Should I Set Up an Offshore Company?

Michael MicheliniBlog, Corporate, Incorporation1 Comment

I love hearing from listeners and readers of Global From Asia. While on the Hong Kong MTR the other morning I received an email from a reader that is facing a predicament:

Hey Michael,

I’m moving from USA to China in soon. I’m going to be running an internet marketing business from china and I’m looking to get some offshore corporate basics set up.

I already have a Delaware Corp + banking set up in the US, and I’m guessing that may be good enough to get things started…but I’m wondering if I should be looking at a Hong Kong banking setup at some point. I’m extremely concerned by the various hassles involved with offshore corporations and banking, etc. (I’ve done this several times in the past and while it’s worked it has been a huge time sink). However, since i’ll be flying over to Asia, I could potentially do a Hong Kong stopover along the way.

Since it is a rather common question, I thought it would be fun to dissect it a bit on the blog on the pros and cons of “just staying in USA” versus going overseas.

Why Go Offshore

It’s such a sexy and scary word at the same time: offshore. What do you think when you read the word? For the most part, people think of it as tax evasion. I have said since I first started this podcast that I am not doing this to help you avoid taxes. That is not a long-term advantage as a business owner. We have seen Switzerland, which was known as a global haven for hiding your assets from the rest of the world, recently open its records to the US and other countries. And the trend is for more and more openness and sharing of client bank data between countries to expose citizens who are hiding their money. So, I do not want to build this blog up for that purpose.

I have always said, and will say again here, don’t think offshore, think international! International or global, is sexier to me than offshore. The world is “going global” more than ever, third world countries, which used to just be used for cheap labor, are now becoming second and first world economies that are buying up products and services. So think of setting up your GLOBAL BUSINESS, not offshore tax haven business, when doing business, as well as reading this blog and reaching out to me.

Here are six reasons to go global:

Get access to a whole network of new customers. While US banks are everywhere and do control a ton of assets globally, the stronghold is weakening and there are other banks around the globe that are more accessible to a huge network of customers that want to pay you money. I don’t have data to back it up, but I am 99% sure that if I was sending out proposals to Hong Kong businesses with a US header, they would not feel as inclined to do business with me. I do plan to test that as I expand this website, stay tuned.
Play on their level. Americans are intimidating. I am constantly battling the stereotype as an American that I will be aggressive, loud, obnoxious, and uncompromising. While opening a company overseas may not solve that issue, it will show you as more invested in “playing on their turf” and using their local tools and services. It is somewhat similar to point 1, except that it is actually showing people you are making some real investments in their economy and their region / country.
Change your mindset. I first went overseas to Italy in high school in 1997. I remember my eyes being wide open, soaking it all in. I never went back; I wanted to travel globally and explore. And sure, you can travel the world and not open a company “offshore” (internationally) and operate completely with a US company. But if you are serious about traveling around the world, establishing a business in a region you plan to center around will help a lot and, like point 1 and 2, give you access to a network of new business opportunities.
Won’t get warnings from banks about sending money overseas. Seriously, when I was using a US company to send money overseas back in 2005 and 2006, I had to go to them and fill out paperwork to send money; online banking didn’t support it (Bank of America now supports it). And I remember the bankers telling me it is dangerous to do this, etc. Why? In Hong Kong, it is totally normal to send money around the world, the banker doesn’t even blink. Obviously the region is much smaller than the USA, so they are forced to do more international business, but it’s not weird to send money to another country!
Can help in getting longer-term visas abroad. By having a company set up in a foreign country, you are helping that local economy. There are programs and incentives from that government to keep you there and hiring locals. You can apply for investment visas or employment visas (hiring yourself in certain situations) so that you can stay in that country legally. By living in an foreign country and operating 100% via a US-based company–while you may not get in trouble if you’re just a dude on a laptop at a local coffee shop–you need a proper visa and a legitimate corporate structure in the country if you plan to do anything higher profile there.
Can legally hire staff in that country. While I am a heavy user of online freelance networks such as oDesk, if you do want to hire a local staff to help you, the only 100% legal way to do that is to have a company there.
I believe larger economies such as the USA and China want to keep the money in their own economies. Therefore, they don’t have incentives to promote global business as much as smaller countries and regions that need to stay more competitive globally. Secondly, the citizens of those countries get spoiled with being able to make a full-time income buying and selling from citizens of their own country, and then they never become exposed or learn how to cater to the international community.

Break free and try it!

