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Case study 10: Offshore Online Sales of MP3 Music

Let’s take the example of a British company Noah Ltd. It specializes in the distribution of music CD-ROMs, through a network of shops in the town centre. For 25 years now, this company has been performing this activity with great success.

Noah Ltd does not have a website yet, but it wants to present their offers to its customers and give the possibility to sell and download digital music online. To benefit from a professional guidance and especially to succeed with this strategic development project, the company Noah Ltd contacted a consulting firm in electronic commerce: Netbased Ltd.

Solution for Noah Ltd. to sell MP3 music online

After a careful study of the case and the expectations of society Noah Ltd, Ltd Netbased concluded that this company can use the MP3 (Motion Picture Experts Group-1 / Level3) for the online distribution of music files in digital formats. Known to the public and used by countless independent artists, this MP3 file will be downloaded via website.

The company Noah Ltd will be charged by the record companies, depending on the number of units sold. Netbased Ltd also specifies that it is sell music in digital form via an offshore jurisdiction.

Since downloading digital music online requires an appropriate bandwidth, this offshore jurisdiction will benefit from efficient telecommunication facilities and modern technologies. Moreover, according to Netbased Ltd., for this new business, the company Noah Ltd will create a separate offshore company for the already existing business. This is the only way to avoid the record companies renegotiating the current distribution contract.

With a separate offshore company, the already existing company Noah Ltd will achieve its goals, although it cannot offset the initial losses to the newly created offshore company.

Establishing an Offshore Company for Online Sales

The shareholders of Noah Ltd each have their own tax conditions. The majority of them have decided to finance the new offshore company. In this case the profit generated by this company will be exempt from tax in UK.

Netbase Ltd as a consultant proposes Jersey jurisdiction as currently the ideal destination for the project for the company Noah Ltd. Because this country has an excellent infrastructure and VAT is not applicable to sales. But the most important thing is that this jurisdiction has a special relationship with the UK.

After considering all the facts, Noah Ltd company has accepted the proposal of Netbased Ltd and has set up a new company named CI-Net and provides services in digital broadcasting.

The Specialists of facilities in electronic commerce in Jersey, CI-Net offers the following approaches to the project:

  • The offshore company established in Jersey will pay a maximum tax of 2% on the profits resulting from its activity.When these profits reach more than£ 10m, the tax rate is reduced to 5% .
  • The company Noah Direct Ltd carries out its activities from a small office on the island of Jersey and a dedicated server will be set up with the emergency equipment provided by CI-Net,
  • CI-Net will be responsible for the control of a multi-currency secure payment system,
  • A bank account for the offshore company will be opened in Jersey where online banking and credit card services are available,
  • Storage, processing and download systems will be implemented.

Throughout this work, the company Noah Ltd will handle the compilation of a catalog in MP3 format while concluding licensing agreements with the existing partners in the music field.

Although this business requires a large budget, the company Noah Ltd can expect satisfactory results. Also, without paying excessive fees, it can now offer its customers other types of downloadable products: graphic files, videos and other publications.

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