I am starting an online business pretty soon, but out of curiosity, I was wondering about incorporation. What if I was to incorporate in Panama as an IBC and have a Malaysian bank account to handle the transactions. Is there a possibility that this would work? I am kind of contemplating this, and also, how easy is it to switch countries with Paypal, since this is an Ebay business? Like to hear your thoughts.


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zacb wrote:

I am starting an online business pretty soon, but out of curiosity, I was wondering about incorporation. What if I was to incorporate in Panama as an IBC and have a Malaysian bank account to handle the transactions. Is there a possibility that this would work? I am kind of contemplating this, and also, how easy is it to switch countries with Paypal, since this is an Ebay business? Like to hear your thoughts.

Interesting topic, not much on HA about this.

Malaysia does not open accounts for Americans unless they are resident there or employed there.

Try Singapore. They may require a trip there, but you can try to do it remotely. May take a lawyer.

For the IBC itself, Panama is IMO over-hyped. Secrecy, schmecrecy. if you are a U.S. citizen you have to disclose everything anyway. Better to go with a Belize IBC, they answer the phone in our time zone, and you don't need to go there, and it's cheap, and you don't need an outside director. Just you. Cheapest place.

Bank of Belize will give you a merchant account easily. Also if you ask they can hook you up with a lawyer to create the IBC. Easy peasy.

Btw, I hope your new IBC will be selling products or software or e-books, not services. If selling services to U.S., PayPal attached to a U.S. bank account is a better choice. It's U.S. self-employment income (with FICA liablility), but at least you get the $95,100 FEI exemption on Federal income tax. Payments going to foreign persons (including your new IBC) for services rendered are going to be docked a full 30% off the top as a (semi-secret) "withholding tax".

Same problem exists for authors who sell via Kindle, Amazon etc. -- I think this is considered U.S. income, so non-U.S. corporation actually increases tax liability, because you get zapped with the 30%. Expat authors should go with personal income, or have a U.S. LLC I think.

Services by IBC provided to non-Anglosphere foreigners probably wouldn't have this problem, if paid by credit card, for now - I think.

IBC is superior if you're moving around of course. With payPal you have to keep them informed of every damn move you make. They detect IP addresses.

Now that I think about it, that must be why you're interested in an IBC. You were going to Macedonia, right? Yeah, no PayPal allowed there I believe. So yeah, IBC is one solution, IF selling products, and not through Amazon etc (as stated above). But otherwise a U.S. LLC with PayPal or merchant account will likely solve the problem.

Keep us posted!

I was actually thinking of selling downloadable items through ebay classifieds, and using a different paypal (foreign) to connect with a foriegn bank account. Then I could use an IBC as the owner. And then that IBC could fund basics, and the rest could be declared as income. For instance, some companies offer benefits to their employees. Well if you offer free rent, stipends, etc. you will not (at least in the US) have to pay for them as long as they are in not liquid form (cash).

Also, in regards to Belize, do you have to hold board meetings there? That was my biggest problem, and why I was thinking about Panama. Also, just as a safe guard, what foreign country would you suggest for a paypal + banks combo thanks I could withdraw locally (a lot of those countries in the paypal network require a bank account, which could lead to problems)


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zacb wrote:

I was actually thinking of selling downloadable items through ebay classifieds, and using a different paypal (foreign) to connect with a foriegn bank account. Then I could use an IBC as the owner.

How do you handle fulfillment? If you have a U.S. person doing your shipping, this could be construed as a "nexus", meaning you now are a nonresident IBC with U.S. presence. Granted, Amazon gets away with stuff like this, but you don't know the same handshake they do. And granted, lots of little guys (who dont sell much) get away with this, but do you want to get nervous about being successful?
Best is to use a U.S. LLC with U.S. PayPal until you hit $100,000 in AGI. Live abroad 11 months a year minimum and still pay no US income tax except FICA.

zacb wrote:

And then that IBC could fund basics, and the rest could be declared as income. For instance, some companies offer benefits to their employees. Well if you offer free rent, stipends, etc. you will not (at least in the US) have to pay for them as long as they are in not liquid form (cash).

