One no-brainer reason to set up a foreign company

May 8, 2013

The worldwide movement to tax, confiscate, and regulate everything imaginable turned a new page earlier this week when the “Marketplace Fairness Act” passed in the US Senate.

The bill still needs to clear the House of Representatives. But its fundamental purpose, enforcing state sales tax for online transactions, is almost guaranteed.

Even if they don’t manage to successfully push the bill through this time, they’ll just re-propose a new version of it in a few months’ time until it finally passes and destroys the digital economy.

First, there’s the obvious consequence of the end-user consumers having to give governments more of their hard earned savings to pay for bombs, drones, and body scanners.

Additionally, though, the law would bury -any- business that has an online presence with an enormity of paperwork and tax filings.

Consider the prospect for a budding entrepreneur in the Land of the Free– start a business and go blind on tax reporting to dozens of states, then pay through the nose for Obamacare. Sounds like a great deal, right?

They might as well send greeting cards to productive citizens saying “Please leave the country, thank you.” And they should. Because this is a perfect example of how diversifying internationally can work for you.

Fact is, this law would not apply to foreign companies who do business online and sell to US-based consumers.

Simply as a matter of practicality, it’s not possible to get every business in every jurisdiction in the world to marshall the appropriate resources behind complying with such an absurd requirement. How do you get an e-tailor in India or Bhutan to track, report, and pay sales tax on a customer in Kansas?

More importantly, though, there is a vast network of international treaties– Double Taxation Agreements, Free Trade Agreements, etc.– protecting foreign companies from such tax.

As an example, the US-Singapore Free Trade agreement has an entire section devoted exclusively to e-commerce. So even from a legal standpoint, a US-based tax would not apply.

The solution is clear. Folks who are primarily doing business online, or thinking about doing business online, ought to seriously consider getting professional advice to move the business overseas.

Here in Singapore, you can register a new business, inclusive of secretarial and resident director services, for about $3,000 USD.

It’s well worth it. The banking system here is modern and well-capitalized. And the support services for an online business ranging from web hosting to credit card processing are excellent.

Moreover, Singapore’s tax system is one of the most competitive in the world. Right now, for example, a $100,000 net income in 2013 would end up with an effective corporate tax rate of just 1.2%. A $1 million net income would result in an 11.88% effective tax rate.

If that’s too expensive, the Marshall Islands has a zero percent tax rate and lower corporate registration costs (<< $1,000 total). Yet it’s still possible to access Singapore’s excellent digital and financial infrastructure with a Marshall Islands company.

Online companies are by far one of the best ways to take advantage of international diversification. You can set the company up in one place, bank in another, process credit card transactions in another, host your web site in another, outsource employees to another, etc… all in the specific jurisdictions which make the MOST sense for your business.

It’s completely 100% legitimate. And in doing so, you might just dodge a bureaucratic land mine.

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