HN Explorer

Anyone have the skinny on incorporating offshore? Say, Bermuda?

10 points by kingkongrevenge ↗ HN
Delaware vs Bermuda, or somewhere else offshore. Has anyone sussed the pros and cons?

Obviously it doesn't matter if you have no revenues and are just shooting for the liquidity event. But let's pretend we're talking about a profitable private concern that will stay private.

31 comments

[ 8.5 ms ] story [ 116 ms ] thread
davidw
Why bother, if you're on the up and up?
kingkongrevenge
Avoid taxes. It's legit. I'm sure there are catches and that I don't understand all the dynamics.
inovica
How much money are you currently making? It's only worth it once it becomes significant. One other thing to point out is that if you are a US Citizen then you are responsible for paying taxes no matter where you are
kingkongrevenge
US citizens pay taxes on salary and capital gains, which don't necessarily have anything to do business taxes. There are many perfectly legit as well as gray ways to get money from owners equity into a form you can enjoy it with much lower taxes than you'd get if you just paid yourself salary.

I think the importance of this area of discussion will increase when Obama starts raising taxes.

tptacek
It's funny, this isn't the only place I've been seeing this "when Obama raises taxes" thing --- I also saw it in the Joel on Software Business of Software board. No offense, but --- political sockpuppet?
rw
Golly, we wouldn't want Obama to spend public money on society-wide problems like poverty and food scarcity.
terpua
For offshore incorporation, get a lawyer. Worth every penny.
bdfh42
If I was thinking about becoming a trading partner of a business that was incorporated in an "offshore haven" then I would think twice. I would ask myself if I would still have the protection of contract law and if there was likely to be anything else slightly "rum" about an organisation that did not want to pay it's dues to society.
kingkongrevenge
Give me a break. A big fraction of the DOW is offshore. Tax avoidance is a reality of business.
davidw
Why not concentrate on increasing the size and value of the business? As long as your growth curve is good, it's more worth your while to sink your time and energy into that, than trying to save some pennies here and there.
josefresco
Not exactly pennies, unless you make less than $1 per year.
davidw
Yes, but the point is that if you're a startup, say, Microsoft, Google, Reddit, eBay, Paypal, Redhat, or whatever (all incorporated in the US), it makes more sense to focus on growing the business, rather than trying to focus on what is relatively pennies compared to growing the size of the pie.
gojomo
Do you have a reference for "a big fraction of the Dow is offshore"? Your claim motivated me to try to find facts, and I couldn't find a summary either way.
johnyzee
If they are not offshore I assure you that it is only because they can get away with even less taxes by having a registered charity as a holding company for their assets, or whatever other shell game company structure is more profitable these days.

http://www.mentalfloss.com/blogs/archives/14675

josefresco
Exactly, see IKEA
[deleted]
(comment deleted)
dazzawazza
A poker company I worked at created a second company off shore and it licensed the poker software from the UK registered one or some such shenanigans.

You definitely need a good lawyer that does this sort of thing. There are a lot of complications (in the UK at least) for share holders and their tax liabilities. A good lawyer needs to structure the company in such a way as to make it as simple as possible.

There are overheads. Host territories require 1 or more people to be employed within the host state for full incorporation. The more dodgy the place, the more reliable people cost. If you get it wrong they walk away with all your money and the host country doesn't really care.

To be fair the the poker company PKR.com incorporated in Guernsey (small island of the cost of france) and AFAIK it's all gone well for them so it can work. The thing is they see millions of dollars a day going through their account so it's worth it. They are a very legit Poker company and DO pay taxes in Guernsey but none to the UK government which are at a higher rate.

You definitely need a specialist lawyer. It's a moving goal post as countries change laws to try to stop this sort of thing. As goal posts move lawyers costs add up. You are looking at legal costs in the 25-50 thousand uk pounds (obviously I wasn't privy to the exact costs at PKR but I remember seeing the bosses face when the legal bills came in!).

