Why do business owners set up offshore companies?
The point of an offshore company is simply this: in high tax countries such as South Africa, establishing a company in an offshore jurisdiction, like Mauritius, for example, is beneficial because these locations offer low or no tax. Furthermore, as long as the company does not do any business in the country in which it is located, most forms of local tax can also be avoided.
Formation of an offshore company is popular for entrepreneurs who want to set up an import-export company, an international trading company, or an asset holding company. They also use this vehicle to hold property investments or intellectual property.
Foreign governments, in turn, allow offshore companies to be registered inside their borders because company registration and other forms of offshore investment provide a substantial income for these countries. The capital that is invested by these companies in local banks and investment houses creates significant inflow of foreign investment into these economies.
What is an offshore company?
An offshore company seldom conducts business in its country of incorporation. It is usually incorporated in a country where taxation is lower and reporting restrictions are more flexible than the country in which its owners reside. An offshore company can usually be set up within two working days by offshore specialists like OCRA Worldwide, an international and offshore corporate and trust services provider. Advisors like OCRA maintain a list of shelf companies, which are ready-made, never-used corporations established to meet a client’s immediate needs and available to trade instantly.
What are the benefits of going offshore?
Establishing an offshore company has several advantages:
1. Reduced tax
Tax reduction is the number one reason for establishing a company offshore. An offshore company can be used and structured to reduce taxation, especially if you do not derive a profit from the country in which the company is incorporated. You may even be able to avoid paying tax altogether.
The amount of tax an offshore business will pay depends on the way the offshore company is structured and how well you can legally benefit from your tax situation. It’s advisable to consult an offshore incorporation service provider who will look at your circumstances and advise you on how and where to structure an offshore company for maximum gain.
2. Simplified, cost-effective operations
If your business is not subject to international regulations (such as financial institutions are) there are certain jurisdictions that make it easy and attractive for all types of companies to operate. Although it depends on the jurisdiction you choose for incorporation, the burdens of accounting, auditing and record keeping are likely to be significantly reduced. This in turn results in reduced overheads and it also decreases the amount of time and energy that has to be invested in these often onerous tasks.
3. Reduced reporting requirements
In addition to simplifying your overall operations structure through the use of an offshore company, there are also generally far fewer requirements to file information in most offshore jurisdictions.
4. Low incorporation fees
Some jurisdictions charge low fees to incorporate, and they also charge far lower maintenance fees. However, this varies from jurisdiction to jurisdiction and you are advised to investigate the options.
5. Fast incorporation
Incorporating offshore can mean faster incorporation time. Some countries are not perceived as being business ‘friendly’, while others are. This means that legislation either facilitates or complicates business set-up procedures. In some countries it can take months to set up a company, whereas in Singapore this could be done in days. For entrepreneurs in a competitive market, this can be a very important and decisive factor. If you have a product you want to take to market as soon as possible, and before the competition gets there, incorporating overseas can enable you to introduce your product quickly, efficiently and effectively.
6. Asset protection
It’s possible to manage assets and business transactions in such a way that assets are shielded from any form of liability. You can use an offshore company with an offshore trust, for example, to protect your assets while retaining control over the way your affairs are managed. By placing certain assets within an offshore company structure and then placing the shares of the company within a trust, you can be actively involved in the offshore company and direct the management of its assets whilst remaining independent from it and ensuring that your assets enjoy maximum protection.
7. Greater confidentiality & anonymity
Because offshore companies can use nominee directors, they can carry out all transactions in the name of the private company and keep the names and details of the underlying principal of the company out of public documentation.
A word on tax
“It is important to consult reputable advisers because the tax rules that apply are complex and subject to change,” says Betsie Strydom, director and tax specialist at Bowman Gilfillan. “Proper tax planning requires you to consult advisers in every jurisdiction, and ensure that the structures and management arrangements are real and that they have commercial substance. Do not rely on ‘window dressing’ particularly when it comes to the management of the offshore entities.”
