Should affiliates form a company?

[justbookies]

I have sat in on this very subject with teams of lawyers (looking at taking a betting company operator offshore) and nothing is straightforward. There is no precise legislation. That is why people take advantage and only run into major problems when HMRC take an interest, which can lead to prison sentences. Just to give an idea of the things that must happen - you must have a genuine presence in the jurisdiction (ie: a real office that is staffed). The decision making must be made from that jurisdiction (not from your mansion / bedsit in Surrey or office in London). These are some of the loose tests.

My angle was coming at it from the point of view of one-man band affiliates on this forum who are currently located in the UK. If you live in the UK and set up an offshore company as affiliate and have no other presence in that location, but are just doing it for a tax benefit for your company, I can guarantee you it would not pass any scrutiny by the HMRC. What you would be doing is tax evasion and it would just be gambling whether they bothered to feel your collar for it or not.

If you did that and lived in the UK and paid your income tax then you are in a better position, the only scam would be on corporation tax evasion (still a crime and perhaps fairly pointless as you are only saving 20% corporation tax). If this was legitimate nobody would ever have a UK company! Every UK plumber and tradesman would have an offshore company instead of a UK one. If you lived in UK and evaded all tax, expect the book to be thrown at you.

The only reason the betting firms get away with it in Gibraltar and the like is because they have large staffed offices with 'decision making' over there. If that is the way you can do it, then fine. Still they are playing with fire and at some point this may come under scrutiny.

Google, Starbucks etc have all had problems with the UK tax man. HMRC is unravelling schemes on a weekly basis in the UK at the moment and then taking court action, the abuse is so large and ingrained that they are just scraping the surface. Things have changed in recent years massively.

If you are committed to a tax free territory then the only safe way to do it (as a UK citizen) is to locate yourself and your company offshore. That is fine, if you are not resident in the UK then it is all above board. Even the company formation experts offshore will tell you this, the honest ones anyway (and they have a vested interest to sell you an offshore company).

Anyone living in the UK knows the whole attitude has changed massively. What you could once get away with is unacceptable now. The HMRC are under-staffed so people will get away with things, so long as they are aware they are taking a chance. Easiest thing is just to move wholescale offshore.

If you plan to set up an offshore company and remain in the UK and doubt what I am saying then run every point I have made in this post past a tax lawyer. It won't cost much for 30mins of time with an expert and see what they have to say. Because, genuinely, the advice from one poster on this thread is 15 years out of date and dangerous.

[Syndicate]

Don't be shy - rack it up and point out the ''15 years outdated info''!

''Anyone living in the UK knows the whole attitude has changed massively. What you could once get away with is unacceptable now. The HMRC are under-staffed so people will get away with things, so long as they are aware they are taking a chance. Easiest thing is just to move wholescale offshore''

''If you plan to set up an offshore company and remain in the UK and doubt what I am saying then run every point I have made in this post past a tax lawyer. It won't cost much for 30mins of time with an expert and see what they have to say. Because, genuinely, the advice from one poster on this thread is 15 years out of date and dangerous''

Of course as a sole trader it's going to be an issue, and this is not just unique to the UK. At least part of the business should be located in the country of the companies residence. If that part can be satisfied (employees/office/invoicing) then it's clearly possible.

You should also note that obtaining bank accounts and other payment processing is another acid test, since they will ask for the legal structure and more often than not a ''lawyers legal opinion''.

Lets just make it clear, know one is suggesting that you should act in an immoral manner. Longevity of any business is a good and proper structure. And, for the record this is from someone who has active business interests in eleven different countries, and as dealt with more tax lawyers than he cares to remember.

While i can accept that parts of what ''one poster'' said was reasonable advice, maybe he's not wearing the same cap as some of us!

[justbookies]

Of course as a sole trader it's going to be an issue, and this is not just unique to the UK. At least part of the business should be located in the country of the companies residence. If that part can be satisfied (employees/office/invoicing) then it's clearly possible.

You should also note that obtaining bank accounts and other payment processing is another acid test, since they will ask for the legal structure.

Good advice

A ''lawyers legal opinion''.

Great advice

this is from someone who has active business interests in eleven different countries

Doesn't mean a thing.

[RacingJim]

What about Isle of Man and other crown dependencies? Is it criminal to live in the UK and form a company there?

Can someone point me to some legislation that says it's a crime to do business through a foreign-based company in the UK?

Note: the so-called "off-shore" company is a legit company that's based in another country, usually where taxes are favorable. It's not a scam per se.

I've looked into IOM a fair bit, the main thing seems to be proving that the company is chiefly operated from Isle Of Man. For an affiliate marketer/small company this is more tricky unless you live there. Larger companies can set up an office and put some 'senior' staff there and say 'that's head office'.