This works for most nationalities. If you are American, this is asking for trouble. There is a flat $10,000 fine if you don't turn in bank account maximum balance info to Uncle Sam on time every year. Including the bank account for your IBC. They also want a tax return for the IBC, because it is a CFC (controlled foreign corp - controlled by a U.S. person). This must be done in accordance with IRS rules. You might get away with paying for an office, and saying you sleep on the office couch, I'm not sure. But this is dwarfed by the 95,100 FEI on personal tax if you do it the way I said. Until you have around $100,000 in AGI personal income (before the exclusion, it is better to pay FICA (self-emplyment tax) and not mess with an offshore structure. (Most people do not get professional help till they are at $500,000 i think.)

zacb wrote:

Also, in regards to Belize, do you have to hold board meetings there? That was my biggest problem, and why I was thinking about Panama.

Belize you are the only director, board meeting is just you.

zacb wrote:

Also, just as a safe guard, what foreign country would you suggest for a paypal + banks combo thanks I could withdraw locally (a lot of those countries in the paypal network require a bank account, which could lead to problems)

Dont understand the question. To withdraw locally you need a ocal account, or else you will be dribbling it out of an ATM a few hundred dollars at a time. Is this what you mean? PayPal allows you to keep US account in some countries. In others it requires local. In a few you get a choice. Best is to keep a US account, have US income go into it, then wire transfer monthly into local account. Start with personal account in US, or a DBA business (proprietor) account if you want to have a business name with PayPal. Then gravitate to an LLC when business is successful. Keep that till you are ready to renounce US citizenship (if thats the plan).

(Of course it would be illegal to do so for tax reasons)

Jester wrote:

zacb wrote:

I was actually thinking of selling downloadable items through ebay classifieds, and using a different paypal (foreign) to connect with a foriegn bank account. Then I could use an IBC as the owner.

How do you handle fulfillment? If you have a U.S. person doing your shipping, this could be construed as a "nexus", meaning you now are a nonresident IBC with U.S. presence. Granted, Amazon gets away with stuff like this, but you don't know the same handshake they do. And granted, lots of little guys (who dont sell much) get away with this, but do you want to get nervous about being successful?
Best is to use a U.S. LLC with U.S. PayPal until you hit $100,000 in AGI. Live abroad 11 months a year minimum and still pay no US income tax except FICA.

zacb wrote:

And then that IBC could fund basics, and the rest could be declared as income. For instance, some companies offer benefits to their employees. Well if you offer free rent, stipends, etc. you will not (at least in the US) have to pay for them as long as they are in not liquid form (cash).

This works for most nationalities. If you are American, this is asking for trouble. There is a flat $10,000 fine if you don't turn in bank account maximum balance info to Uncle Sam on time every year. Including the bank account for your IBC. They also want a tax return for the IBC, because it is a CFC (controlled foreign corp - controlled by a U.S. person). This must be done in accordance with IRS rules. You might get away with paying for an office, and saying you sleep on the office couch, I'm not sure. But this is dwarfed by the 95,100 FEI on personal tax if you do it the way I said. Until you have around $100,000 in AGI personal income (before the exclusion, it is better to pay FICA (self-emplyment tax) and not mess with an offshore structure. (Most people do not get professional help till they are at $500,000 i think.)

zacb wrote:

Also, in regards to Belize, do you have to hold board meetings there? That was my biggest problem, and why I was thinking about Panama.