Entrepreneurs who want to set up a business offshore need to take a variety of tax rules into account. “Those that apply to setting up business offshore are complex,” says Strydom. “Not only do you need to take South African tax rules regarding controlled foreign companies and effective management into account, but you also need to consider the tax rules of the country in which you intend to operate, as well as the provisions of any double taxation agreement (DTA) between South Africa and the country in which you want to do business.”
The purpose of DTAs is to prevent double taxation. The DTA between two countries generally means that you will be taxed in both countries, but one country will usually give you a tax credit for the tax paid in the other country. “The type of income, the locations of the offshore businesses and the terms of the DTA or treaty that are applicable will determine whether the offshore structure offers any benefits and in which country you will be taxed,” Strydom explains.
Exchange control considerations are extremely important when setting up a business offshore, according to Strydom. “Sole proprietors and close corporations (CCs) are not permitted to make foreign direct investments outside the common monetary area (CMA), which links South Africa, Lesotho and Swaziland into a monetary union.
They can only invest outside the CMA by using their offshore investment allowance, which is R4 million,” she says. South African corporates may make new outward foreign direct investments into companies, branches and offices outside the CMA provided the total cost of this investment does not exceed R500 million per company per calendar year without prior South African Reserve Bank (SARB) approval. The SARB has issued Exchange Control Rulings which, among other things, summarise current exchange control policy on foreign direct investments by South African companies.
In terms of this section of the rulings, “Authorised dealers are allowed to formally approve foreign direct investments, but they will require detailed information before the approval can be given,” Strydom says. Conditions will be attached to these investments. For example, SARB does not allow foreign direct investments to be made where the foreign entities domiciled outside the CMA make any investment/loans into the CMA for any purpose whatsoever, via a loop structure. Also, SARB requires that the ‘place of effective management’ of the FDI Company remains in South Africa and typically also imposes a condition that the FDI Company cannot re-domicile without the specific prior approval of the Exchange Control Department of SARB. Where the intended investment exceeds R500 million, specific approval will be required too.
Choosing a jurisdiction
“It is possible to incorporate offshore companies in many jurisdictions,” says Hylton Cameron, senior tax manager at Grant Thornton Johannesburg. “Some of the most popular locations include Botswana, the British Virgin Islands, the Cayman Islands, Cyprus, Dubai, Gibraltar, Guernsey, the Isle of Man, Jersey, Mauritius, the Netherlands, Antilles and the Seychelles.”
To determine which location is best for you, you need to take a number of factors into account, including the type of business and the reasons why you want to register an offshore company. Language may also play a role, as does time zone. Jurisdictions such as Dubai, Singapore, and Hong Kong appeal to many entrepreneurs setting up an offshore company because of their competitive tax systems, infrastructure and reputation as business hubs. It’s worth noting that in sub-Saharan Africa, 29 out of 46 economies reformed, implementing 67 reforms, according to the World Bank Doing Business Report 2010. Nearly half the reforms focused on making it easier to start a business or trade across borders.
For South African entrepreneurs looking to set up a business in sub-Saharan Africa, an advisor like Grant Thornton has offices in a number of countries and offers accounting and business advisory services, as well as the skills and expertise that you will require to ensure that your fingers don’t get burnt. “Our local offices ensure that business people have access to hands-on assistance, and to best practice methodologies and knowledge resources. It’s vital to consult providers who have first-hand knowledge of the countries in which you want to set up operations and how the various systems work. That will help you cut through the red tape.”
Cameron advises entrepreneurs to ensure that the jurisdiction they are interested in is politically stable and has flexible tax and company laws. When people invest offshore, he adds, it may be for a variety of business reasons, including expansion into that country, use of that country’s resources, tax benefits and exchange control benefits. He notes that small to medium sized businesses may be attracted to countries like Botswana and Angola because of cheaper labour.
“For a manufacturing business, the labour costs may be more attractive and could be a major driving factor in the decision to set up there. If someone invests in Kenya or Zambia they usually do so because their operations would be commercially viable there. When we help a client to decide on whether a location like Kenya, for example, is suitable, we advise the client to look at tax issues in Kenya, as well as the tax implications for a South African citizen investing in Kenya.
