Internet business owner – if you think that you can get away with not paying for your taxes just because you’re running your business online, you should think again.
You see, when it comes to taxes, you’re treated (almost) equal; when other businesses are obliged to do their taxes (whether it’s 0% or 35%), you’re, too.
Of course, there are jurisdictions that are more lenient than the others – even don’t really care – when it comes to Internet business taxation. But generally speaking, Internet business is pretty much like any other types of business.
Running an Internet business in any forms – i.e. eCommerce sites, online publications, online marketing agencies, etc. - you need to take care of everything just like any other businesses: There are clients to serve, products/services to sell, law and regulations to comply with, financial obligations to fulfill, and so on. The only difference is the medium: Instead of a brick-and-mortar business premise, your business resides on the Internet.
“But my business is fully online! What’s more, I’m location independent. I travel around the world a lot. Why should I pay taxes?” you complain.
Unfortunately, location independent isn’t mean that you don’t have a home country. And having a home country means that you have an address, which makes you taxable by your home country, if applicable.
You definitely should play by the rule – e.g. Paying your taxes as legally required by your jurisdiction’s laws. However, there are always ways to minimize your taxes without breaking the laws. One of them is by moving your business – or even yourself – to jurisdictions that accommodate your grand plan for your life. How?
Adopt Flag Theory
You can actually choose where to pay your taxes, and how much, regardless of your type of business. But this works wonder especially if your business is a fully online one.
“But how can I do that?” you ask. You can renounce your citizenship and move to a jurisdiction that fits your personal and business plans, own a second passport, or moving to a jurisdiction that has certain (tax) agreement with your home country (e.g. USA and Puerto Rico,) have an offshore bank account and/or offshore company, and more.
What mentioned above is what a Flag Theory is all about. Essentially, it’s all about diversifying your personal and financial affairs so that your home country’s government – or any governments, to be exact – can’t have any sorts of control over your wealth and well-being. Learn more about it in greater detail from the Nomad Capitalist here.
As you may have guessed, it’s closely related to the concept of internationalization, which we often talk about – e.g. Here and here.
Business-wise, how can I make that happen?
It’s pretty straightforward, really:
1. Setup your Internet business in an offshore jurisdiction
Not any jurisdictions, of course. You should choose the one that doesn’t tax revenue made outside the jurisdiction.
Alternatively, if there’s certain requirement that you should meet, you should choose the jurisdiction that’s best for your case. For example, if your Internet business is dealing with countries in EU, you do need Intra-Community VAT number. You can obtain it by setting up your headquarter in an offshore jurisdiction that’s also an EU country, such as Cyprus.
2. Citizenship that doesn’t tax non-resident income
You may pay a minimum – even zero - amount of corporate taxes, but don’t forget that as your Internet business generates income for you, you’re liable to pay the income taxes - except if you’re a citizen of a country that doesn’t require you to pay for income taxes if you’re not a resident. The idea is to have citizenship that’s different from your country of residence.
Sounds confusing? It can be, but adopting both is the ultimate way to minimize your tax payment legally. There are other applicable ways, but you should consult for the best solutions, as DIY is not a recommended course of action.
One conclusion can be drawn from this article is this: Regardless of how you would set up your online business, there are tax obligations that you should comply with. As we always say, tax avoidance should be pursued, but tax evasion is what you shouldn’t do; knowing the difference is important.
Related to that, answering the question posed by the title of this article, you should do your taxes like any other business owners. No question about it. However, running an online business means that you have more freedom in determining the laws and regulations you want to comply to, as well as the amount of taxes you’re obliged to pay.
Your next step: Determine whether the solutions mentioned above is feasible for your business, and seek legal advice from the right sources for that purpose.
For questions regarding offshore company formation and offshore bank account setup, you can always consult with us – it’s free!