Belize you are the only director, board meeting is just you.

zacb wrote:

Also, just as a safe guard, what foreign country would you suggest for a paypal + banks combo thanks I could withdraw locally (a lot of those countries in the paypal network require a bank account, which could lead to problems)

Dont understand the question. To withdraw locally you need a ocal account, or else you will be dribbling it out of an ATM a few hundred dollars at a time. Is this what you mean? PayPal allows you to keep US account in some countries. In others it requires local. In a few you get a choice. Best is to keep a US account, have US income go into it, then wire transfer monthly into local account. Start with personal account in US, or a DBA business (proprietor) account if you want to have a business name with PayPal. Then gravitate to an LLC when business is successful. Keep that till you are ready to renounce US citizenship (if thats the plan).

(Of course it would be illegal to do so for tax reasons)

If the business is officially owned by a non-US person or identity, someone not a US citizen or resident, most of this is a non-issue.

Outwest

I understand I would have to file, but would I be obligated to pay, even if it is a foreign corporation? And in regards to the fulfillment, it is merely a link I am selling, and not a server I operate. In other words, anyone, with enough time, could find these links. I am merely directing them to where they can get it. Would that constitute procurement on their part? I am not in a business relationship with them, and they are a non-profit. And the only us presence I have would be ebay classifieds.

Now in regards to the paypal and bank account. I figured if I had it in the US under an IBC, then they could misunderstand what it was for and get into a whole lot of stupidity.

What if I kept my money in the account and left it be? I know I would have to file taxes and such (disclosure, among other things). But would my taxes be obligated to the US still, even if I did nothing with that money?


I plan on moving to Eastern Europe (probably Macedonia), and want to save up money in the mean time. To repeat the previous question, would I be able to save money in that account, as long as I did not touch it? Do I incur tax liability regardless of whether I use it, or if I use it?


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Us Brits have it lucky. I can go abroad and earn around $10,000 a year from my company tax free and completely legit.

If your business is earning $25,000+ a year then incorporating in HK is worth looking into. The low corporation tax there is very attractive.


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OutWest wrote:

Jester wrote:

zacb wrote:

I was actually thinking of selling downloadable items through ebay classifieds, and using a different paypal (foreign) to connect with a foriegn bank account. Then I could use an IBC as the owner.

How do you handle fulfillment? If you have a U.S. person doing your shipping, this could be construed as a "nexus", meaning you now are a nonresident IBC with U.S. presence. Granted, Amazon gets away with stuff like this, but you don't know the same handshake they do. And granted, lots of little guys (who dont sell much) get away with this, but do you want to get nervous about being successful?
Best is to use a U.S. LLC with U.S. PayPal until you hit $100,000 in AGI. Live abroad 11 months a year minimum and still pay no US income tax except FICA.

zacb wrote:

And then that IBC could fund basics, and the rest could be declared as income. For instance, some companies offer benefits to their employees. Well if you offer free rent, stipends, etc. you will not (at least in the US) have to pay for them as long as they are in not liquid form (cash).

This works for most nationalities. If you are American, this is asking for trouble. There is a flat $10,000 fine if you don't turn in bank account maximum balance info to Uncle Sam on time every year. Including the bank account for your IBC. They also want a tax return for the IBC, because it is a CFC (controlled foreign corp - controlled by a U.S. person). This must be done in accordance with IRS rules. You might get away with paying for an office, and saying you sleep on the office couch, I'm not sure. But this is dwarfed by the 95,100 FEI on personal tax if you do it the way I said. Until you have around $100,000 in AGI personal income (before the exclusion, it is better to pay FICA (self-emplyment tax) and not mess with an offshore structure. (Most people do not get professional help till they are at $500,000 i think.)

zacb wrote:

Also, in regards to Belize, do you have to hold board meetings there? That was my biggest problem, and why I was thinking about Panama.

