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Having a company in an offshore location is not illegal, and never will be (making it illegal is the same as putting a trade embargo on the entire world which would cause the biggest world-wide depression in history).
So I think the ever increasing trend will be towards companies moving to offshore locations ... not just to save tax, but to save on legal bills also. If a company is located in the US they are much more likely to be subject to legal action than if they are located in some backwater offshore destination.
What can the US government do about this? Nothing substantial.
What they can and have done is to strong-arm these tiny countries into having more transparent banking regeimes to enforce taxation of US resident individuals and to prevent money laundering ... but they can't stop genuine business being done in offshore locations.
Assuming I am an amazon affiliate (for example), operating from Germany. Do you think that I should be subject to any US legislation (besides basic contract law regulating my relationship with amazon)?
From where I'm standing, I am an "onshore operation". I am paying taxes to my governement, which is ok because I render services at a location under their jurisdiction, and I am using infrastructure supported by that governement.
In the other thread, it seemed as if you believe that it makes a difference whether I do this in Germany, or eg. in Malaysia. Do you think that people working in Malaysia don't pay taxes to pay for their local infrastructure?
Are you suggesting that businesses outside the US rendering services to customers within the US should be subject to US taxes? Would you be willing to pay Malaysian taxes if you worked for a customer there yourself?
I'm definately not suggesting this ... I think as an affiliate in any country you pay taxes in that country, not in the US. The US is only one country out of several hundred countries in the world.
I do think that more companies/merchants operating are going to move out of the US and into more favourable locations. Especially companies that deal in virtual goods that don't require physical delivery.
The way I understand it is that people working in Malaysia do not pay taxes on money earned in offshore jurisdictions.
So if they become an online affiliate for some US company they get to keep all their earnings, while their US competitors only keep about 1/2. It gives the Malaysian website an unreasonable competitive advantage when they automatically get double the ROI (return on investment) of their US competitors who probably have much higher expenses as well.
This situation applies to other offshore tax havens as well, not just Malaysia.
You are right about that, profitpuppy, unless the US Government acts to slam the door shut on the imbalance of trade this is going to create. The US will just be handing their latest technologies off to the tax havens of the world. I don't think they're that stupid.
Can anyone living in the area confirm this?
Somehow I suspect that the real situation is slightly less obvious than that, and be it just that we'd need more information about what "money earned in offshore jurisdictions" actually means in practise. It's actually quite normal that business transactions across borders are treated differently than local ones. Most often this is the case for any applicable VAT, in the US even between individual states.
Whatever the real situation is, I wouldn't expect the webmasters of Malaysia to create a serious imbalance of trade with respect to the affiliate industry in the US any time soon. It helps to remember that the people there live under very different (and typically much more difficult) circumstances than we do in Europe and the US. Moving a business to another country may sound simple, but actually living there might involve a few surprises...
This inevitably ends up as a political question: Can it really be the job of western governements to establish artificial trade barriers just because some other country somewhere uses a different tax system than they do?
Globalization cuts both ways: Programming competition from offshore [webmasterworld.com]
The US already has has imbalance of trade - they import far more than is exported because it is a very consumer based society, and no western wealthy country can compete against countries like China that can produce things very cheaply.
Secondly the US cannot stop people doing business in other countries. Let me give you the argument in reverse:
I have a company in Malaysia, and the person moves their company to the US because they like the business environment there. Do you think that Malaysia has a right to tax that US company? I don't think so, and the reverse applies equally.
The US can tax it's citizens. It can make sure that companies owned by it's citizens are eventually taxed by the US (if the companies are in tax free juristictions), but the US cannot tax foreign companies ... just as foreign companies can't tax US companies.
If you are truly concerned about taxation in the US, there is only one (legal) solution ... renounce your citizenship and move to a tax-free country. However the majority will not want to do this because the US is a nice place to live.
What can the US government do about this? Nothing substantial.
Don't bet on it. They can pass a legislation forcing US companies to undercut the checks sent to "tax haven countries". So basically, if you are in Malaysia (lets ASSUME that it is a tax haven - nobody seems to be sure about it anyway) and if you earn $1000, the legislation may force the US company to pay only $700 - the remaining $300 goes to the feds, so that websites in US get a level-playing field.
Don't think its possible? A few examples of US moving away from the spirit of free trade -
1) India's export to steel to United States was scuttled by putting extra duties and levies (called anti-dumping duties) because US steel manufacturers protested because of significant the cost difference. The duties were imposed to ensure a level-playing field eventhough it was against WTO rules (apparently)
2) Not very sure about this - We get half-baked information - but New Jersey parliament (does it have a parliament?) is pushing for a legislation banning outsourcing work to India.
1) Do you really think passing legislations or laws would really ensure a level-playing field? Offshore websites will ALWAYS have an exchange rate advantage because of the value of the US dollar. I hear that one US dollar equals a couple of million Afghanis (currency of Afghanistan)
2) You need to PROVE that tax havens are really posing problems to US website owners. Do they really have the volumes to affect the US websites?
Loony laws are not the solution to the "problem" (Note the Quote)
For what I know there is only one country in this world that doesn't require to pay tax - brunei, a very very small country that mine petrol. They even have free petrol. :)
All other Goverment survice with the tax they collects. It is 'interesting' to find out someone saying that malaysian didn't pay tax.
