That does not mean anything.

You can transfer capital/IP/shareholdings/operations to lower tax countries and/or companies. However, if you're operating from SK, (simplifying things) you'll probably need to pay SK tax, and register your foreign entity in SK.

The 'general' rule is that you pay tax where the people are, in this case you.

This is not legal advice, obviously.

But it won't necessarily be corporate tax you're paying. You can set up a foreign corporation, with a foreign board and shareholders (this is a large part of the effect you get from "shell company" creation services), and then keep yourself listed as a mere contractor, rather than a full-time employee.

Yes, I know how it all works. Like I said, you can do it. But a proper fiduciary costs you a few grand a year, and at the same time limits what you can do with the company. It takes a whole lot of additional paperwork, and it limits you in certain respects (can’t take direct actions, as a shareholder you need to call for a foreign board meeting, etc). One thing you definitely can’t do is just run a BVI company as if it’s a local company, that will, in most jurisdictions (with a few exceptions, such as the UAE and Monaco), be illegal (fraud charges, etc)

No problem if you’re holding shares through a foreign holding company, or you’re routing around millions in dividends to avoid withholding tax. They don't require much 'action' or operating. But, if you make a mistake (and face it, you probably will, especially if you don’t have good counsel), depending on the country you’re resident in, the fines are mind blowing.

This all is even worse for Americans, with extensive CFC rules barring you from doing certain things.

If this guy is on a student visa, he probably won’t have the resources to do this, and as such, it’s a bad idea to do this. As they say, setting it up is easy, getting away with it much harder.

Again, this is not legal advice

Hmm. One setup I've seen frequently as a Vancouver resident, is a Delaware shell company that makes all the corporate profits, employing a local Canadian engineering contractor (itself a company) that eats all the costs and gets paid only enough to exactly balance its books after salaries and such are paid out. Somewhat reminiscent of Hollywood movie "vehicles" vs. their studios.

Which is to say, if the only thing going out to (or coming in from) the foreign holding company is the revenue—and you still do incorporate locally, but without any expectation of profits to pay taxes on—then it's still complex (even moreso), but less risky.

You need a proper US board, consisting of mainly US residents, to do this, amongst other things. For example, if you’re a full Canadian company, with a top US holding (no operating income), that is fine. Also, if this is a VC setup, there isn't any money to be made, since you're making losses. Loss making companies aren’t really looked at, unless you're using those losses to offset profits somewhere else.

In the end, it’s all about ‘corporate substance’, google it.

I can set up a BVI company tomorrow, capitalise it with $5M, and use that to buy a boat - no one will care (in most cases).

You can’t just have a ‘shell’ create operating income out of thin air (in most cases). Who is operating the business then? IP holdings, internal corporate banks, etc, all that stuff is much easier to do without significant substance. But running a SaaS company, completely out of Canada, without paying some tax in Canada, will be hard to do I think. You could have a US company own all the IP rights, customers, and everything related to the business, and then appoint an ‘agent’ in Canada to operate the SaaS business, and pay them a fee for it, for example. It's better for the agent to at least pay some tax as well. But you still need proper US substance to that.

But you can bet, if you’re booking millions through a Delaware company that you’re just running from Canada, with no proper board etc, there is a real chance this gets challenged. That is, if they find out about it. Delaware might not be the best example, but if you replace it by a low tax jurisdiction (i.e. Cayman Islands, Jersey, Cyprus, etc), that gives you a better idea.

Because, face it, why wouldn't we all have a Cayman company then? :)

Also, different countries have different anti avoidance measures in place to combat this.

The times I've seen it done, it isn't that the Canadian company is actively running the business, but rather that it is in a position of doing work-for-hire contracted software development of a SaaS product which is then owned and "run" by the Delaware company (but, insofar as it is possible, runs itself and outsources things like customer support to third-party services.)

The Delaware company may indeed need local agents, but those can be the same agents (i.e. lawyers) that run twelve other Delaware shells in a particular VC's portfolio. Effectively, the investors make up the Delaware company's board, while the founders of the venture (and the Delaware company itself) make up the Canadian company's board. You could think of it as the investors founding the company and simply outsourcing development to another country—which is, I'm sure, the argument that would be used to defend the practice in a suit.

The important bit is that income flows into the Delaware company, not from nowhere, but from what are in all practicality customers of the Delaware company. The founders—although undertaking 99% of the company's day-to-day operations—are nowhere to be seen from a customer perspective.

Yes, that sounds reasonable.

Well, in this specific case, you can probably argue that business (and not tax) reasons are at the heart of the decision. After all, the US corporate tax rate is higher than the Canadian one.

But, the OECD is trying to combat some of these practices. Tax authorities in certain jurisdictions are now also disregarding directors who are sitting on 10-20-50 boards for substance purposes. Some countries also want them to have relevant skill sets, for example: can an ex real estate developer really be much added value for a pharmaceutical subsidiary company doing Ebola research? He might be, but many western countries are running an extreme deficit, so they are looking for all sorts of ways to increase revenue collection

In my limited experience Asian countries are less flexible than western countries. In the west as long as you're paying your taxes they don't care where the money comes from. Other places you may need to do more work - set up a corporatoin, pay various benefit taxes/fees, etc.

Are you trying to integrate into SK? If not you may just want to keep things in your home country. If so, then get a lawyer. No matter what you have to pay SK taxes. The other stuff beyond taxes though can get expensive.

I don't know how SK law works, but in most of the rest of the world the corporation is deemed tax resident where it is managed from. See for example:

http://www.cra-arc.gc.ca/tx/nnrsdnts/bsnss/bs-rs-eng.html#re...

So, unless SK has some very permissive tax laws (which I suspect is unlikely), you'll just be making things more difficult for yourself by setting up an offshore corp.

@rgbrenner: Thank you but I am a student and study visa is not qualified for setting up a company. Otherwise, you have to invest ~100,000 USD to get a business visa then you can setup your company OR you have to spend time working in SK, gain some point from other activities (Korean language, community service..) to be qualified for a F2 visa (which is eligible for setting up a company). In my opinion, a very complicated system for foreigners who want to do business in SK.

Where are you from? One option could be to incorporate a company, and appoint your mother or father as a director.

Not completely legal, but if you're testing a market (and not making any money) I doubt anyone will care.

I think that's a much 'safer' way than setting up a company in some obscure jurisdiction (e.g. Estonia, Lux) where you don't speak the language.

Are you actually making money? Set up a business in your home country and pay yourself from that and pay your SK taxes. If you're not making enough to pay a lawyer and an accountant then just drop it unless you're willing to never set foot in SK again.

... it gets even more complicated. Maybe you should talk to a lawyer about this?

Ok.. but _you_ are in SK.. and I assume you'll be doing some amount of work on the service... that would often be enough to qualify as operating in the country. (Again, I don't know anything about SK law.. so I don't know if that's the case.)