You therefore would be better going to live in that country rather than wangling it and worrying about tax investigations. And that is fair to me. You can still spend up to 3 months in the UK anyway. Something I'm still seriously considering.

[RacingJim]

JustBookies post is pretty much the advice I've had from a few different sources including accountants/lawyers. I think now would be a very dodgy time to start indulging in tax dodging activities with the change in mood towards these sorts of things.

Also, as per JustBookies post, I have only really got the option of it from a 'oneman/very small company' point of view. And that is where it becomes obvious that you're tax dodging if it's just you operating a company out of IOM with a physical office but no genuine decision making taking place there.

I don't think any of us really know how much HMRC are on this though, but what price being able to sleep soundly at night?

[DanHorvat]

If this was legitimate nobody would ever have a UK company! Every UK plumber and tradesman would have an offshore company instead of a UK one.

There are many benefits to having a domestic company. Such as the ability to lease a car for your company needs (plus the obvious benefit of depreciation), to say the least. If you have an off-shore company you'd have to buy the car with cash.

JustBookies post is pretty much the advice I've had from a few different sources including accountants/lawyers.

Maybe they're right. But bear in mind they'd probably be giving the same "it can't be done" or "don't go there" advice if you asked them about anything related to gambling. Or online advertising. These people run things routinely, and as soon as something is outside that routine, such as gambling or off-shore company formation, they're lost and they have to give you a generic answer in order to protect their own bubble. The bubble, of course, being the position of a man who is an authority in legal stuff. Ego runs deep in lawyers, accountants, notaries public, banksters, etc. Just saying. Entrepreneurs are often much more competent in that stuff.

[Sherlock]

I am toying with the idea of setting up a cheap St Vincent company where there is no tax and no bookkeeping. I just wonder if this is too dodgy a location for the casinos to pay to. Failing that, a UK company looks the best option within the EU.

On residency, I am considering moving from the UK to Malta, and just paying tax on whatever I remit. Maybe pay myself minimum wage from the company which would cover Maltese Social Security and a couple of cans of Cisk each month. Decisions decisions.

Yes this works. You should rather move yourself out of UK, country of your residence is important as well. I suggest outside of EU rather than inside.

Most affiliates pay to offshore companies (still), because they move to tax friendly locatiosn as well, so the money they have already rotate at the "offshore circuit". Biggest problems are only with French based that really are very strict. But others start to make probems too, e.g. Tipico now.

Your problem might be to find a bank that will trust you, because all banks are scared now.

[Sherlock]

You therefore would be better going to live in that country rather than wangling it and worrying about tax investigations. And that is fair to me. You can still spend up to 3 months in the UK anyway. Something I'm still seriously considering.

If you go to do it in this way, then comply with 5 flags theory. It means that country of your residence is not your original country and it is not the country where your business is located. And the country where your bank is should be different as well. Then the case is so complicated for everyone, that you are free everywhere.

Idk if there is an exception for UK, but usually the country of residence is the country where one spends > 6 months a year (if there is no such country then it is more complicated, but generally no one gives a **** if you pay the utility bills only in the original country; so it is quite important not to have property in your original country or at least not to own it directly). So one can spend up to 6 months in any country like UK. Also if you fly over Ireland and cross over nonexistent border to North Ireland, then you can spend in the UK more. I am saying this rather as an example, because once you start playing with this, there are always many possibilities unseen for the first sight.

[RacingJim]

There are many benefits to having a domestic company. Such as the ability to lease a car for your company needs (plus the obvious benefit of depreciation), to say the least. If you have an off-shore company you'd have to buy the car with cash.


Maybe they're right. But bear in mind they'd probably be giving the same "it can't be done" or "don't go there" advice if you asked them about anything related to gambling. Or online advertising. These people run things routinely, and as soon as something is outside that routine, such as gambling or off-shore company formation, they're lost and they have to give you a generic answer in order to protect their own bubble. The bubble, of course, being the position of a man who is an authority in legal stuff. Ego runs deep in lawyers, accountants, notaries public, banksters, etc. Just saying. Entrepreneurs are often much more competent in that stuff.

Yeh I agree, just cos my local accountant/lawyer says he doesn't want to touch it and wouldn't 'advise it', does not mean people aren't doing it and getting away with it. In these current times, especially in the UK, I'd tend to avoid it to be honest as everyone is so hateful of 'rich people' and tax dodging, there is a hatred generally of money/success but even more so if people don't want to get half of it taken back off them in tax. I can't be arsed with the drama at a later date potentially coming biting me on the arse.

