How do you use an international business company legally and effectively?
We’ll dive deeper in the advantages but will also have a look at some of the pitfalls.
Need help optimizing your tax setup?
Contact me.
What is an International Business Company (IBC)?
An International Business Company or IBC is a structure that digital nomads (and others) can use to organize their international business setup.
They commonly offer favorable tax rates and financial and operational advantages.
In addition, you mostly set them up in offshore locations. If you’re interested in the best countries to open an offshore company, you can check them here.
Why Choose an IBC? Key benefits
There are various reasons why someone can set up an IBC.
Hereby a list of the key benefits you can expect:
- Tax Efficiency: people often use International Business Companies to lower taxes or to avoid them altogether.
- Business Freedom: IBC’s are designed for international business. Rather convenient for digital nomads who operate in an international context.
- Easy Administration: Popular jurisdictions for International Business Companies will also have low maintenance and administrative requirements. Potentially also lowering the cost of maintaining your business.
- Asset Protection: In many jurisdiction you can also expect to benefit from strong asset protection rules. Shielding the assets of the company from lawsuits, creditors and foreign governments.
- Privacy: Most countries offering IBC’s also have very strict privacy and confidentiality legislation in place. This means that the details of the directors and shareholders are often kept secret.
Common Uses for International Business Companies
People use International Business Companies for various purposes.
Let’s have a look at some of the common uses:
- International Trade: A first common use is to conduct international business and the cross-border purchasing and selling of goods and services.
- Asset Holding & Protection: You can use an IBC to hold assets abroad and protect them.
- Offshore Investing: Linked to the previous purpose, one can us IBC’s to structure his offshore investments and get access to offshore banking.
- Intellectual Property: Another common use for International Business Companies is to use them to hold intellectual property (IP) rights.
- Special Purpose Vehicle (SPV): You can also use them as SPV’s for specific deals or joint-ventures in order to limit your liabilities.
How to Set Up an International Business Company
If you decided you want to set up an international business company, the question remains how you actually go about the process.
Choose Preferred Jurisdiction
The first step in your process of setting up your business is to decide in which jurisdiction you want to incorporate.
Some popular countries for this are:
- Belize
- British Virgin Islands (BVI)
- Cyprus
- Hong Kong
- Malta
- Marshall Islands
- Panama
- Seychelles
- Singapore
- UAE
When choosing a jurisdiction you want to take into account various elements like:
- Political and legal stability
- Regulatory requirements
- Banking infrastructure
- Tax regulations
- Reputation
Find Reliable Local Partner
Once you know which country you want to open your company in, you need to find a reliable local partner.
Your local partner will guide you through the maze of incorporating your business and will take work of your plate.
Moreover, by working with an experienced partner you can avoid any costly mistakes.
Decide on Business Structure
Decide which business structure you prefer.
In most cases you’ll probably opt for a limited liability company. However, technically you also have the option to opt for a partnership or any other structure.
Your advisor will be able to assist you with picking the right legal setup for your particular situation.
Incorporate Your International Business Company
Now you are ready to actually incorporate your company.
However, in order to do so, you’ll have to decide on a company name, who will be the shareholder and director, etc.
Most of the time you’ll also need to appoint a local representative. This is where your local partner comes in handy again.
Furthermore, they will take care of drafting and filing all the necessary documents with the authorities.
Open Corporate Bank Account
To be fully operational, your business will also need a bank account.
The banking options available will depend on the jurisdiction you choose to incorporate your business.
In order to open a bank account, you will need to provide the bank with sufficient details about your company, as well as about yourself as the owner (e.g. proof of address). This is part of the procedures banks need to follow regarding Know Your Customer (KYC) regulations.
Risks and Compliance Considerations for IBC
If you want to operate an IBC, you also need to be aware of some risks and compliance considerations.
OECD and FATF Standards
The Organization for Economic Co-operation and Development (OECD) and the Financial Action Task Force (FATF) set standards for (international) businesses to follow.
These standards tackle various issues. However, in this case the main ones are regarding beneficial ownership and company operations in order to to combat money laundering (AML), terrorist financing and to increase financial transparency.
Although these organizations themselves don’t have the power to implement legislation, many countries follow their guidelines and adopt them in local legislation. In that way, they can also apply to you.
UBO Registers and Global Transparency Rules
The perfect example of what we mentioned before is the register of ultimate beneficial owners (UBO).
In this register, you’ll need to record the (main) shareholders of your company. Consequently, the government records this information.
Moreover, they often also share this information with tax authorities of other countries as part of the global transparency rules. Therefore, thinking that you can just hide your money abroad, is not true.
In addition and on the same topic, financial institutions will in many cases also share information about your foreign bank accounts with your home country. This is based on the Foreign Account Tax Compliance Act (FATCA) for the US and the Common Reporting Standards (CRS) for other countries.
Economic Substance Regulations
Economic substance regulations require companies to show that they have a genuine business activity in the country of incorporation.
In this way, countries want to avoid that you merely use the jurisdiction as a shell just for the tax benefits but without any real connection to the country.
Work With Me
Do you need help with deciding if an International Business Company is right for you?
Not sure where to incorporate your IBC?
Or, maybe you don’t even know where to get started with your tax planning?
Reach out to get assistance just like hundreds of others nomads did before you.
FAQ
Let’s now have a closer look to some frequently asked questions about IBC’s.
Is an IBC Legal?
An IBC is legal. At least when you use it for the right reasons and adhere to the compliance requirements.
Therefore, you will need to ensure that you meet not only the compliance requirements of the country where it’s incorporated but also where you as the owner are a tax resident.
Do I Need to be Resident Where it’s Incorporated?
You don’t need to be resident of the country where you open your International Business Company.
Most countries will allow you to open a company locally without the need to live there.
Yet, you might need to appoint a local director or secretary in some cases.
Furthermore, it will be easier sometimes to get the paperwork done if you are actually a resident of the country where you want to incorporate your company.
Nevertheless, you need to take into account the tax rules of your country of tax residency to see what impact opening an IBC can have.
Will my Home Country Tax an IBC’s Income?
Your home country might tax your IBC’s income. Therefore, you need to make sure you have a sound structure in place.
Too many digital nomads seem to think that tax planning is as easy as just setting up a company abroad. However, in modern days, many countries have all kinds of rules in place to still come after the profits of that offshore company even if your company isn’t registered there.
If your overseas company doesn’t have much economic substance in the country of incorporation, your home country could potentially state that you run your company from your home country. This can leave you open to nasty tax consequences and even penalties.
Can I Open a Bank Account Abroad with an IBC?
You can open a bank account abroad with your IBC. Yet, which bank accounts you will be able to open will depend on your situation.
Be default, you should be able to open a bank account in the country where you open your company. However, you might need to visit the country and the bank to do this. Whether or not will depend on the policies of the bank.
Furthermore, you might be able to open an offshore bank account as well. Yet, this tends to be a bit harder unless you have preexisting connections to the bank.