We strongly advise against identifying an opportunity and only then asking questions about tax. Worse still is the situation in which a client goes ahead and invests offshore and only asks tax questions later.” Referring to tax rates in sub-Saharan Africa, Cameron notes that the rates reflected are open to interpretation based on the circumstances of each business. “Issues such as the fact that some countries offer lower tax rates for individuals than others are of little real concern. Sometimes companies apply what is called tax equalisation. Simply put, if you receive the equivalent of R100, less tax of 30% in country A and you then move to country B where the individual tax rate is 40%, the company will pay the individual more, so that the net result is still 70% as per the original country.”
The Mauritian appeal
Among the many jurisdictions that may be attractive to business owners who want to go offshore, Mauritius ranks tops. Cameron notes that Mauritius has undergone major economic reforms and is today one of the world’s most competitive fiscal regimes. It was ranked 12th best out of 183 countries in the ‘Paying Taxes’ category of the World Bank Doing Business Report 2010. South Africa ranked 23rd. In the ‘Ease of Doing Business’ category, Mauritius ranked 17th, while South Africa was in 34th place.
In addition, the Mauritian economy has had an average growth rate of 5,6% during the last five years. Mauritius is regarded as Africa’s first tiger economy, supported by a robust education and social infrastructure. It is a highly active Freeport and so functions as a substantial duty-free distribution hub for the south-east African region. In addition, it is strategically located, politically stable, offers excellent infrastructure, a well developed information and communications technology network and excellent sea and air transport.
Mauritius is a member of the Indian Ocean Commission (IOC), which promotes regional economic co-operation, of the Southern African Development Community (SADC) and of the Common Market for Eastern and Southern Africa (Comesa). Regardless of which region you are considering, it’s imperative to understand that not everyone will benefit from going offshore. You must seek professional advice before incorporation to ensure your actions are legal and the jurisdiction you have chosen is regulated and respected.
The Internet has many useful resources and sources of information for anyone who is interested in investigating offshore options. Here are some of the most valuable ones:
- Alliance Trust, Alliance Trust Co. (Mauritius) offers expertise in the formation and administration of offshore companies in Mauritius.
- Doing Business, The Doing Business project provides objective measures of business regulations and their enforcement across 183 economies and selected cities at the sub-national and regional level.
- Formations House, Offers readymade offshore companies with bank and merchant accounts.
- OCRA Worldwide, A service provider that has established and administered more than 185 000 companies and trusts worldwide from 20 global offices.
- PKF International, A worldwide network of legally independent member firms providing local expertise in accounting and business advisory services.
Selling The Dream
When you’re starting a business, the secret to success is getting everyone — from customers to suppliers — buying into your vision.
I started a company in 2016 offering road building in residential areas for local municipalities. I realised that there is too much risk involved and I do not have the capital to purchase machinery. The overheads are also too high. I feel more comfortable supplying municipalities with commodities. I have been in sales and have good people skills and sales experience. However, I’m struggling to get a foot in the door. Manufacturers are reluctant to give me a credit advance. As a result, I had to let go of many opportunities. How do I overcome this obstacle? — Martin
I can only speak from my own experience selling to municipalities. I did it once, successfully. This is how I did it:
- I convinced the municipality to roll out public WiFi in low-income communities.
- The municipality awarded me a contract.
- With that contract in hand I shopped around to find a company that I could sub-contract. That company had to take a risk that the municipality would pay me, and I would in turn pay him. I had to take the risk that the sub-contractor wouldn’t deliver the goods.
- I found a sub-contractor.
- We deployed the WiFi.
- The municipality paid its bills.
- There was never a hint of corruption.
In retrospect I realise I was the beneficiary of a succession of benevolent miracles.
Miracle No. 1: Meeting a political leader that shared my vision and was competent.
Miracle No. 2: Getting a legitimate contract out of a municipality.
