TOP 5 mistakes founding an offshore company

Top 5 Mistakes Company Formation Offshore

In this video I show you the top 5 mistakes when founding an offshore company and I explain to you what will still be legal when founding an offshore company in 2023 and which country you can particularly benefit from!

Mistake Nr.1: Starting a shell company only

Setting up a pure letterbox company is the wrong approach from the start. This has several reasons:

The first problem is that letterbox companies are usually not recognized by the tax office. A further complication is that letterbox companies can simply be closed down by the founding country.

Letterbox companies are simply not welcomed by most countries as they do not contribute positively to the country's economy.

A virtual office can also pose a risk. Providers of virtual offices often register several hundred companies at one and the same address. Of course, this is noticeable and the same applies here as with letterbox companies - such methods are not accepted by any country in the long term.

Now, how do you do it right?

The guiding principle is to build up substance! This means that instead of a virtual office, you should be able to show a real business address in the country in which you were founded. It is best to 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 of foundation. This often results in additional tax advantages.

Mistake No.2: Exotic countries outside the EU

Many people associate the term “offshore company” with a foundation in distant, exotic countries or even island states. However, this is a momentous and wrong approach.

It is very unlikely that the domestic tax office will recognize a company in a far-off, exotic country.

As you are probably slowly realizing, part of a successful company foundation abroad is to be able to demonstrate substance and also to show presence. This means, for example, management meetings in the founding country several times a year are necessary for recognition.

If the founding country is far away, there are very high travel costs, but also additional expenses such as applying for a visa.

The need for substance was only recently reaffirmed in January 2019 by a new UK law that applies to most typical offshore destinations.

In addition, outside of the EU, the legal situation is very uncertain in many exotic countries. This can lead to bank accounts being frozen indefinitely or even expropriations are possible in some countries.

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

Mistake No.3: Open a bank account remotely

Some offshore incorporation agencies promise remote company incorporation in almost any country imaginable. This means it is touted that you can set up a company abroad from the comfort of your own home and get a turnkey 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 trusted bank remotely without ever having personally entered the bank is almost impossible, no matter the country.

Mistake No.4: Automatic exchange of information

Since the end of 2017 there has been a law on the automatic exchange of information on financial accounts in tax matters. 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 participating. This also includes many countries that are preferred for offshore company formations, 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 point it out.

Mistake No.5: Payment providers

It is essential for a successful company that customers can make payments easily. Especially in online business, this point plays a particularly important role. If a customer cannot pay with common means of payment, he simply goes to the competition, which accepts his means of payment without further ado.

With many offshore companies, the payment methods are exactly the problem! There are hardly any common payment providers that allow a company based in a typical offshore destination to open an account. Receive credit card payments, services such as Sofortüberweisung or PayPal are therefore completely eliminated and with them a large number of potential customers.

If the company operates internationally, i.e. has customers from different countries, it is all the more important that the local banks support international payment methods, even for larger sums. Unfortunately, this is also not the case for some offshore destinations.

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

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

If you are now wondering why we often recommend Romania, then we can assure you that we do not do this without reason. My colleagues and I have closely examined economic conditions in a number of countries. The bottom line is that Romania simply stands out as the most advantageous country for foreign company formations.

And why exactly, you can see now!

1. A company in Romania can be fully recognized by the local tax office! In addition the company in Romania simply has to be built up with substance, as mentioned at the beginning. That means your own office including infrastructure such as internet and telephone connection and ideally with one or more employees on site. At first glance, this may sound very time-consuming and expensive, but due to the low wage level and many other factors in Romania, this is possible without much effort.

2. In Romania it is very easy to open a bank account in person. It is advisable to plan a trip of 5 days for founding a company in Romania. During this time, a company account can be opened with a Romanian bank without any problems, even without a postal address.

3. With a company based in Romania, there are no problems opening accounts with common payment providers. Services such as payment by credit card or PayPal are also possible in Romania without any problems.

4. One of the biggest advantages of founding a company in Romania is that there are by far the most favorable tax conditions within the EU! For example, you don't have to pay any trade tax here. Furthermore, only 3% taxes are incurred on sales up to 1.5 million euros in sales per year. Is there one on site? If you have one or more employees, the tax burden drops to just 1% tax on sales! 1% taxes! And all this legally and without having to use any tax tricks.

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

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