Online Business Incorporation and Tax Havens – How Does It Really Work?
Online business owners often wonder what is the right legal procedure when it comes to paying their taxes.
This can be especially confusing if you are a digital nomad and you travel very often to different countries or you live around the world.
So this is when the topic of tax havens usually comes up for online business because people want to save as much money as possible on the tax bill. Rightly so.
Even if your website, or online business, does not work out of a corporation or LLC, you have probably given some thought if there was any liability or tax benefit from incorporating.
Therefore, we wanted to give some tips and insight into the process.
Online Business Incorporation Benefits
One good reason for incorporating is because of the legal separation it generates between you and your internet business.
Online business fudges the boundaries of conventional jurisdictions because internet businesses can be incorporated in one state, have its owners in another, while the web hosting company and server could be in very different countries from the customer.
Your business becomes its own legal entity that pays taxes and has the choice of being integrated into whatever country you decide.
Online Business Locations
Therefore, there is not any reason to limit yourself by incorporating in your home state.
While companies can be domiciled in whatever state they select, they still have to register and pay taxes in each state in which they transact web business.
While every state has different definitions, for the most part, if you have employees or office space in a particular state, you’re conducting business there.
Online Business and Getting Into Tax Havens
In pure internet business, your business may only exist in a digital world.
If you don’t have office space and contract out services such as programming, server administrators, and web development, you’re a perfect candidate for saving money in a tax haven. Congratulations!
Contracting out hosting and internet marketing saves money because the corporation is not legally domiciled.
Tax havens allow eCommerce websites to incorporate in states that have pro-business laws.
For example, no corporate tax, no franchise tax or no personal income tax.
The two major tax havens in the US are Nevada and Wyoming.
Wyoming has lower prices and less stigma which may be appealing to startup eCommerce websites.
For a virtual internet business, all that is required is a Nevada or Wyoming corporation.
Bear in mind; it can’t be an LLC unless you elect corporate taxation with the IRS.
Otherwise, all income goes via your tax return in the state in which you reside.
Online Business How to Get Started
Starting a company requires going through red tape at a bureaucracy hundreds of miles apart, so it is most recommend to use a professional service.
Although startup freelancers may be used to going at it alone, specialized tax experts with connections and experience with state agencies may expedite the entire procedure for you.
Online Business And Paying Yourself
It’s important not to forget that the moment you issue yourself payroll, your corporation or LLC will need to register to transact business in your state.
For example, with online businesses, this could be taking money out of the company in the shape of withdrawals, transfers, loans and dividends.
Professional tax preparation services in these countries will allow you to set up (or you can do it yourself) a qualified registered agent who resides in the state to keep you updated on filings and in good standing with the state.
You must use the address of your registered agent and have a bank account opened in the country if you want to officially do business in that state.
Consider it as a complete separation of yourself and your internet business.
Because you operate an internet company, it’s easy to choose the locations with more favourable tax rates, which means that you can save more money.
But it requires to appear as your business operates out of the state in which you are domiciled.
Or you may wish to speak with a tax expert to set up a more complex structure in different countries if you are a high-income digital nomad or online business, and you really want to minimize your tax liabilities.