TOP 5 Mistakes When Starting an Offshore Company

Top 5 Mistakes When Starting a Company Offshore

In this video I present to you the top 5 mistakes when setting up an offshore company and I explain to you what will still be legal in 2025 and which country you can particularly benefit from!

Mistake No. 1: Setting up a simple mailbox company

Setting up a solely mailbox company is the wrong approach from the start. There are several reasons for this:

The first problem is that letterbox companies are generally not recognized by the tax office. What makes matters worse is that letterbox companies can simply be closed down by the country in which they are founded.

Most countries simply do not welcome shell companies because they do not make a positive contribution to the country’s economy.

A virtual office can also pose a risk. Providers of virtual offices often register several hundred companies under one address. This is obviously noticeable and the same applies with mailbox companies - such methods are not accepted in the long term by any country.

Now how do you do it right?

The guiding principle is to build substance! This means that instead of a virtual office, you should have a real business address in the country where you are setting up your business. Ideally, you should have your own office including infrastructure such as an internet connection and your own telephone number. It is ideal if you have one or more employees in the country where you are setting up your business. This often results in further tax advantages.

Mistake No. 2: Exotic countries outside the EU

Many people associate the term offshore company with being founded in far-away, exotic countries or even island states. However, this is a seriously wrong approach.

It is very unlikely that the local tax office will recognize a company in a distant, exotic country.

As you are probably beginning to notice, successfully establishing a company abroad requires being able to demonstrate substance and also having a presence. This means, for example, that managing director meetings in the country of establishment several times a year are necessary for recognition.

If the country of establishment is far away, very high travel costs arise, as well as additional expenses such as applying for visas.

The need for substance was recently reinforced in January 2019 by a new law from the United Kingdom, which applies to most typical offshore destinations.

In addition, outside the EU, the legal situation in many exotic countries is very uncertain. This can lead to bank accounts being frozen for an unknown period of time or even expropriation is possible in some countries.

It should also not be forgotten that the authorities in the country where the company is founded should work efficiently. This means that waiting months for applications to be approved is anything but beneficial for your business.

Mistake No. 3: Opening a bank account remotely

Some offshore incorporation agencies promise to set up a company remotely in almost any country imaginable. This means that they advertise that you can set up a company abroad from the comfort of your own home and receive a ready-to-go company in just a few days.

However, one essential thing is forgotten here - that is the opening of the company bank account. Opening a bank account at a trustworthy bank remotely without ever having personally entered the bank is almost impossible, regardless of the country.

Mistake No. 4: Automatic exchange of information

The law on the automatic exchange of information on financial accounts in tax matters has been in place since the end of 2017. In summary, this means that the domestic tax office automatically receives information about assets, including company accounts, abroad. And this does not only apply to the EU! More than 200 countries worldwide are taking part. This also includes many countries that are preferred for offshore company formation, such as Monaco, Hong Kong, Switzerland, Cyprus, Panama, Seychelles, Romania and many more.

However, many anonymous Internet offshore agencies do not take this into account and often do not even inform you about it.

Mistake No. 5: Payment provider

For a successful company, it is essential that customers can make payments easily. This point is particularly important in online businesses. If a customer cannot pay using common payment methods, they simply go to the competition, who will accept their payment methods without any problems.

For many offshore companies, the payment methods are precisely the problem! There are hardly any common payment providers that allow an account to be opened for a company based in a typical offshore destination. Receiving credit card payments, services such as instant bank transfer or PayPal are therefore completely eliminated and with them a large number of potential customers.

If the company operates internationally and has customers from a variety of countries, it is even more important that the local banks support international payment methods, even for larger amounts. Unfortunately, this is not the case for some offshore destinations.

Solution: Set up a company within the EU in Romania!

The solution to all these problems and obstacles when setting up an offshore company is to establish a company in Romania and thus within the EU!

If you are wondering why we often recommend Romania, we can assure you that we do so for a reason. My colleagues and I have taken a closer look at the economic conditions in a number of countries. The bottom line is that Romania is simply the most advantageous country for foreign company formation.

And now you will see exactly why!

1. A company in Romania can be fully recognized by the local tax office! To do this, the company in Romania simply needs to be built up with substance, as mentioned at the beginning. This means having your own office, including infrastructure such as internet and telephone connection, and ideally with one or more employees on site. This may sound quite complicated and expensive at first, but due to the low salary level and many other factors in Romania, it is possible without much effort.

2. In Romania, a bank account can easily be opened in person. It is advisable to plan a 5-day trip to set up a company in Romania. During this time, you can easily open a company account at a Romanian bank, even without a postal address.

3. As a company based in Romania, there are no problems opening accounts with common payment providers. Services Payment via credit card or PayPal is also possible in Romania without any problems.

4. One of the biggest advantages of setting up a company in Romania is that it has by far the most favorable tax conditions within the EU! For example, you don't have to pay any trade tax here. Furthermore, you only have to pay 3% tax on turnover up to 250.000 Euros in turnover per year. If you have one or more employees on site, the tax burden drops to just 1-3% tax on turnover! 1% tax! And all this completely legally and without having to resort to any tax tricks..

If you would like to learn more about taxes in Romania, please watch one of our videos on this topic.

I hope you enjoyed this video – if you are interested in starting a company, taxes or real estate in Romania... we look forward to hearing from you.