Why Stay Domestic (Or USA Company Only)

Since this blog post is geared more towards the American reader, I’ll write this section more for US companies and US citizens. There are a lot of reasons to keep it simple and only use a US company and a US bank.

Bookkeeping and accounting is pretty straight forward and you simply find an accredited accountant in that state to take care of things for you.
One currency. Quickbooks and Xero software works out of the box. You don’t need to pay for their premium plans for multi-currency and multiple banks, etc. Everything is converted to US dollars when you send and receive money overseas in your bank accounts.
Tons of merchant accounts to choose from with cheaper discount rates. This is a huge one. Merchant accounts for non-USA-based companies are still a hassle. I had a UK company set up before; luckily, I could get PayPal Payments Pro in that country, but often that is not the case in many countries. Hong Kong still doesn’t have Stripe or many other options. I have many friends in Hong Kong who have opened US companies specifically to get a Stripe merchant account. While Stripe and other merchant accounts are going global, nothing beats a US-based merchant account with its low processing rates.
Don’t have to deal with FATCA and other US IRS hassles. This is another big one, and I am pretty depressed about it. Not because of the tax implications as much as the disadvantage it gives US citizens in doing global business. As American Passport holders, we have to file a lot of paperwork with the US government about our overseas businesses, and these international banks also need to add extra paperwork in their workflow to report US citizens to the US government. I have a feeling this may deter a lot of future potential global business people in the USA from going global, and, therefore, put Americans at a bigger disadvantage globally long term. Seems like the US will remain more insular. I hope this doesn’t deter you, but it is a reality we need to face as US citizens.
Don’t feel like a “criminal” to the US government. Honestly, I wish the US government treated its citizens who travel abroad to build their businesses with greater respect. Maybe I am a bit extreme in saying criminal, but that really is how I feel when I have to report things to the US government; the websites are so scary (I’ll include screenshots of it in future posts). I didn’t come to China and Asia to avoid taxes; I came here to build a global business and represent Americans’ creativity and entrepreneurship. I wish there was a US agency that supported people like me for going abroad, even if we aren’t selling American goods abroad.
Technically you could live overseas with just a USA company, if you are only doing online work. Maybe that is what the US government wants us to do? But then you are breaking local laws in those countries if you are hiring staff and selling locally. To do it properly in those countries, you need to establish a business, pay taxes to that country, and then also report that back to the US government.

Weighing the Pros and Cons

Now that I may have scared you a bit and maybe got you to start thinking why even go overseas at all, don’t worry, I ramble a bit here to help you decide for your own situation. As annoying as it sounds, for each person it is a different situation and “it depends” is the common answer I need to give someone until I fully understand their future plans.

A few points for your consideration:

Do you plan to stay overseas for a considerable amount of time? This is a critical one, as this may provide a reason for you to open a company in your target country in order to sponsor your investment or employment visa there. Also if you are out of your home country and are no longer a resident you will not pay taxes there (unless you’re an American, that is a citizenship tax, but you’re exempt if you don’t live in the USA for 330 days out of a calendar year on the first $92,400USD of foreign earned income). But the main point I would say is for your overseas passport visa and residency. If you open a company overseas and add value to the local economy you will be able to apply and receive visas to stay there long term, legitimately.
Will you have overseas customers / suppliers? I mentioned earlier, if you want to get foreign clients (outside of credit card transactions via shopping cart or B2C), you need to have a company and bank account where they feel comfortable, as well as where it’s easy to pay you. This is where having an HSBC Hong Kong bank account comes in handy. It is faster, easier, and cheaper than US banks to send and receive money. I’d say it’s more important if you have overseas customers than suppliers. But if you are constantly making payments to overseas suppliers, the costs and hassles and time delays should start to justify an overseas company.
Does having an overseas company help your branding? If you are doing import and export business, sometimes it may make your client consider you more international if your quote comes with a Hong Kong or Asian company and address than one in the USA or Europe. That is especially true if you’re buying from Chinese factories and selling to Western distributors; the margins are getting slimmer and people want to cut out middlemen as much as possible these days.
Will you have investors? Is your company fundraising? This is a tricky one to think about, similar to “Will you have overseas customers / suppliers?”, an investor is also a consideration as well. You want them to be fully comfortable with your corporate structure. US investors rarely invest in companies outside of the US, so keep that in mind. Chinese investors want to invest in Chinese Yuan (RMB), so they will want a company in China. I have heard other stories too; some even want you to open an offshore company. While it is hard to predict who your investors will be and where they will be located, if you have some targets, this should be a factor too.