1st, how much malaysia earn is far more less than what a people earn in US, europe or even australia. For individual (sole propiety and employed) we pay tax from 0% - 30%. It depends on how much you make, the more you make the more you pay and it is on a logarithma skill. For company, we call them private and limited or just limited, it is flat rate of 30%. Tax rate change from years to years, this is what I got few months ago. Remember this are only the final profit tax. Doing business still involve a lot of other tax. Our goverment is as good as US goverment in hunting down people that excape tax. :) But for rich people, they can employ some smart accountant to reduce their tax legally, this is usual in all around the world.
Ok now, for what I know in the affiliate world. Many main players are not a US citizens. I know there are somebody like rob (profitpuppy) :) who make so many thoudsands a month (australia right?). And also a company in thailand own hostsearch.com a web hosting search engine. There are also people from argentina, india, china, taiwan, UK, european countries and canada. Malaysia is still good because there is still me to voice here. :) US is not the only country in this world. And there are far more smart people outside US then you can expect, Mr Mayor. Even in this forum, I think non US is ournumbered US people. :)
Google panic when china block their access to google because their visitors (=earning) drop dramatically for that few days. Internet is started in the US but internet is not for the US people only.
Mayor, I believe there are ways for you to legally save on taxes. Robert Kiyosaki series of books touches on that plus their website have an affiliate program to boot.
When I buy something using US dollars through credit card, I have to pay
RM = Ringgit Malaysia
1 USD - RM 3.849
When I receive money from US by check, I only receive
1 USD - RM 3.760
We receive check few weeks later than those in US. And to process a check to have the money deposited into our account, it takes 1 month. Our bank take around $8 USD comission on each check. It is very time consuming to get the money in, from the time you generate the revenue until in is in the bank.
In malaysia, you can buy a coke for RM 1, that's 30 cents USD. Because we can't make much money here, our salary are low, so as cost of living.
They can pass a legislation forcing US companies to undercut the checks sent to "tax haven countries
It won't be easy to do this. How would they keep a tab on this? If you mean to say that each of the payment sent to such countries come under scrutiny, it is not practical to do this and there is going to be a lot of opposition to this particularly from such countries. Or you were implying something else?
You need to PROVE that tax havens are really posing problems to US website owners. Do they really have the volumes to affect the US websites?
Exactly. Actually, there is no evidence to suggest that these tax havens are posing problems to US website owners. They might be giving less tax to the government but this does not effect the US website owners.
Anyway, looking at the tax laws of Malaysia via web searches, it looks to me like you (or at least your company) wouldn't be required to pay tax on your US affiliate program earnings if you had those funds deposited in an offshore bank account (non-remitted revenues).
jamesyap, I thought you were the one that initially said you don't pay tax on US affiliate program earnings, or something to that effect, but I can't seem to find the post now without digging a lot.
I didn't say anything about this before. Maybe you remember it wrongly.
wouldn't be required to pay tax on your US affiliate program earnings if you had those funds deposited in an offshore bank account (non-remitted revenues).
I think it can be done, giving the condition that we never buy any properties in malaysia which includes everything from car, land, housing-estates and anything that you have a name on it. Everyone will try to reduce their tax being paid. If you done it successfuly, you smile, but if you get caught, you cried because you can easily go to jail in malaysia too because of escaping tax. But most of them get fined double or more.
And, this can happened if you make money from cash, like selling shows in market. :) Everything that goes through the bank will be easily trace because the 'federal tax department' has 100% right to track everyones account.
Mayor, just remember Internet is global and borderless... To make you happy, I can't make more than USD $150 a month in the internet. So you won't need to bother on how I can compete with you and other americans.
Does anyone know of tax havens anywhere that are being used to launder Internet earnings?
jamesyap, why is it that you can't make more than US $150 per month?
Because I didn't make my site to make money. Actually it first came out in geocities in 1998. Then at that time pay per click ads is popular, it even allow my super mini site hosted on geocities to join. So I joined and make around $10-30 a month. Quite nice too!
Then pay per click died. My site become more popular with lots of visitors. I buy a new domain and host it with virtualve. Because it is too popular, the account is terminated by virtualave - using too much resources. :(
I thought my site will gone forever as if I go for a paid hosting, it will cost me a lot more than I can gain back from my pay per click.
Then later I found someone that are willing to host us and even paid us by serving pop-ups. (Damn pop-ups) It is annoying & sometimes there are 2 big pop-ups at the same time. But what to do, they shut my mouth off by paying me $80-$150 each month. Now, the price drop and the average is $100. I don't understand how they count the revenue (CPM?) but instead I really need to thank them for keeping my site online without paying anything.
--> Shouldn'd say pay per click died, should say banner advertisement died. Google pay per click and other pay per click still alive. How about value click? I think they are half dead.
On the subject of tax havens ... I would think about it this way. If you do earn a million dollars per year, and you live in the USA, then you are paying probably $400,000 per year to live there. If you live in Hong Kong, you only have to pay $150,000 to live there. If you live in Vanuatu and earn your income overseas, you pay nothing to live there. This is simply your choice of where you want to live. Some places are more expensive than others. It's not a matter of the USA losing out to the competition. It's just that wealthy people that live in the USA, UK, Australia, etc, pay a steep price for living there. That's the way the world works. No point in fighting it. If you are not prepared to pay 30-40% of your income in tax then your option is to renounce your citizenship and move to another country. But if you love the country, then pay the tax. It's that simple.
I know a Guy (not in this board) who make around $160,000/month ....he is a canadian so the exchange rate increases its value further :)