Miracle No. 3: Finding a sub-contractor I could trust, and that trusted me.
Miracle No. 4: Successfully working with the municipality to fulfil the contract.
Miracle No. 5: Getting paid by the municipality.
Miracle No. 6: Avoiding corruption.
If you believe in miracles, keep going. If you’re slightly more risk-averse (or less desperate) than I was, then rather don’t target municipalities to build your business.
You’ll note that I solved the supplier credit problem by finding a sub-contractor that trusted me. That’s the only way to do it. Not only do you have to sell the dream to the customer, you must sell the dream to the supplier. I recommend reading Shoe Dog, the story of Phil Knight and Nike.
I want to start a business, but I don’t know how to approach my local bank or investors, probably because I don’t have any experience in the business field. I am currently in a full-time job and holding on to the security of the monthly salary (which I know is wrong) but I have responsibilities. How do I break out? — Lorenzo
First, the security of a monthly salary is under-rated. Don’t be so quick to wish it away! Of course, a salary is a long-term dead-end. When you’re forced to retire at 65, you’re likely to be staring at 35 years of supporting yourself and your family relying on pension and savings alone. Assuming they don’t retrench you before age 65.
Be grateful for a salary, but be on the look-out for a way to make a living on your own terms.
That way you will learn skills that can be used after forced-retirement age, and even more important, you will be able to keep yourself busy rather than spending your old age pottering around the house in boredom and driving your significant other mad.
Forget about banks and investors. If you want to start a business, you must do it without ‘other people’s money’. Find a problem in your industry, solve that problem, get paid for solving the problem. Repeat.
Ideally find a like-minded colleague that you trust, pool your efforts and partner to find a way to make a living in your own business. Partnership massively de-risks entrepreneurship.
Related: Pay Your Dues Before Raising Capital
Alan Knott-Craig’s latest book, 13 Rules for being an Entrepreneur is now available.
What it’s about
It’s easy to be an entrepreneur. It’s also easy to fail. What’s hard is being a successful entrepreneur. For an entrepreneur, there is only one important metric of success: Money. But life is not only about making money. It’s about being happy. This book is a collection of tips and wisdom that will help you make money without forgoing happiness.
Get it now
To download the free eBook or purchase a hard copy, go to www.13rules.co.za. To browse Alan’s other books, visit bigalmanack.com/books/
5 Lessons To Follow As You Take Your Product To Market
Don’t overly complicate things when launching your business. Instead, follow this advice from a successful entrepreneur so you’ll do things right.
When launching a new business, product, or service, the most common mistake entrepreneurs make is trying to do too many things at once in the belief that going to market with “more” is better.
It isn’t. During your initial launch period, or when relaunching new products or services, “more” means additional risk. More also means unnecessary complexity, as well as additional time to market, so more capital will be required.
Below are some important things to remember as you prepare to take your product to market:
1. Don’t try to build Rome in a day
I have a good friend who raised $2 million in a very tough market to start a consumer internet business. Finding that much money to start a new business was amazing, and I congratulated him on a big win. He was ecstatic and told me he couldn’t wait to get to work on the site.
One year later, I ran into him again and asked how it was going. He sang the blues. He said he was doing terribly. In fact, he was on his way to his attorney’s office to shut the company down. They had launched a few months before but had already run out of money. I asked how that was possible, and he talked about his big vision, how his company aimed to provide everything their target customer could possibly want to buy in the category. Their goal was to be a one-stop shop. He and his team invested all their time and money building something big and comprehensive, confident their target customer wouldn’t want to go anywhere else once their website was up and running.
When the company got started, they were solving one problem for one target customer. It was a simple concept. But when the money came in, everyone started working on other “great ideas” and “shiny objects.” They kept building and building and building. They went from solving one problem for one very specific target customer to building a one-stop shop that did a lot of things for a lot of different people. Then they started running low on cash, so they decided to push the product out.
After the launch, they learned, much to their surprise, that about 95 percent of their users used just 5 percent of the site! And that 5 percent was the original product to solve the original problem.
