Will the foreign company be considered a local company for tax purposes?
I am a new immigrant to Israel and there is a 10 year exemption related to, control and management of foreign entities, and foreign produced passive income such as dividends, rental income, etc.

Since starting this thread I have engaged the services of an Israeli tax attorney who is in the process of restructuring the way I am operating to better optimise my tax liabilities.

To better illustrate what is going own I have drawn this:

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The IsraelServiceCo will provide all worldwide services I provide while in Israel and be fully taxed on income produced by these services. OffshoreCo will own all passively produced income from this business and services I provide while outside of Israel for the first 10 years. OffshoreCo will then issue dividends from this income to myself in Israel for 10 years tax exempt.

The *ContractCos are owned by different people and are fully independent businesses. I could be dealing with many different contracting companies in an individual country. These are usually established companies completely independent to me.
- Gibraltar
Can not receive USD banking details from TransferWise.
- Jersey/Guernsey/Alderney/Sark
I am open for these countries. My tax attorney thinks I'll have more difficulty with them than Singapore. I actually prefer these countries because it opens me to Revolut and other European banks/EMIs. He also recommends to avoid it due to creating unnecessarily VAT complications.
I am very confused if this is a viable solution? My tax attorney is not recommending as he says it is not clear what the situation will be after the Brexit.
 
Gibraltar - you don't necessarily have to bank at Transferwise.

Jersey - not a signatory to VAT so not sure what he's saying there. This being said meeting Jersey standards is in my experience challenging as their goal is to be whiter than white and it tends to add costs and operational hassles.

UK - realistically, it's not so different from, maybe better than Singapore if you're going to consider Singapore. Assuming you're talking about LTD (LLP is also a possibility) Corporate tax rate is 19% going down to 17% in April 2020, so same as Singapore. The difference is it's WAY less of a hassle than Singapore. Whereas Singapore you need a resident director and can't bank locally and don't have access to the European financial system, and need annual audited financials, and formation and maintenance is much more expensive, with UK you don't have any of those disadvantages. You are exposed to VAT, which isn't good but it really depends on the nature of your business.

Normally, I wouldn't consider UK as an amazing option but then again if you want Europe and you start comparing it to other alternatives it's not such a bad option.

Given what you're describing I really fail to see how Singapore can rank as an especially compelling option relative to many of the competitors listed.
 
Jersey - not a signatory to VAT so not sure what he's saying there. This being said meeting Jersey standards is in my experience challenging as their goal is to be whiter than white and it tends to add costs and operational hassles.
He said this regarding Cyprus. Sorry for the confusion. He said Singapore would be cheaper than Jersey in the long run.
Gibraltar - you don't necessarily have to bank at Transferwise.
Who do you recommend that can provide a competitive alternative to TW? TW is a game changer for businesses like mine. Low fees, competitive rates, and FAST! I use to be with HSBC and Citibank. Now that I use TW I would never look back.
You are exposed to VAT, which isn't good but it really depends on the nature of your business.
I can speak to an UK accountant for how this will effect my business and see if it is an option.

I rather pay $2k/year and have my company somewhere I can have TW than look for an alternative that wouldn't be as good. Maybe Revolut in the future will have solutions that would let me consider them a viable alternative to TW.
 
Hi JimmyWho sorry for jumping into this discussion. Not sure if I can give you any useful advice in regards offshore ITC setup because I am using UK and Slovakian business entities for my all my business ops. but I am curious and would like to know what kind of licenses/selling rights is your company offering? Any chance to reach you and discuss your offerings ? Cheers!