Belize you are the only director, board meeting is just you.

zacb wrote:

Also, just as a safe guard, what foreign country would you suggest for a paypal + banks combo thanks I could withdraw locally (a lot of those countries in the paypal network require a bank account, which could lead to problems)

Dont understand the question. To withdraw locally you need a ocal account, or else you will be dribbling it out of an ATM a few hundred dollars at a time. Is this what you mean? PayPal allows you to keep US account in some countries. In others it requires local. In a few you get a choice. Best is to keep a US account, have US income go into it, then wire transfer monthly into local account. Start with personal account in US, or a DBA business (proprietor) account if you want to have a business name with PayPal. Then gravitate to an LLC when business is successful. Keep that till you are ready to renounce US citizenship (if thats the plan).

(Of course it would be illegal to do so for tax reasons)

If the business is officially owned by a non-US person or identity, someone not a US citizen or resident, most of this is a non-issue.

Outwest

+1

Excellent point! Would work for a company trading currencies, or selling products/software/Ebooks in U.S. or abroad. As long as your not a stockholder, director, executive or signatory.

Only services provided to US businesses, and being an author for Kindle/Amazon, would still be better off done the way I said, via U.S. personal or DBA or LLC (in order to avoid the 30% so-called "withholding" tax on "services" income to "non-US persons".)

zacb wrote:

I understand I would have to file, but would I be obligated to pay, even if it is a foreign corporation?

Generally, yes, if corporation has any profits that are not paid out as dividends (taxable to you at full rate for foreign dividends, and not covered by FEI). This is called subpart F income, it gets taxed to you as peronal income, and is also an accounting nightmare. If you need an IBC because you cant use PayPal where you live and you need a merchant account, then you can elect for CFC to be a disregarded entity, and corporate income goes on your Schedule C. No tax benefit, just do it if you need a corporate shell.

Btw if trading - you have to watch out for Holding Company rules, and passive something rules. I.e. they don't want you sheltering a lot of asset-based income in an IBC, or they screw you good.

zacb wrote:

And in regards to the fulfillment, it is merely a link I am selling, and not a server I operate. In other words, anyone, with enough time, could find these links. I am merely directing them to where they can get it. Would that constitute procurement on their part? I am not in a business relationship with them, and they are a non-profit. And the only us presence I have would be ebay classifieds.

I'm no expert, but it sounds like you're in the clear. As long as your info is structured like a product, i.e. they pay you and you email them info, or vice versa. Not custom research. Custom research would be a serice I think. Exactly what Uncle sam wants 30% of if done by a foreign entity. best to be plain ol zacb if youre doing custom research.

zacb wrote:

Now in regards to the paypal and bank account. I figured if I had it in the US under an IBC, then they could misunderstand what it was for and get into a whole lot of stupidity.

What if I kept my money in the account and left it be? I know I would have to file taxes and such (disclosure, among other things). But would my taxes be obligated to the US still, even if I did nothing with that money?

Not understanding you. If it's a CFC basically you have to pay a higher-than-normal tax on all income earned from services to U.S., or from investments, or from being a middleman to another related company. Only untaxed profits that can stay there in the CFC would be from product sales. (If CFC is owned by Americans.)

zacb wrote:

I plan on moving to Eastern Europe (probably Macedonia), and want to save up money in the mean time. To repeat the previous question, would I be able to save money in that account, as long as I did not touch it?

No. Your personal presence in the U.S. creates a U.S. presence for your foreign company.

zacb wrote:

Do I incur tax liability regardless of whether I use it, or if I use it?

Corporate tax liabilty for your IBC does not depend on if you use it, it depends on how the money was made. When you start to pay yourself salary or dividends, then you have personal tax liability as well.

Bottom line is that a self-owned IBC does not work well for a one-man business of any kind. Only if you are selling other people's labor to foreigners, or products, is it going to work at all.

They saw you coming, and figured this stuff out years ago.

As OutWest pointed out, working as an employee for an IBC owned by an unrelated party would work a lot better, and you might collect your salary exempt from all U.S. tax, if your host country doesn't get nosy. Some don't.