So that means 95 percent of the time and money invested was essentially wasted. What can you learn from this?
2. Focus on one thing, the simplest thing
When kicking off a new product or service, put all your energy and focus into that product or service. Focus on one thing at a time. It shouldn’t be the hardest thing; it should be the simplest, what we’ll call the minimum viable product (MVP). The MVP provides the opportunity to learn the most about your customers, with the least amount of time, money and effort.
The MVP puts you in a position to go to market quickly, collect valuable feedback and not waste time building things customers don’t want. This strategy significantly mitigates your risk and helps avoid the trap my friend fell into. Remember, Amazon started just as an online bookseller.
3. Follow the 85-percent rule: Good is good enough
Striving for perfection is the enemy of any product launch. As a rule of thumb, when the new business or product is 85 percent of the way there, you’re ready to go. In my experience, the level of effort required to reach 100 percent isn’t worth the additional time and expense at this stage. You’d be much better off getting something into the market and beginning to test.
4. Be great at collecting, and learning from, feedback
Once you’ve launched, listen to and learn from your users. Develop feedback loops to learn everything you possibly can.
- What do users like and dislike about the product or service?
- What features would they like to see added to enhance their experience?
- Which features don’t work or generate little interest?
Do whatever you have to do to engage with your users. That may include offering incentives to get feedback on surveys or in focus groups, reaching out on social media, or generating outbound calls to learn more.
The hardest part of this process for many entrepreneurs is to be completely receptive to what customers tell you. Given your passion and all the time you’ve spent on the project, you may not want to hear negative feedback. You may be inclined to think the customer just doesn’t get it. But feedback is the most valuable tool you have as an entrepreneur. So listen, consider, and use what you learn to iterate, improve, or even throw out some of what you have built or planned.
5. Avoid the shiny ball syndrome
As you start developing your MVP, you must fight “feature creep” at every step. You, your team, partners, and everyone else you share your vision with will have ideas about what should be added. While many of them will sound good at the time, they are instead shiny objects that distract you.
Your job is to stay focused on one thing, get it to market and then deliver the next thing. By focusing on one thing at a time, you can get to market quickly, learn a great deal about your product or service from actual customers and make changes based on their feedback And if your launch doesn’t fly, you have significantly mitigated your risk.
This article was originally posted here on Entrepreneur.com.
How To Launch An Online Coaching Business
Cut through the noise and create a viral product.
Work from home? Control your own schedule? Impact people across the world with your product or service?
Internet marketing is on the rise for a reason. It gives you the ability to scale your business to a global level without forfeiting your personal freedom. Still, there’s one question that still prevents entrepreneurs from entering the online space: “Is it really possible to make a living off the internet?”
Not only is it possible, it’s lucrative when done correctly. We live in the Golden Age of internet marketing. Thanks to social media, everyone can get in front of a camera and pitch their idea to the masses. Good enough, right?
Not quite. These days a big idea will only get you started; it’s what you do to bundle and package that idea that matters. Here are the three steps you need to take to launch a profitable online business.
Flesh out your idea
Of course, before you create your product, you need an idea. Your idea must solve a specific problem that a specific group of people face. Make sure you establish that before you move forward.
Now, before you begin creating your product, you need to write your sales copy. Your sales copy (or sales video, if that’s what you prefer) should be enticing enough to take prospects from “I’m interested in this” to “I need to buy this now.”
Related: Paddy Upton: People Centred Coaching
But, why write your sales copy before creating your product? Too many entrepreneurs write copy that promises a lot but delivers next to nothing. When you write your copy before creating your product, you build the blueprint to create a product that satisfies your customers’ needs –without overpromising.
Your sales copy should address the prospect’s problem, explain how your product is the solution to that problem, and include a list of bullet points that summarise the benefits of your product. Make sure you nail the first 500 words – easily the most read section of your sales copy. Finally, always create a sense of urgency or people at home won’t be motivated to buy your product.
