|best country to base your ecommerce business|
What's the best country to base an ecommerce business in?
I was wondering what the best country is to base your online business. I read for example that apple based the european version of iTunes in Luxembourg because of the low taxrate.
Is it so that if a customer buys a product but he is in another country that he still has to pay the (high) VAT of the country where the business is located?
Does the product you sell also has to be shipped from the country where the business is located? For example: it's located in europe, but there is also a storage of the products in the US for us-customers. Then one could setup a business in a tax haven and then ship the products from another(more central location)
Is it dangerous to setup an ebusiness in a tax haven?
In Canada, we are taxed on our world income, so it makes no difference if you setup in a tax haven, if you still live in Canada. Im not sure how this works in the US, but my consensus is tax havens are only tax havens, if you live in the tax haven.
I believe the general principle is that you should really pay tax in at least one jurisdiction...of course that is only a general principle!
Failing that, you will be taxed in your ‘permanent place of abode’.
>In Canada, we are taxed on our world income, so it
>makes no difference if you setup in a tax haven
And that's why those business are run through an IBC in the Caribbean, Panama, Gibraltar or whatnot.
As you mention Luxembourg has a reasonably low VAT rate. As Luxembourg are a member of the EU, any other country in the EU only has to pay their tax rate of 15%. If they were based in the UK, then the customers would have to pay 17.5% VAT.
Oddly Google Adwords are set up in the Republic of Ireland. This has a tax rate of 21%, therefore the customers have to pay 21% VAT. This is OK if you are VAT registered as you can claim it back, but if like me, you don't meet the VAT threshold, then you cant claim it back, and it makes your final bill higher than if they were based in the UK, or luxembourg.
Hope that helps.
Keep in mind that you are only taxed on your net profit, not your total company revenue in Canada, just like most contries. You have to be making money to pay tax. So it is not as onerous a tax system as some are led to believe.
So if you set up in Canada, you can ship to the US with no problems. Then you access to the largest market on the planet.
Ok, thanks for the replies. But how about the following:
I setup a shop in europe. I have products in stock in europe, but also in the us for the us-customers(to reduce shippingtime and shippingcosts) How is it then with taxes?
Will you set up a company in the US?
If you don't and you use some sort of fullfillment operation in the US, I don't think you need to worry about income tax. As long as they are billed and invoiced in another country. But, when you export the product to the US, you will have to pay duty, brokerage and taxes as the goods enter the country. Plus you need the Tax ID number of whoever receives the goods.
It is all very complicated and the rules just changed as a result of the recent takeover of US Customs by Homeland security.
So you are almost better off shipping each individual order to the US unless you want to set up a company in the US.
Did I confuse you?
No I understand what you mean. Thanks for the info!
I am planning on setting op a webshop in europe, but I am still not sure which country in the EC I should choose. I think I will go and get some info from the chamber of commerce here.
Probably the reason Apple set up in Luxembourg is because it is a tax haven. Others include Jersey, Guernsey, Isle of Man, Gibraltar, Andorra and Monaco. I think that is them all. I know there are secrecy laws in Switzerland which makes that handy but I believe you need a lot of references to get an overseas resident Swiss bank account.
Normally it would be a complicated set up. It is better to speak to a banker or relevant accountant rather than the Chamber of Commerce. I have offices in 3 countries - 2 in Europe and one in the U.S. Set-up does not happen overnight and you have to be extremely careful about taxes especially if you resident/based in the United States.
For basic info on tax havens/regulations: [lowtax.net...]
It depends on, amongst other things:
what country are you personally resident in and/or a citizen of, and do you plan to stay there or move to the business base?
are you selling physical products (that are shipped) or online downloads (like itunes)?
what countries are your target markets?
are you selling to businesses or consumers?
Example: Guernsey has several businesses that sell print cartridges and DVDs to the UK market (consumers only). This is because it's outside the EU (no VAT, they can undercut UK prices by 17.5%, and when they send things to UK it's duty-free under GBP18). The business is taxed on profits at 20%.
That business model doesn't work for selling to businesses (they don't care about the VAT savings) nor for items over the duty-free limit.
It also doesn't work too well if the majority of the control of the company is in another country (as it would then be considered resident there for tax purposes, in addition to Guernsey). So you can see why where you (or the majority of the shareholders) live is a key question.
If it's a business-to-business company or a consultancy offshore companies may have a few problems (some companies and especially governments are reluctant to deal with offshore entities). Consumers might be a bit cautious also but generally they're not aware of it.
Personally I think the Isle of Man is a good ecommerce base for online products marketed to English-speaking countries. Offshore but inside the EU customs boundary, 17.5% VAT, a current company tax rate of 10% (changing to zero% in 2006), personal tax rate 18% max, good communications including UK style phone numbers (easy for customers to call) etc.
Of course if you're mainly shipping physical products to mainly Americans it's a totally different thing, you'd really need an address (at least of a dropshipper) there.
|As you mention Luxembourg has a reasonably low VAT rate. As Luxembourg are a member of the EU, any other country in the EU only has to pay their tax rate of 15%. If they were based in the UK, then the customers would have to pay 17.5% VAT. |
Don't know if there's an exception for downloadable merchandise, but for tangible goods in the EU, you are supposed to pay the rate of VAT applicable in the country to which the goods are being shipped.
Of course it's a complete nightmare, so most companies don't bother, but amazon do: try placing an order to be shipped to Spain, for example and you'll see the VAT change.
<added>On the original topic: tax isn't the only consideration. I am much more likely to buy stuff from a company based in the EU, than I am other countries. I am also more likely to buy from the US, Canada, etc than I am from companies in, say, Belize.</added>
Goods sold from within the European Union to countries outside the EU have no VAT. Though local import duties may apply on arrival.
I live in Switerland (not in the EU) and can order goods from the UK without VAT, but the customs here can add Swiss VAT to the goods (at 7,5%) and demand payment at the post office where the goods can only be collected on payment of VAT. For DVDs etc this is not worth their while bothering...
Thanks for the replies.
Yes sullen, you are right when you say that people are more likely to buy goods from an ecommerce site based in europe or the US.
I also found the following topic interesting:
(Which country is best for webmasters?)
I think I will conduct some more investigation to figure out what would be best for me.