Guys like Ladislav that have worked in Oman etc. have enjoyed this perk.
[/u]

Dang, way to pop my bubble. lol. Now for foreign income exemption. What if I were to sell my products on Ebay Uk, Australia, Canada, South Africa, New Zealand, and India? Would that be only if I worked outside the country? Or does that mean any foreign income derived from foreign sources?


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Or what if I sold products on those sites (Ebay Uk, etc.), and incorporated as an IBC?


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zacb wrote:

Dang, way to pop my bubble. lol. Now for foreign income exemption. What if I were to sell my products on Ebay Uk, Australia, Canada, South Africa, New Zealand, and India? Would that be only if I worked outside the country? Or does that mean any foreign income derived from foreign sources?

FEI (Foreign-Earned Income) exemption from U.S. personal income tax is based on where your a** is when you do the work. It applies only to work you do, including running a business. Even if all your customers are in the U.S., if your a** is in Macedonia, you get the exemption.

But you can't just be making a sales call in Macedonia. (That would qualify for business travel deduction on Schedule C, but they will ask how much of your income is from Macedonian customers, so that one won't work.)

Either you have to be a tax resident of Macedonia under U.S. law (i.e. you moved there, took a job there, started a business there, relocated a business there, or your office is there, and you come back to U.S. only for brief vacations to see family etc.) or you have to be out of the U.S. in a foreign country (and not traveling between continents) for at least 330 days a year. The latter is a simpler approach, black and white, but limits your U.S. time to under 30 days - no biggie for many of us.

Also, the 330-day approach works even if you are abroad on tourist visa. The other approach, using a tourist visa, could be a problem. And they do ask what kind of visa you are on.

Note: Even if you do the 330 day thing, a domicile overseas is still nice. A domicile is stronger than just a tax home overseas - means you move for good and are never coming back. This is important to avoid tax from a few states like California, that want to believe they can keep taxing you overseas if you have stuff in a storage locker there, or keep a car there, etc. Of course if you move to another state first, that would also sever the relationship.

Here's an excerpt from http://www.taxmeless.com/page2.html which I found with a quick google:

If prior to leaving the U.S., you lived in a no tax state such as Nevada, Washington, Texas or Florida no return is required. Some other states say if you are gone for more than six months, no return is required. Other states such as Virginia, South Carolina, New Mexico and California look at whether you still have a “tax domicile” in the state and then still require you file a return tax returns (for all years of your absence) even though you have been gone for years. They look at your intent to return to the state after your stay abroad, and various indices that may indicate you never planned on giving up your “tax domicile” such as if you still maintain a state drivers license; state voter registration; library card; bank accounts; real property; license plates for your car; or if you children still go to school in the state.

If you want to avoid tax problems with your previous home state with “tax domicile laws” many years down the line demanding you file state income tax returns for the entire period you lived abroad, and demanding you pay all of the taxes, interest and penalties due for that period, you should not move back to that state when you return permanently to the U.S. You must also upon moving abroad give up all state drivers licenses, bank accounts, real property, voter registration, etc. Not all states are this tough, but some like Virginia, New Mexico, South Carolina and California do impose very tough rules. Investigate the tax law in your state of residency prior to your departure to live abroad to avoid having to file state tax returns with some certainty that those state taxes will not later be assessed while you are still

Anyway, simplest approach is to start the business here and now, pay U.S. tax, use U.S. bank accounts and PayPal, keep a U.S. mail address, and get the hell out of here as soon as you can. When you leave the 330 day clock starts, and you can pro-rate it for the first (partial) year. I.e. if you're gone half a year you save 50% on the tax for that year. Besides most startups wont be profitable for a year or two anyway -- if you diligently track all expenses.

Then you'll be abroad paying no U.S. income tax (or state, if you do it right). Still having a U.S. business address for banking convenience. PayPal will have to be kept informed and you will have to avoid countries they don't trust. Don't buy the ticket for Macedonia without talking with PayPal rep and getting confirmation that they are okay with your physical presence there keeping US account.