People always ask me, “Well, what if I’m not a good writer?” That’s OK. Just say your pitch out loud, record it and send it to an online transcribing service. For a relatively inexpensive price, you’ll get your sales copy written out for you. Just review it, copy it and paste it to your website and boom – there’s your sales copy!
Build the “know, love and trust” factor
Most people believe you need to sell prospects first, then deliver results. But, what if you flip it? It’s much easier to sell someone once they know, love and trust you as an authority in your space, rather than selling them on your product before they even know if you can deliver the results you’re promising.
That’s why the most successful internet marketers – including myself – give away boatloads of free content via blogs and videos. Granted, the stuff we give away for free could easily be packaged together into a high-priced course, but that would be short-sighted. You don’t want prospects to buy from you once and move on – you want them to become long-term paying clients.
See, you deliver free quality content to your prospects, then they take it and implement it into their businesses. They start to see results in advance, which leads them to trust you more and more. Soon, they begin to crave more knowledge from you, and their willingness to pay for your products and services increases.
Eventually those prospects become your most loyal clients. They buy your front-end products, your upsells and your flagship products – all of which I’ll get to in just a second. But, before you get that far, make sure your prospects know, love and trust you before you worry about selling them anything.
Create your front-end product and upsells
Once your copy is written and you’re building the know, love and trust factor, your next move is to create a front-end product – a product that’s easy to sell. This could be an ebook, a membership site or a course that comes with follow-along videos.
Now, you might be tempted to charge a high price for that product. Here’s the thing: Most of the money is made on the back end. I’ll talk more about this in a second, but for now just remember that the front-end product is not the final product you’re really trying to sell them. I – along with many of my fellow internet marketers – don’t mind breaking even or losing money on front-end products because I know I’ll more than make my money back with my flagship product.
Instead, your aim should be to use that front-end product to upsell them instead. So, after they purchase your front-end product, offer them three different upsells. An upsell is a higher-priced product or service you offer a customer after they’ve bought something from you. These upsells should be done-for-you, and they should enhance the front-end product by making it easier to understand or more efficient at getting results.
Why are upsells so important? Besides adding value to your front-end product, you’ll be able to recruit more affiliates to promote your business. An affiliate promotes your product to their own audience for a commission fee. If you make money through upsells, affiliates will choose to work with your business over your competitors because you can pay them higher commissions. The payoff? You get more traffic going to your webpage and ultimately more bottom line revenue.
Move them to your flagship product
That’s how you set up the front end of your online business. But, what about the back end? Remember I said that most of your money will be made on the back end and not the front end?
That’s why you need a flagship product to pitch your clients once they’re done with your front-end product. But, what in the world does a flagship product look like?
It could be high-end coaching sessions. It could be a spot in your exclusive mastermind group. It could even be a suite of software that teaches them everything they need to know about their industry. The front-end product is a way to get your clients through the door; your back-end product is the money-maker product, the one they’re more likely to buy once they’ve already purchased something from you.
I’ll give you an example. People will often find my products online. Usually when they finish using those products, they’re still hungry for more knowledge and advice. At this point, they’re considered qualified leads for my mastermind program, so we make sure they know about that programme and how to become a member of it.
That leaves you with one problem: How do you send marketing emails to every single person that buys your front-end product/upsells? It’s basically impossible, unless you’re in front of your computer screen 24/7 (which I’m sure you’re not). Fear not, because it’s actually easy to do when you use an auto-responder system to send out all those emails on your behalf.
It’s simple: When your clients purchase your front-end product, the system automatically sends them emails from you. That way, you can build a sequence where you give away even more of your best free content before sending them an offer for your flagship product. By the time they get to your flagship product, they’ll be so confident in your expertise and results that they happily pay the higher price for your higher level of service.
That’s the simple science behind converting your prospects into clients, and your clients into fiercely loyal clients. It’s how you sell your highest-priced online programmes without running into any of the typical sales objections. Follow these three steps and start building your own online business empire today.
This article was originally posted here on Entrepreneur.com.
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