Offshore company vs local Pte Ltd

[roger le goeland]

I've searched the forum and whilst there is a wealth of information about incorporating in Singapore, I've seen little about other options and how they compare, particularly offshore companies.

My situation:
I'm an EP holder, don't want to give it up yet, working full time for a Singaporean tech company. I'm setting up a startup which will provide B2C 100% online services (think operationally similar to Google search) globally, funded by both ads and maybe data feed sales. We will never have a physical office and all the developers will always be hired remotely, although I'd like to keep the option of giving someone a visa to the first world as a sweetener if possible. In about a year, I'll move to Australia full time for personal reasons, and never intend to apply for PR or citizenship in SG for the same reasons.

As an EP holder, and even though my sponsor company is happy with my entrepreneurial activities, I cannot be a director of my own company if incorporating here. I have a trusted potential local director, and I don't care about spending a few thousand dollars to incorporate and do things cleanly and legally.

My options are thus:
1. incorporate as a Singapore Pte. Ltd., as a majority shareholder but not a director;
2. incorporate in the BVI, Hong Kong or other offshore location;
3. incorporate in a jurisdiction which is more aggressive towards businesses but has a better reputation (UK, NZ, Ireland, USA).

My questions:
With 1., not many questions, the forum posts (thanks Strong Eagle in particular! some rather epic contributing there!) has more than answered anything I could think of asking. The only downside is the amount of paperwork and worries with e.g. having a local director who does nothing (I'm giving him a bit of equity for the trouble, and he's a friend, but I don't need him for the business beyond his passport!). What would Singapore bring me that the BVI would not? In your experience as an entrepreneur, does not being a signatory for your own business' activities and bank account pose issues?

With 2.:
- are BVI companies (in particular) able to open a bank account in Singapore? What experience have any of you had with running a legitimate, potentially large web business via a BVI entity? How does it affect your ability to do business in the region? What are the upsides/downsides of an offshore company versus a Singaporean entity, other than it being cheaper and not having either corporate tax or reporting requirements?
- is Hong Kong a good idea? I'm a relatively uneducated expat with little understanding of the subtleties of the PRC, but recent news seem to indicate that HK's days as a standalone island with clean capitalism are numbered. This is my main worry with a HK entity (I had one before, and closed it last year). I come from a European country with a long history of nationalisations and bureaucratic interference in business and have no intention of ever becoming a target; this makes me lean towards BVI as the default option. Is HK able to guarantee property rights to foreigners for the next 20 years in the same way SG is able to?
- can a BVI-owned website be shown to Singaporean customers without filing for a local office, and advertising be sold to Singaporean businesses on said website? Obviously needing a local subsidiary would negate any benefits from an offshore company.
- what is the regulatory landscape looking like for the next decade?

With 3.: what in your experience were the downsides of, say, incorporating in the UK or NZ or the US as an offshore company not doing business there, vs a Singaporean entity? This is a general and open question. It wouldn't even be on the table but I have an EU passport, I fly back there a few times a year, it's cheap and easy to set up, and appears more legit to business partners (which apparently is an issue).

Any other/further discussion or insight on what it is like to run an offshore entity would be more than welcome.

[Strong Eagle]

I've searched the forum and whilst there is a wealth of information about incorporating in Singapore, I've seen little about other options and how they compare, particularly offshore companies.

My situation:
I'm an EP holder, don't want to give it up yet, working full time for a Singaporean tech company. I'm setting up a startup which will provide B2C 100% online services (think operationally similar to Google search) globally, funded by both ads and maybe data feed sales. We will never have a physical office and all the developers will always be hired remotely, although I'd like to keep the option of giving someone a visa to the first world as a sweetener if possible. In about a year, I'll move to Australia full time for personal reasons, and never intend to apply for PR or citizenship in Singapore for the same reasons.

As an EP holder, and even though my sponsor company is happy with my entrepreneurial activities, I cannot be a director of my own company if incorporating here. I have a trusted potential local director, and I don't care about spending a few thousand dollars to incorporate and do things cleanly and legally.

