The question is often asked - how can I make money on the Internet and not pay tax?
Firstly, I should say that simply "not" paying tax is likely to be deemed "tax evasion" - but that hasn't stopped anyone in the past!
I should also add a cultural note here - in that depending upon what country you come from, your attitude may be very different. For example - in the USA, "tax evasion" is a serious "criminal offense" - whereas in many other countries you'd pay a fine or penalty, rather than go to prison. Also, different cultures have different attitudes to tax avoidance/evasion. The Chinese in Hong Kong do it as a matter of good business policy. The Italians make a national pastime out of it - and I'm sure you have an opinion on how your fellow countrymen regard it.
At its very simplest, "tax evasion" occurs every time you do a job for "cash". As you know, most people are "guilty" of this at some time - so are we all "tax-evaders" now?
The "tax authorities" cannot stop the "cash" economy - or the "black" economy as they often prefer to call it. It's too huge and too many people participate in it.
Just put yourself in your local tax collector's shoes for a moment. There you are, trying to do your job - but every man and his dog is trying to outwit you!
Well, the Internet is just another way to "outwit" the taxman. In the same way you can do "cash" jobs at home - you can do cash jobs on the Internet.
You can also be a lot more sophisticated.
Do you have a business idea that can be implemented online? If so you may be able to build a financial empire in cyberspace that could result in little or no taxes at all!!
If you set up an offshore corporation - making sure that you neither own nor control it - then this can be your platform for an international business with great tax benefits.
A few of the basic ingredients would include:
To make this arrangement even more secure, you should also make sure that whatever product or service was being provided was also based in, or distributed from, an offshore location. In that way there is no literal business activity taking place on your home territory. If you "employ" people offshore - that's even better!
What you want to achieve is a genuinely international business, one outside your own tax jurisdiction.
The corporate structure (IBC) forms the basis for this strategy, as it provides you with the legal framework for doing business.
The webhosting location adds another layer of protection - and enhances your "international" location.
The third key is your merchant account. Now, if you want to charge by credit card (and any business really needs to offer this option) then you need a Merchant account - the arrangement by which you are authorized to debit people's Visa/Mastercard (and others).
Getting one in your home country shouldn't be that difficult, but that's not what you want. You want a merchant solution that is outside your jurisdiction - an offshore merchant account. Why? Because you want the proceeds of all sales to bypass your own country's banking system. Remember, this is an "international" business you're setting up, so you need an international payment solution.
For this, you need the services of a clearing house - a third party service that will allow you to bill using their merchant status. And, as you would expect, this type of service costs more that one at "home".
Most domestic merchant accounts will have you paying around 2.5% -3% discount rate - the percentage they take of your turnover. However, when using a clearinghouse service, you also have to pay them their cut! This is reflected in the higher discount rates.
My investigations have unearthed a wide variety of discounts on offer - so shop around!
Generally, you can expect to pay from 5% to 15% discount rate - the higher rates being reserved for the riskier businesses. I have also seen rates in this area as low as 3.75%.
If you're in the USA and you want a non-USD processed account, then there are even services that will charge (and convert from) Euros.
But that's not your only cost. Another feature of doing business this way, is that the clearinghouse will want to protect itself from any fraudulent use - and to do so, will want a security deposit from you. This is usually collected in the form of a "rolling reserve" - which means they retain say 5%-10% of your sales revenue for a period of three to six months. Thereafter, your funds are released on a pro-rata basis.
The advantage of this type of clearing service is that you can have them wire your sales proceeds (less discount and reserve) to your offshore corporate account.
So there you have it - a complete international business presence.
If you are dealing in information services - then it's even easier, as you can have the actual "information" located offshore also. What that means is you have no trading base in your home country. You have no operations, no stock, no transactions - nothing.
Properly structured, this type of business would be very difficult to track down for tax purposes.
That leaves just one thing. What about the money you make - and how do you get it back onshore without tax liability?
The clandestine way is to use a non-associated offshore card to draw funds from an ATM - but this is not a long term solution, especially if you need to show some income.
The easiest solution would be if this "international" business of yours was in fact an "extra" to your existing income-earning arrangements. That way, you could literally build up an offshore nest egg. However, if it was your ONLY business - then you would need to draw income from it at some stage. This "drawn" income would be "taxable" in your home country (and you'd need to have proper paperwork to justify this income) - leaving undistributed profits to accumulate offshore.
As an example, let's say that is was a magazine you sold. The company publishing this magazine would be the IBC, and all the accompanying business arrangements already discussed. You may be contracted as the editor of this magazine - and therefore receive remuneration accordingly. That income could be "taxable" in your home country - but would not represent the full profit picture of the company as a whole. The balance of your profit would be retained offshore.
It's as simple as that!
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