Ecommerce can be defined as the exchange of goods and services between a supplier and a customer. In this day and age of technology, people adapt to methods that will save their time and energy. As technology paves a new path for comfort, businesses also try to include technology to function better.
Let's take a look at the growth of e-commerce over the last few years. We will see a massive increase due to better internet access, change in doing business, reliance on handheld devices, and the reach of companies willing to provide their services online.
Generally, offshore companies are well-suited for e-commerce business because an E-commerce business has almost negligible dependence on physical workplaces. So, an offshore company as a business vehicle will be the right choice for opening an e-commerce business.
For the most part, an e-commerce company uses drop shipping to increase its efficiency and provide a wider reach and options to a potential consumer. Setting up an offshore company might be the best thing you can do if you plan to do dropshipping.
What do you mean by Dropship Business?
Dropship business is something that doesn't require a business to keep the products in stock. Instead, dropshipping is an order fulfilment method in which the store sells the products. The store then passes the sales order to a third-party supplier. The third-party supplier then ships the order to the customer.
There are multiple benefits of doing dropshipping:
- Fewer capital requirements
- Easy to start
- Flexibility of location
- Wide range of products
- Low overhead costs
Dropshipping is a business where the customer orders something from your website or through email. After that, you have to arrange for the manufacturer to post or courier the item on your own.
How to Dropship using an Offshore Company?
Let's discuss how dropshipping can be done through an offshore company.
- A tax-free offshore company is incorporated. Let us say; the company is called International Business Company Trading Limited.
- International Business Company Trading Limited executes all the businesses. The International Business Company trading limited possesses the web domain and the website or trademark. The IBC trading limited may also maintain sole distributor rights held by the IBC or transferred to the IBC.
- You post the terms and conditions on your website or in your order form that productively says that the client is buying from the offshore company setup. The contract must also be concluded in a tax-free offshore environment.
- The client submits his order through the website or by email.
- The offshore company opens an Offshore bank account in a tax-free banking centre. As a result of the Offshore company formation with a bank account, it receives customer payments, including those payments made through a merchant account.
- Usually, the website and server are pinpointed in a country that does not include tax business based on server location.
- Customers contract with and pay the offshore company setup. In the first instance, all such money is banked tax-free.
- The offshore company with a bank account pays for the goods to the manufacturer. The manufacturer dispatches the goods directly to the customers of the offshore company with a bank account.
- Your local company would be shrunk by the offshore company set up to manage sales or deliver products or maintain websites.
- You would invoice the offshore company periodically, say monthly, for this service. A smart Tax Accountant must help you claim a series of expenses against this income, such as home office, travel, equipment, phone, internet, or other utilities. This will significantly reduce the amount of tax payable on this income. This income would also be the assessable income in your home state.
- Some Intellectual Property is created often or is behind the website-based business usually. It might be beneficial to you down the track if two different entities held the company's ownership and the Intellectual Property.
We will tell you what you can do. You have to set up a second offshore company to possess the Intellectual Property. The first Offshore company, the IBC Trading Company, pays license fees periodically to the 2nd Offshore Company or the IBC. These fees would be receipted as nil tax. If you desired to bring ownership of the web business onshore or sell the business, keeping a passive income stream would benefit you.
- Once you enhance to grow and add substance, you would be clever enough to establish your MD or a sales team onshore to take up orders and receive income in a nil tax onshore environment.
An essential thing that you must remember is that the IBC (International Business Company) should be managed and regulated offshore to reduce the chances of the IBC being taxed onshore.
Now that you know how to start an offshore company for dropshipping, the first thing you should do before proceeding is to take the help of our expert advisors to help you with the incorporation process in the jurisdiction of your choice.
We here at Business Setup Worldwide ensure that you feel zero burdens when setting up a company. If you need any further assistance, contact us! We'd be glad to assist you.