Dateline: Kota Kinabalu, Malaysia
Many people don’t know it, but Malaysia has one of the world’s most interesting tax havens. In fact, the place doesn’t look like a “tax haven” at all.
Labuan is Malaysia’s ultra-low tax zone. We first discussed it over two years ago as the home of companies like AirAsia – one of my least favorite airlines but favorite legal tax avoiders – that avail themselves of taxes as low as 3%… or even a flat 20,000 ringgit (US$4,500) per year.
However, while Labuan may make sense for some businesses, it never really took off in the same way that its counterparts Hong Kong and Singapore did. I suspect that the Malaysian government never wanted Labuan to be a top-tier jurisdiction, but rather a lower key place for serious businesses. They don’t want every guy with a laptop running his Facebook ad consultancy through here.
There are, however, offshore jurisdictions that have fallen out of favor… or simply fallen off the map. As with anything involving politicians, certain offshore company jurisdictions come and go.
The best offshore jurisdiction today may not be the best tomorrow. That’s precisely what the “nomad” in “Nomad Capitalist” is about: realizing that you must constantly adapt if you want to survive and prosper.
With that, I wanted to address a few things to keep in mind when setting up an offshore company, as well as jurisdictions that have fallen out of favor and are likely worth avoiding.
Considerations when forming an offshore company
One thing I’m never a fan of is taking a cookie-cutter approach to setting up an offshore company. Anyone who suggests that one country is always the best approach is either misguided or has a dog in the fight.
Additionally, you will want to consider what services your company will need before choosing a jurisdiction. If you need a high-quality merchant account that easily integrates with a wide array of e-commerce applications, being in the Marshall Islands may put you at a disadvantage as the country is not as advanced in that area.
On the other hand, dealing with the audit requirements and complexities of doing business in Singapore may prove to be too much for a small company with very simple consulting transactions.
Knowing WHY you need an offshore company and what you’ll do with it is important as it helps you decide where to set up shop.
That includes being located in a jurisdiction that is taken seriously by the people you’ll be doing business with.
Many offshore jurisdictions allow you to “re-domicile” your company once it is established, so it’s possible that if you currently have an IBC or offshore corporation in a jurisdiction that isn’t serving your needs, you can move it.
That said, it’s always best to get things done right the first time. With that in mind, let’s review a few offshore jurisdictions that have fallen out of favor – or that never were in favor – for most entrepreneur’s purposes.
1. Gambia offshore company
I’m all for the creation of new tax havens. It’s refreshing to see governments coming to the realization that their bread is best buttered by business being conducted in their country. (If only politicians in the United States could realize that.)
The Gambia is a tiny west African country carved out of Senegal. Like its neighbor, it is relatively politically stable but somewhat corrupt. While hardly a panacea, although it ranks right next to the offshore haven of the Seychelles in terms of economic freedom. All of those factors led The Gambia to decide to become the low-cost offshore services jurisdiction a few years back.
The fact that requirements are practically zero does look attractive, but I’d like to see the look on your bankers’ and customers’ faces when you tell them you’re based in a tiny African country. There may be some basic applications for a Gambia company, but even if one would work for you, it is worth spending an extra $200 to get something better.
2. Liberia offshore company
“Oh, your company is located next to the war zone on the Ivory Coast? Excellent…”, said no one ever.
Liberian companies were widely promoted decades ago, but not to digital nomads or online business owners. They were promoted as a way to register ships and conduct financial services in a loosely regulated jurisdiction. In those applications, it worked; plenty of cruise ships were registered to Liberia in order to fly its “flag of convenience”.
Registering your yacht (or your 2,500-passenger cruise vessel) does qualify as planting a flag under flag theory. If you do not have a yacht, you may want to look elsewhere.
The fact that Liberia outsourced maintenance of its corporate registry to a US company on US soil doesn’t help promoters’ claims of privacy benefits. And the fact that it still boasts a tax treaty with West Germany should show you why only the shadiest of promoters are offering Liberian companies to those who would be poorly suited to have one.
3. Niue offshore company
Niue was the tropical paradise that served as the wallpaper of your old computer back in the day. Many traditional offshore jurisdictions offer beautiful beaches and rely on tourism as their main source of revenue; nothing wrong with that.
Niue, however, never got beyond “desktop wallpaper” status. A tiny rock – a coral island chain, to be specific – in the South Pacific, Niue is a beautiful place to visit and the influence of Oceanic countries has led to relative political stability.
In addition to utilizing British Common Law, Niue IBCs have few requirements outside of maintaining a registered agent there. The $150 annual return fee is relatively low in the grand scheme of things.
The problem is that no one credible is using Niue companies. You’ll have a hard time doing much with one in the rest of the world. The fact that the country is heavily reliant on aid from New Zealand could be cause for concern, as well. Extremely narrow adoption of Niue companies is reason enough to avoid setting up shop there.
4. Seychelles offshore company
Unlike the first three companies, I’ve seen a number of small business owners set up shop in the Seychelles, often with disastrous results. Just recently, I advised an internet marketer to get almost $100,000 from a frozen merchant account because the company refused to pay offshore companies in shady places like the Seychelles.
While the Seychelles is a beautiful place, it has jumped the shark in terms of a corporate jurisdiction for most people. While there are hybrid approaches that could work for larger businesses, the cheap down-and-dirty Seychelles IBCs I’ve seen are getting shut out by banks and other service providers all over the place.
Any jurisdiction that doesn’t require you to keep books, maintain records, undergo any type of audit, pay any type of tax, or report your activities in any way is either on everyone’s blacklist or about to be on it. Seychelles falls into that category, which is why I get quite a few emails each year from people who have a mess to clean up there.
If you’d like to learn more about the right way to set up your offshore company, click here. When done the right way and with a full assessment of your needs, the process should be affordable and painless.