My options are thus:
1. incorporate as a Singapore Pte. Ltd., as a majority shareholder but not a director;
2. incorporate in the BVI, Hong Kong or other offshore location;
3. incorporate in a jurisdiction which is more aggressive towards businesses but has a better reputation (UK, NZ, Ireland, USA).

My questions:
With 1., not many questions, the forum posts (thanks Strong Eagle in particular! some rather epic contributing there!) has more than answered anything I could think of asking. The only downside is the amount of paperwork and worries with e.g. having a local director who does nothing (I'm giving him a bit of equity for the trouble, and he's a friend, but I don't need him for the business beyond his passport!). What would Singapore bring me that the BVI would not? In your experience as an entrepreneur, does not being a signatory for your own business' activities and bank account pose issues?

I qualify my answers with the following:

a) I have investigated a number of offshore "havens" including BVI, Malaysia and Dubai free trade zones but other than research knowledge, know nothing else of them.

b) I almost incorporated in Hong Kong until the business deal that made it necessary fell through.

In terms of paperwork, it will be the same all over the place. If you do the deal in BVI, you'll need the nominee directors and all that crap. Set up and reporting requirements are the same for all the jurisdictions... articles of incorporation, directors, directors resolutions, annual reports... the paperwork is just crap that you need to hire a local CPA to handle the details and not run afoul of local regulations.

BVI might be a bit easier with all the companies clamoring to set you up... but both Singapore and Hong Kong are painless. Me... I don't trust Dubai.

What does Singapore bring you? Protestations to the contrary by David Cameron, BVI is a tax haven... not much has changed... no income tax, no capital gains tax... they have capitulated somewhat on reporting... but so has Singapore.

With 2.:
- are BVI companies (in particular) able to open a bank account in Singapore? What experience have any of you had with running a legitimate, potentially large web business via a BVI entity? How does it affect your ability to do business in the region? What are the upsides/downsides of an offshore company versus a Singaporean entity, other than it being cheaper and not having either corporate tax or reporting requirements?
- is Hong Kong a good idea? I'm a relatively uneducated expat with little understanding of the subtleties of the PRC, but recent news seem to indicate that HK's days as a standalone island with clean capitalism are numbered. This is my main worry with a HK entity (I had one before, and closed it last year). I come from a European country with a long history of nationalisations and bureaucratic interference in business and have no intention of ever becoming a target; this makes me lean towards BVI as the default option. Is HK able to guarantee property rights to foreigners for the next 20 years in the same way Singapore is able to?
- can a BVI-owned website be shown to Singaporean customers without filing for a local office, and advertising be sold to Singaporean businesses on said website? Obviously needing a local subsidiary would negate any benefits from an offshore company.
- what is the regulatory landscape looking like for the next decade?

As far as I know, you can open a foreign corporation bank account by providing the usual stuff... articles, directors resolutions... about six or seven different docs. More likely that international banks will do the deal... local banks, besides being under stronger control of MAS, may not be interested.

With 3.: what in your experience were the downsides of, say, incorporating in the UK or NZ or the US as an offshore company not doing business there, vs a Singaporean entity? This is a general and open question. It wouldn't even be on the table but I have an EU passport, I fly back there a few times a year, it's cheap and easy to set up, and appears more legit to business partners (which apparently is an issue).

Any other/further discussion or insight on what it is like to run an offshore entity would be more than welcome.

I just cannot imaging getting entangled with the USA IRS voluntarily unless you have absolutely no choice. Can't comment on the others. But, if you are selling substantially into the USA they may want a pound of flesh anyway... EU, too... I don't know the rules but they are all trying to find ways to squeeze foreign entities to pay tax.

My view? Down to taxes and what your clients think of your incorporation status... that, and how willing you are to come under scrutiny from taxing authorities.

If you set up in Singapore, taxes are reasonable, both company and personal. Although some accuse it of being a tax haven, the reality is that Singapore is mostly transparent, just doesn't like giving away your bank account details.