Affiliate marketing/online company is an ideal thing to offshore though and who knows if it's not just bluster from HMRC? I saw a few TV shows in UK about this and apparently the amount of people who actually get investigated and punished for these sorts of things is small.

[Triple7]

Better hire a good accountant in your own country and invest your time in making money. I got an offshore vehicle, but I rarely use it. It's too risky and way too much hassle. In general, you have to pay your taxes in the country you're making the money. Which in our business is the country where you're working on your computer on your website.

I am pro-tax evading. I do understand roads, hospitals, etc have to be paid, but I really pay enough. In a socialist system too many people are just taking profit of the system and others are paying way and way too much. That makes that people are having a look if they can evade tax.

But...

I really think you should start with the first step. Making money. If you're not making any money, there's no tax to evade. A lot of people spend a lot of time in thinking of all sort of offshore constructions, while they'd better spend that time in making money.

Second step is to optimize your fiscal structure in your own country. Many entrepeneurs are paying more than they should. Try to be creative. Gotta car ? Try to put as a company car for example. Wanna buy a coffee machine? Well, every office needs one and what's needed in the office can be deducted, etc. A good account earns his invoice back. Perhaps even the double of it. You can earn thousands and thousands of dollars/euro/GBP the day you're going to a good accountant.

And if after this steps, you still feel you're paying way too much. Than look for offshore advice, but advice from people that know what they're doing. Not people that want to sell you a BVI-company for $ 1.000 including a nominee share holder. A decent construction is costing way more than $ 1.000.

And remember that it's always better to move to a tax friendly place instead of working from for example UK and have offshore companies in BVI or Belize or Costa Rica or where ever.

[wonderpunter]

And remember that it's always better to move to a tax friendly place instead of working from for example UK and have offshore companies in BVI or Belize or Costa Rica or where ever.

Costa Rica and Belize are pretty tough to open accounts in now, even for residents, there is so much paperwork to go through, certifications and hours of standing in long lines even with a good accountant, then the actual country is now extremely expensive, what you save you end up spending on lower quality lifestyle and then there is the issue of security unless you like living behind 3 meter razor wired walls with armed guards that seem to get tied up upon every home invasion "usually in on the job" the easiest route is move to a low taxed zone then discount expenses it could work out as low as 7% ..

[ambergambler]

Thanks for all the posts. Clearly it is a stimulating topic.

If someone is considering forming an offshore company in a no or low-tax jurisdiction, I think it is an absolute must for the person to move to a country such as Malta where there is no tax on worldwide income, and then look to form the company outside both Malta and your country of citizenship. And you might also need to get creative with ensuring that the company activities are managed outside Malta too (registered office, regular flight tickets to that office to hold meetings, another shareholder in the company who is not a Malta resident, outsource content and design work to a foreign third party, etc.).

That would tend to favour somewhere like the Isle of Man over the Caribbean. Even forming a company in the UK and paying the 20% corporate tax would be quite attractive if you can have the dividends tax free by living in Malta.

One question that bugs me about starting out as a sole trader and then later switching to having a company (offshore or not) is how to transfer the assets (websites and affiliate agreements) from the individual to the company. Under transfer pricing rules, would the company not have to pay the individual a fair market rate for these assets? Has anyone else who has followed this route experience any trouble with this? Or did they make the switch early enough that it didn't really matter?

[justbookies]

I think your post has quite concisely distilled the information and pretty much nailed it.

That would tend to favour somewhere like the Isle of Man over the Caribbean. Even forming a company in the UK and paying the 20% corporate tax would be quite attractive if you can have the dividends tax free by living in Malta.

An interesting point, and certainly the method Philip Green paid massive dividends out of BHS - to his wife in tax free Monaco.

You don't need to pay the 20% corporation tax. If you are going to the hassle, then get your company properly offshore. I would not do just half the job. The 20% tax may sound ok if you don't make much but it can be very painful waving goodbye to a significant sum, to say the least (having just paid it this last week). Dividends in the UK, unlike salary, can not be set against company profits so don't help reduce company tax burden.

[RacingJim]

You don't need to pay the 20% corporation tax. If you are going to the hassle, then get your company properly offshore. I would not do just half the job. The 20% tax may sound ok if you don't make much but it can be very painful waving goodbye to a significant sum, to say the least (having just paid it this last week).

Same mate.

[Triple7]

Costa Rica and Belize are pretty tough to open accounts in now, even for residents, there is so much paperwork to go through, certifications and hours of standing in long lines even with a good accountant, then the actual country is now extremely expensive, what you save you end up spending on lower quality lifestyle and then there is the issue of security unless you like living behind 3 meter razor wired walls with armed guards that seem to get tied up upon every home invasion "usually in on the job" the easiest route is move to a low taxed zone then discount expenses it could work out as low as 7% ..