Offshore Banks Comparison for Hong Kong Companies

But First…

What is Offshore Banking?

Offshore banking is banking outside the account holder’s country. Offshore banking is more common among certain companies or individuals who have a company in tax-haven countries such as Labuan, The Cayman Islands, Panama, Hong Kong, and many more. There are many reasons why people prefer offshore banking such as:

1. Offshore banking promotes confidentiality & privacy
2. Tax exemptions / avoidance of tax obligations
3. Securing of assets
4. Easy access to account
5. Easier and less-complicated banking system

Top Offshore Banks for Hong Kong Companies

Hong Kong is one of the most popular destinations for an offshore company, and, evidently, a Hong Kong company/entity must have a bank account in Hong Kong. Luckily, setting up a bank account in Hong Kong isn’t as tough and complicated as it is in the United States.

Opening a corporate bank account would be a lot easier once your offshore company has been completely set up and running. Basically, proving the existence of your offshore company would accelerate your bank account approval. There would be restrictions, of course, but as long as you comply with banks’ KYC procedures, submit all the necessary documents, and as long as your purpose is proven rational and legal, account opening can be done in less than a month.

Top offshore banks for Hong Kong companies:

• HSBC (The Hong Kong and Shanghai Banking Corporation) – HSBC is one of the largest and leading commercial banks in Hong Kong, and it offers a wide range of services including Expat Banking. Back in 2012, opening an account with HSBC was a breeze, but ever since the bank struggled in its battle against AMLC, the restrictions became tighter and it almost closed its doors for non-resident bank customers. Nevertheless, you can still open a corporate bank account with HSBC as long as proper documentation is provided.

• HANG SENG BANK – Hang Seng Bank is one of Hong Kong’s leading companies, and it is a commercial bank owned by HSBC. Based on the little information I’ve stumbled upon online, Hang Seng Bank is an international-client friendly bank. Contact us for more information

• DBS BANK – DBS Bank or the Development Bank of Singapore is the seventh largest bank in Hong Kong, and was recognised as Best Bank in Asia Pacific by Global Finance. DBS Bank is primarily headquartered in Singapore, and has already expanded to Hong Kong.This bank is pretty open to foreigners as well and also has been under challenges lately.

• BANK OF CHINA – BOC is committed to providing banking solutions to suit your needs; in fact, it is one of the banks that offers an online application – although this seems harder than opening your account personally as more requirements will probably be asked. Most areas of Hong Kong have a Bank of China branch, making it more accessible wherever you are in HK, so I guess paying a visit would be better.

• STANDARD CHARTERED BANK – SCB specializes in a full scope of innovative, custom solutions in cash management, trade finance and securities services. SCB offers a pre-arrival Account Opening Service; you only need to provide them with all the details ahead of time, although it is still subject to local regulations.

Top Offshore Banks for Hong Kong Companies

HSBC HANG SENG BANK DBS Bank of China Standard Charted Bank
Branches 162 220 34 300+ 60+
Requirements Passport, corporate documentation, proof of address, detailed proof of business Passport, Proof of Corporate address, Billing Statement Passport, Business documents, Proof of Address, Certificate of Incorporation, Memorandum & Articles of Association, Certificate of Incumbency Passport, Business Registration Certificate, Business Address Proof Passport, Articles of Association, Business Registration Certificate, Proof of Address
Processing Time 1 week 2 weeks 1-2 weeks 1-2 weeks 2 weeks
Minimum Deposit £5,000 + existing £60,000 saved/invested with HSBC 10,000-50,000 HKD 100,000 HKD 50,000 HKD 100,000 HKD
Maintenance Fee No annual/monthly fees None, as long as 50,000 HKD is maintained N/A as long as the account does not fall below maintaining balance Depends on Total Relationship Balance N/A as long as the account does not fall below maintaining balance
Online Banking Yes Yes Yes Yes Yes

In Summary

No one said it was easy! Hope this article gave you some insights and ideas. Business, as in life, is a learning and growing experience. I know people who have been doing business for forty years and they are still figuring out the best way to structure their corporations, so expect to be constantly evolving.

And again, the main focus should be on EARNING sales and building business processes, not bank accounts and company structures. This kind of stuff is best left to MBAs and tax attorneys. Often people talk about Apple and Google’s offshore companies; well, I am sure they didn’t think about that when they were starting up out of a garage. These kinds of things can be optimized later.

For me, I honestly think the most important part is deciding where you will physically live, and if there are any incentives in that location if you set up a company.

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