Maybe a better tax situation for yourself in BVI but again, depends on what local jurisdictions in which you will be present have to say. My personal view is that BVI is a long distance hassle... then again, 450,000 companies can't be wrong, can they?

[roger le goeland]

Thanks, great detailed reply as usual! I hear you on Singapore being a more attractive location, and it would be my default except for:

1. I'm an EP holder, so I can't be a director in my own company. Whilst my co-founder would be a director, being as he is not resident here, Hawksford/Janus and the like would be the local director, as my two options for local directors pulled out in the end. The problem is compounded if I ever leave Singapore (a move to Australia is possible by 2016).

I don't mind (over)paying, but you've made some pretty good arguments against handing over control over part of one's business like that in the forum already...

2. BVI does NOT need a nominee, or local director, whereas Singapore does. I.e. myself and co-founder will be the only directors of our entity, which makes me sleep easier at night.

I've also been told one major advantage of BVI over Singapore or HK is the lack of any reporting requirements (i.e. you just pay your yearly fee of 600 USD and they leave you alone) - your opinion seems to differ? Not a big factor either way.

As a data point in case anybody else is interested, the rate quoted by Singapore based "paperwork companies" for BVI incorporation is around 3k SGD; the Hong Kong equivalent, 1.5k USD all in. However, OCBC asked me to keep an average balance of 30k SGD on my account should I open one. I haven't checked the other banks yet.

This is all so complicated. When I opened my offshore HK company a few years ago, all it took was a few pages of signatures, a quick flight to Hong Kong, and a 500 USD deposit on the new HSBC account...

[aster]

In about a year, I'll move to Australia full time for personal reasons, and never intend to apply for PR or citizenship in SG for the same reasons.

Well, if this is indeed the case you will not be able to just run an offshore company from Australia without local tax laws coming into force. It does not matter whether you use nominee directors/shareholders/etc.

The UK is a good place as long as you would be setting up a LLP and not doing any business with UK entities (not selling/invoicing anyone there). In this case this is a very good vehicle to use because the LLP would not be taxed at all in the UK, and you would only owe any tax in your place of residence instead.

[PNGMK]

I've run a Seychelles company from all over the world and contracted and billed into Singapore using it. There were no problems. OCRA helped set up the HSBC bank account in HK. I think though the fees of this sort of stuff have gone up enormously due to money laundering regs. For awhile I used it in Australia as well (but obviously for services rendered to Australian companies from overseas) - in that case you can omit GST which is attractive for various reasons.

[roger le goeland]

Thanks all for your answers, which were very helpful.

The Hong Kong story ended today, as HSBC called me from Hong Kong, weeks after I finished submitting all the paperwork proving I had previous business experience, degrees until high school, full scans of all employment contracts and all the other stuff that comes with KYC. The answer was "sorry, cannot open, business decision." No further explanation was given. The banker, by the way, barely spoke English and seemed straight out of high school. The customer service, especially after Singapore, was pretty awful - I felt as if he really did not want me in his office.

As such I am left a few thousand (US) dollars lighter, with a Hong Kong Limited company but no bank account, and trying to figure out what to do next. I might obviously be biased, but the whole experience in Hong Kong was much worse than the last time I did this and left me with a very bitter taste in the mouth!

I've quit my job to focus on the company (which we will finance doing consulting work), and my STVP is expiring in a few weeks, at which point I'll fly back to Europe and come back as a tourist until the Australian move. My future wife is applying for PR (and we're thinking of being tax residents splitting the time between here and Sydney) which might change the game somewhat - solving both residency and directorship issues.

aster, thank you for your comment. I will probably open a UK LLC. It costs 15 quid online and my co-founder is based in the UK now, but our clients will be in APAC. Will my co-founder's salary (paid out of the LLC) impact our no-tax status? If so I can just get clients to pay him directly.

PNGMK, very interesting. How do you deal with visa regulations? For example, when you need to come see a client in Singapore, what kind of visa do you apply for and how do you deal with tax? I have potential clients in Singapore.

