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Case study 11: Offshore Online Sales of Electronic Goods

Let’s take the example of the company Tulipe Ltd whose business activity is focused on marketing of software product. It mainly sells its products via mail using a catalogue and via direct sales to individuals. The company’s headquarters are located in the UK, and it has set up an online platform through which it is possible to place orders and arrange delivery regardless of whether you are a company or an individual.

The website also receives purchase orders from outside the UK. Netsource Ltd is an agency that is in charge of managing this website. Netsource Ltd informed the company that its competitors have started marketing of digital software and encourages Tulipe Ltd to do the same. We are instructed by the company Tulipe Ltd to study the feasibility of the new development project, taking care of the international tax issues.

Here’s what came out from the report:

  • Such a project could generate significant gains concerning packaging expenses, warehousing, handling and transportation by sea.
  • Digital software is essential in the software industry, thus the company Tulipe Ltd would do well, by moving its production to an offshore location.
  • It is advisable to settle in the Cayman Islands and set up a distinct legal entity from the one in the UK. This is a sure way to stay in the legality of the British legislation vis-à-vis
  • The technical side of this review will allow securing an internet provider. In fact, in order to ensure downloading of the advanced software, you need a high speed connection, thus the Cayman Islands are required to have adequate telecommunication facilities.
  • After the audit was concluded, the partners representing the company Tulipe Ltd entrusted formation of the new company to us. The name of the new entity will be Softdown Ltd.

Once incorporated, Softdown Ltd may decide to employ services from the company FAI Ltd whose IT services are efficient enough to handle the Softdown Ltd server.

To avoid additional charges generated by the establishment of offices and hiring local staff, Tulipe Ltd has decided to assign the technical methods of implementation and the management of the new website in the Cayman Islands to the IT service provider.

The review also states that this offshore entity established in the Cayman Islands can offer products at more competitive prices, since it escapes the VAT required by the European Union and does not pay any contribution from the US sales.

The division of tasks related to the implementation of the Softdown Ltd project:

  • We are in charge of the process of incorporation of Softdown Ltd, an offshore company based in the Cayman Islands and exempt from corporate income tax.
  • The company Tulipe Ltd will be responsible for negotiations with software vendors regarding the management of licenses and technical procedures. It will also develop more competitive prices for online services.
  • Netsource Ltd and FAI Ltd will be assigned to implement the associated servers and systems. Their tasks also include managing databases and software, taking care of the front-end catalogue and securing multi-currency payments.
  • We are negotiating with banks regarding the opening of offshore bank accounts, authorization procedures and activation of credit cards.

Precautions to take:

The success of this offshore project is mainly based on the formation of the company in the right jurisdiction, opening of offshore bank accounts and management of the offshore website by a local host.

It is therefore necessary to find a different IT service provider than the one which is under the British law. The personnel assigned to running this business should have the same status. Outsourcing is the best solution in this situation.

Finally, we must add that advertisements that financial benefits are consistent can be added to this website. It will therefore encourage the establishment of a visible advertising network on the web.

See also:

Offshore company formation

Open a business in Cayman Islands

Benefits of an offshore service company

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