Yep, I know. Been there, done that. It's a completely different world over there plus banks are getting more and more skeptical about this sort of companies.

I have lived in South America. In general, life is cheaper, but if you're a gringo and you want a decent place to live, decent health care, decent education for the kids, etc. it's way more expensive. Some middle way could be Cyprus, Malta, Spain.

It's always a sum of things the decision where you're going to live. Not just the % of tax you're going to pay, but also other things are important. But, having $ 800 offshore construction and living and working in the EU, is quite risky in my opinion.

[xecutable]

Allow me to revive this topic, for that I need to ask a few questions and I might as well do it here. I need to form a company, as the Swiss government would not allow me to register here as a self-employed freelancer, once they took a look at the nature of the website.

There's a lot of confusion on what how, where, and as much as I tried to explain the nature of the business with no mentioning of the G word, people are simply confused on how things work online and the laws are very vague apparently about it as well.

From what I understood, Malta would be the place where an affiliate website/webmaster would be in their legal right to register a company? I'd have to present an employed contract for my 1 man company too, which seems quite silly but that's what my lawyer told me. I really wanted to set up a self-employment here, but the word illegal was used so now that's my only option to "legalize" something that isn't illegal in the 1st place.

Would I'd have to get myself a ticket and visit Malta, or can this be done at a distance. Not that it matters, but I'm on time limit, and the quicker everything can move the better and easier for me would be to set everything up.

I'd appreciate any input that would put me in the right direction, as it's a bit confusing for me.

[Triple7]

You can open a Malta company from distance. However, documents need to be sent, which also takes time.

Typical needed documents are:
- certified copy of your passport;
- certified utility bill;
- bank reference;
- bank statements of last 3 months;
- certified documents of your company if your Swiss company will be shareholder.

Everything in English. Also, you need to complete some KYC-documents. Also it's important to think about where the company actually will be based. Most countries consider a Maltese company as domestic company if business is done in the home country. Always consult a local tax advisor.

It took me about 4 weeks to form a Maltese ltd. But I needed to get some documents from far. If you're having everything ready and have somebody in Malta that gives priority to it, it can be done in a bit more than a week. Opening a bank account can be started as soon as the company is formed, hence it may take a bit longer.

Another option can be to have a domestic marketing company and block Swiss ip's at your website. For example promoting UK casinos to UK customers is not illegal in Switzerland.

[xecutable]

I did that for them, apparently they've said that it still is, unless I pay for some sort of a check-up and even then it's uncertain. This is what my lawyer wrote:

"Unfortunately, they cannot confirm us as long as they haven’t checked it. For the check they would need all sort of information, such as technical details domain, place of server, securitymethod etc. They would tell us after we have sent everything, how much the check will cost.

But, they made it quite clear that it is probably still not allowed, even though you have blocked it for Switzerland. "

I highly doubt that if i get into an argument with them, would result in a hassle free acquiring of a residence permit. I have no Swiss company. I'm not familiar with companies so I do not know what 'actually based' means. I was under the impression that if you open a company in Malta, it's located in Malta.

[good4bonus]

Does it makes sense for affiliates to form a company, which receives the payouts from operators?

What do you experienced guys do?

It depends what kind of affiliate you are !
If you are only a kind of "part-time" affiliate or if you are the only one working in the project or if you do it only as "hobby" where basicly the expenses with the project are reduced: NO, does not make sense to form a company

If you have a "big" website with lots of content, forum, visitors, daily updates, people working for you and/or many expenses with the project: YES, makes sense to form a company

[Triple7]

I did that for them, apparently they've said that it still is, unless I pay for some sort of a check-up and even then it's uncertain. This is what my lawyer wrote:

"Unfortunately, they cannot confirm us as long as they haven’t checked it. For the check they would need all sort of information, such as technical details domain, place of server, securitymethod etc. They would tell us after we have sent everything, how much the check will cost.

But, they made it quite clear that it is probably still not allowed, even though you have blocked it for Switzerland. "

I highly doubt that if i get into an argument with them, would result in a hassle free acquiring of a residence permit. I have no Swiss company. I'm not familiar with companies so I do not know what 'actually based' means. I was under the impression that if you open a company in Malta, it's located in Malta.

Yes, I understand. Complex discussion, takes time and costs money.

The thing is called "substance". I don't know how the Swiss tax department thinks about enough substance. In some countries, like for example in Belgium, it were tough discussions. Basically they say no matter where the company is incorporated, as long as it's ran from Belgium, we consider it as a Belgian company.

It's something to ask at a Swiss tax expert. To be sure or to avoid solving one problem with another.