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For a small or medium-sized company based in a high-tax area and without an extensive network of senior (and expensive) advisers, it is not easy to know how to approach the idea of offshore e-commerce. Just the idea of e-commerce itself is sufficiently challenging at first, if a company has previously relied on traditional business methods, and it could seem too extreme to take on board the complexities of a move offshore at the same time.

Ignoring the possibility of offshore e-commerce could, however, be very short-sighted...

Can the owners make use of tax benefits?

The first, crucial point to take on board is that there is no point in considering offshore e-commerce unless a company (meaning, its owners) are going to be able to take advantage of low taxation. Many offshore jurisdictions make much out of other factors, ranging from the climate to their international connectivity (good phone lines), but the truth is that for all except certain very specific types of business it would be next to impossible to justify a move offshore in economic terms if it were not for the tax benefits

The second, equally crucial point is that once a company's owners accept in principle the idea that it is worth being flexible in order to achieve tax benefits, then there is hardly a company on earth that can't benefit from offshore e-commerce. 'Being flexible' might mean a whole range of things, including a change of residence, corporate restructuring or redesigning product ranges.

Choosing what to send offshore

Having accepted in principle that there might be, probably will be, some 'hassle' involved in going offshore, the next step is to determine which parts of a company's operations could be offshore without disadvantaging the business overall. Actually the question is the other way around: which parts of the business absolutely must stay onshore? It's obviously impossible to give a generic answer to that question, since so much will depend on the nature of each business in particular, but some generalisations are possible.

For instance, the delivery of physical goods has to take place onshore - but it can be outsourced, and is nowadays better outsourced in many cases, even for an onshore business. The marketing of goods which require physical contact with the customer has to stay near the customer - except that increasingly sophisticated software is allowing 'virtual' on-line experiences to take over ever-greater parts of the sales process. And so on: there is plenty of information available in the press and in specialist periodicals to allow the owner of a business (whether that be another company or an individual) to make the judgements about the 'transportability' of a business or its components.

Other parts of www.offshore-e-com.com contain relevant information about particular types of business: see Applications and Case Studies for instance.

Going offshore is not trouble-free

So it is not likely to be the nature of the business that stops it going offshore, although there will be questions of timing and practicality in human terms. That leaves the tax position of the owner(s) as the crucial factor in determining whether a business can move, and the starting point here is that the owner(s) of an onshore business, if they are themselves onshore, will have to make some fairly major changes if the tax benefits of offshore e-commerce are to be achieved. This is because the combination of Controlled Foreign Corporation (CFC) laws with generalised anti-avoidance legislation 'sees through' any simple structure that atttempts to distance onshore owner from offshore business. There are few, if any, high-tax countries that haven't already put these types of legislation in place.

Ensuring a tax-efficient result

This is another point at which it is difficult to generalise. There really are a lot of different ways in which the fiscal separation of owner and business can be achieved, and professional advice is unavoidable, to take account of the circumstances of all concerned. However, again, it is possible to make a few generalisations:

  • if the owner (whether company or individual) is going to remain onshore, then ownership will have to be divided among distinct entities or individuals in order to get below the CFC barrier; and there may still remain a problem with anti-avoidance legislation in some circumstances;
  • if possible, it will be best for most or all ownership to be held in offshore hands; and finally,
  • if possible, it will be best for a new business to be started so that capital gains tax problems don't arise on the transfer of the business out of the high-tax jurisdiction.

These 'rules' impose some fairly rough and difficult changes for most people, and a judgement has to be made as to whether the game is worth the candle. No gain without pain!

Choosing advisers

Having decided that the gain is worth the pain, the owner(s) can now move forward to start active planning. As regards the choice of a suitable offshore location, see Location in this section of the site. Also see Jurisdictions on this site, and the jurisdiction sections of www.lowtax.net for more general information about different jurisdictions. At this stage, a competent professional adviser becomes an absolute necessity, and should be chosen from an international firm of accountants, consultants or lawyers with demonstrated competence in e-commerce and international tax planning. It will be best to avoid advisers in the jurisdictions until later in the game, since they can hardly be expected to be either knowledgeable enough, or to be totally objective.

In parallel with the choice of jurisdiction and tax structure, it is also necessary to plan the e-commerce or e-business commercial structure; here it is less improbable that there will be an expert within the company, but it is still unlikely, and very probably an outside e-commerce adviser, probably from one of the specialised e-commerce consultancies, should be found.

These two individuals, or firms, will lay the foundation for successful offshore e-commerce, and they must be capable of working together, and with the owner(s), and with existing financial management, as well as separately.

Consultancy from offshore-e-com.com

www.offshore-e-com.com is preparing active advisory programmes and partners to assist businesses with the design and installation of offshore e-commerce operations. If you would like to hear about the programmmes when they are available, please contact econsult@offshore-e-com.com.


 

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