If they (PayPal) are not okay then THAT is time to open a Belize IBC with merchant account, but declare it a disregarded entity for tax purposes, and keep filing all net profits on personal tax - schedule C. As a product seller, you should avoid 30% wthholding. (I think - check with foreigners on E-Bay who sell products to U.S.)

Anyway taking the (disregarded) IBC's income on Schedule C is an advantage, because that personal 330 day clock then goes into effect when you go overseas, allowing you to claim FEI exemption.

Plus I THINK you can un-elect the "disregarded entity" status once your a** is overseas, which will finally allow you to keep some untaxed profits in your IBC.



Note to self: Un-election probably wont work for someone like me, because I'm likely to be selling Kindle books or providing services, and an IBC of mine would zapped with the 30% by Uncle Sam. So for someone like me, who works and writes in English, IBC offers no tax advantage, and is only needed for relocation purpose if payPal wont work. ANother reason for me to get started in Uruguay or Mexico or Philippines, where PayPal apparently works more or less, rather than Paraguay, where it apparently doesn't.

If anyone knows more about using PayPal for business (not remittances) while overseas, please let me know your experiences.

Ok, so even if I sell nothing on a US site, as long as I have operations here, I am still liable? I see. What I was doing was selling access to ebooks and videos that are stored on a fan site, and the database is so unmanaged you would be lucky to find a book you would like. I take these links, organize them and take the fluff out, and put up a catalog on Ebay classifieds. Would that constitute something similar to what you were saying about Amazon, or is that Amazon specific?


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zacb wrote:

Ok, so even if I sell nothing on a US site, as long as I have operations here, I am still liable? I see. What I was doing was selling access to ebooks and videos that are stored on a fan site, and the database is so unmanaged you would be lucky to find a book you would like. I take these links, organize them and take the fluff out, and put up a catalog on Ebay classifieds. Would that constitute something similar to what you were saying about Amazon, or is that Amazon specific?

No not specific to Amazon. Amazon, Kindle, etc. - publishers in gerneral I think. If you live in a "tax treaty" country AND provide a US taxpayer ID AND file a W8-ben that withholding can be avoided even if you sell through Amazon etc.

I suspect you might skate by for a time on Ebay by claiming your E-book is a "product" sold by an offshore website. So u would be ok once you yourself are abroad. (Not till then though.)

But u should ask someone abroad, a non-US person, doing ebooks on ebay if PayPal withholds 30% on ebay ebooks or not. Ebay owns PayPal so obviously no secrets there. Thing is if the person you ask, is in a tax treaty country, then the law is different: they can file a W8-Ben to avoid withholding. So your ebook seller on ebay would have to be in a nontaxtreaty country - third world - to give you meaningful experience. Generally a non-OECD country (easy to google). There are bulletin boards devoted to Ebay and PayPal. (Let us know what you find out.)

My guess is if ebay selling a lot of ebooks they will shortly become classified as a u.s. publisher and thus fall under the same thing as amazon and kindle. Loopholes are closing all the time.

If you sell ebooks from your own website, however, and you are also abroad, then your IBC income is truly offshore just like a Chinese factory selling toys.

You can start your IBC now if you want, you just have to file tax return, plus CFC form, plus bank account FBAR in mid-year, and remember to declare the CFC a disregarded entity for the present (as discussed above).

The reason I dont do this (start an IBC before leaving) is because you need to have some volume to get a merchant aocount. I dont know what the minimum is. I think $3,000 a month will do to start at Bank of Belize. (That's if they like what you are doing. They won't give you a guideline, they ask you questions about your business plan. Most folks going there are probably doing gambling or p**n, I'm not sure, so anyway they liked me as someone less nefarious - I do business writing). Thats why I recommend using PayPal to start, with US addy and tax ID.

Btw if anyone else has another thought, please weigh in here. I am speaking from 1 1/2 years of study, not from experience.

OutWest had the simplest answer, some permutation of his approach might work -- but would involve a lot of trust.