[roger le goeland]

If I get a Singapore bank account for my Hong Kong company, and invoice a non-Singapore (e.g. Thai) business who pays the bank account, and leave the money there as cash reserves for the business, under what tax and regulatory regime does this fall?

[zzm9980]

That's sad to hear about Hong Kong, as it is an option I was considering for something. Especially considering HSBC Hong Kong's website has whole sections targeting and encouraging business start-ups.

Out of curiosity, did you consider Seychelles at all? It seems reasonably easy, and comparable to BVI. Just curious if any specific factor led you to ignore it.

[roger le goeland]

That's sad to hear about Hong Kong, as it is an option I was considering for something. Especially considering HSBC Hong Kong's website has whole sections targeting and encouraging business start-ups.

Out of curiosity, did you consider Seychelles at all? It seems reasonably easy, and comparable to BVI. Just curious if any specific factor led you to ignore it.

Well, I was told a few years ago (by Swiss bankers, and various friends in Asia) that Hong Kong companies were "more respectable" and as such less likely to draw audits when you use a company card abroad. I didn't plan on doing anything illegal but after my uncle told me about his audit by our country's IRS, I have no intention of augmenting the probability of one... the other factor was payments solutions: I was told that banks do not like offshore companies (not as much as "legit" Hong Kong trading companies) and as such getting payments providers on board would be harder, which obviously would have been an issue as an online company taking international payments.

For more depth: we co-founders have between us about a decade of experience in the space we want to consult in (data warehousing, data science, etc.) and already built - and demonstrated to the banker - large parts of the technology we need for the startup side. On top of which we brought our first consulting contract as proof of business. And despite all this, HSBC didn't want our business.

As for Hong Kong promoting startups, I'm guessing it's the same as Singapore - they want startups... but local startups, not ones started by foreigners. Because that's an immigration issue and we know how the general public weighs the downside of immigration vs the benefits of startups...

/aside
Look at the Singapore visa situation: you have the EntrePass which basically requires an investor on the approved list or research from a Singaporean university, and comes with a long list of stringent criteria like hiring locals; and you have the EP once you have incorporated, but then you need a local director, although I hear you can get them to renounce their directorship once your EP is approved, whilst you pay yourself a salary to keep your EP up and take up the local directorship.

The latter option is not something I want to do, because it seems like a workaround the rules and the Rule of Law is precisely what makes Singapore so attractive to me... so Singapore loses yet another startup, not that we are big and exciting and the next Facebook, but I think we count. If I could, I'd start up and HQ here. But I can't, so HMRC gets a little boost in revenue.
/aside

FWIW OCBC asked me for a 30,000 SGD deposit and minimum amount for the Hong Kong Limited Company. As one of us is a UK resident, we don't have any such restrictions on our future Lloyd's account...

Filing a UK LLC was incredibly easy and online - it took a few hours at most. Completely different experience from the dozens of forms I had to fill, scan, sign and send back in Hong Kong!

[zzm9980]

Yes, Payment processing is one down-side to the Seychelles Corp. and what led me towards Hong Kong. For the type of product in my scenario, payment processors were asking for 8-20%(!) interchange fees. And the lower percents were from not so legit looking places based in Russia.

[jasonchongg]

Oh well, like you mentioned, If you were to look at Singapore v s Hong Kong, I would recommend Singapore because HK always has issues with the mainland Chinese govt. However, for Singapore vs BVI, I would say Singapore is better under most circumstances because you already have living and business experience here of sorts. BUT if your business grows fast enough, I recommend you change it to BVI.

[PNGMK]

For the Seychelles company I used to own I used a HK corporate account. OCRA set it up for me.

For Visa's it didn't matter too much as I have Singapore PR and Australian Citizenship which is were most of the business occured.

Roger - your question is a bit complex to answer but I leave you with this thought.... cross a border and the laws can be used to both an advantage or disadvantage. We see this happening all the time with Google and Apple using 'transfer pricing' to keep the bulk of their profits in low tax jurisdictions.