Good luck.

swombat
In terms of tax liability, afaik, if you control the company from the UK and you take money in and/or pay money out in the UK, you are subject to UK tax law, even if you're incorporated in Belize or something.
dazzawazza
That matches my understanding. That's why PKR (the money side) is a seperate company from PKR (the development/services) side. One hires the other to do work.

I'm sure this is an over simplification of how it really works but that's how it was explained to me.

Anyway as the development company doesn't get much more then the development/support costs so doesn't pay much in taxes.

icey
Instead of over-complicating the fact that you want to pay as little taxes as possible, you ought to consider hiring a competent tax accountant who could likely give you nearly the same benefits by incorporating the appropriate location inside the US, without having to get into the considerable overhead of incorporating overseas.
j2d2
Consider Delaware.
icey
Delaware is not terribly tax friendly. Delaware is a popular location to incorporate due to its long history of legal precedents with regards to corporate law.

I understand Nevada is a much more tax friendly state for incorporation.

That being said, I'm not an accountant or a lawyer, and either of those would have the appropriate advice for someone looking to incorporate.

josefresco
Las Vegas Nevada is also another consideration. Get yourself a bank account, 'office space' and it's a done deal.
icey
You don't need either of those things for a Nevada corporation. You just need a registered agent; which can be had as a service for like a hundred bucks a year.
staunch
I'd rather have $2 million and be able to relax about my taxes than have $4 million and be constantly in fear that I'm breaking some law I don't fully understand and could lose it all.

The more money it is the less I'd be willing to take the legal risk. And don't ever kid yourself that it isn't legally shady and risky.

josefresco
Even if the IRS comes after your business, you can typically pay them off. Typically IRS agents deal on a very personal level, and the IRS is simply another business (masquerading as a government agency). They'll take money to settle and move on to the next target.
xccx
afaik, assuming you are u.s. citizen living 330 days/year outside of u.s., you can earn $80k/yr under "foreign earned income exemption".. so an offshore corporation could pay you a good salary and maybe even pay some expenses if you wanna push it..

personally, i'd prefer to avoid u.s. taxation because i don't feel at all represented, ie 50% of my taxes are invested in a war machine that is addicted to oil and is on a rampage to get it.. there are much smarter ways to create wealth..

fizz
Vanuatu sounds the kind of place you are asking about.

This link:

http://en.wikipedia.org/wiki/Vanuatu

Has this quote:

"Vanuatu is a tax haven that until 2008 did not release account information to other governments or law-enforcement agencies. International pressure, mainly from Australia, influenced the Vanuatu government to begin adhering to international norms to improve transparency. In Vanuatu, there are no income tax, no withholding tax, no capital gains tax, no inheritance taxes, or exchange controls. A disproportionately large number of ship-management companies choose to flag their ships under the Vanuatu flag, because of the tax benefits and favorable labor laws. Several file-sharing groups, such as the providers of the KaZaA network of Sharman Networks and the developers of WinMX, have chosen to incorporate in Vanuatu to avoid regulation and legal challenges."

gommm
I'm currently in the middle of trying to incorporate offshore.

I'm going the offshore way because: - Creating a company in my home country (france) is way too complicated and I don't want to pay tax to support a government I hate (sarkozy) - I'm currently living in malaysia on a tourist visa and as such it's difficult to create a company there - Since creating a company is going to be difficult anyway I might as well spend the time to find out what is the best place to incorporate without having to pay too many taxes...

Now I've just started to search for information so if you want we can share what we find about this.. You can contact me at pm -at- gom-jabbar.org

aquaphile
If you go offshore, I recommend Bermuda or the Caymans. If, however, you're in the U.S. use Delaware and avoid offshoring. The legal and administrative complications and expenses associated with an offshore registration are considerable. In my opinion, if you are a U.S. business then offshore registrations only make sense if you have a large amount of profit/capital for which you wish to minimize Federal income taxes. You can let your capital accrue offshore -- sans 35% FIT -- and then repatriate the profits every 5-8 years when the U.S. government provides an amnesty (usually unlimited, with a 15% FIT).