Offshore Merchant Accounts - Saving Tax (Il)Legally?

Introduction to Offshore Merchant Accounts

Though offshore accounts have somehow gotten a reputation for being illegal – shady at best – they do have advantages that fall within the legalities of many countries if used properly. The truth of the matter is that offshore banking services, including merchant accounts, play a crucial role in the financial world. Offshore financial services actually provide businesses the advantage of extending their operations to the rest of the world for a reasonable cost.

There are so many ways in which offshore banking can be used by businesses. One important aspect of offshore banking is the setting up of an offshore merchant account. More often than not, domestic banks in the United States offer merchant accounts for much lower prices than other international banks. This is due to the high rate of competition in their domestic market. As such, the competition drives the prices lower and lower. There is a downside to American merchant accounts, however. Due to the low prices, financial institutions offering merchant accounts have to employ stricter measures in the application procedure. As such, some businesses find it difficult to acquire merchant accounts. This is where offshore merchant accounts could play a critical role.

Reasons Offshore Merchant Accounts May Be Right For You

Ease for New Businesses

One of the difficulties that domestic merchant accounts pose is that they ask for a lot of requirements. These may include credit history, the type of business you are running, your business plan, funding and more. For new businesses, domestic merchant accounts may require a large deposit to be paid upfront. On the other hand, offshore merchant accounts are friendlier towards entrepreneurs and would not likely ask for such stringent requirements even from new businesses.

High Risk and “Sin” Businesses

We have to face it – not all businesses are the same. Domestic merchant account providers in the United States normally have a list of business sectors or industries which they will not service. These include those which pose a high risk and those which are considered immoral or bordering on that. As such, if your business has something to do with the pharmaceutical industry, gambling, or adult material, you would probably have a difficult time acquiring a local merchant account. Offshore merchant accounts do not normally place such restrictions. If you are in the high risk business sector or gambling sector, then you may want to consider an offshore merchant account to facilitate payments.

Income Protection

This is perhaps the foremost advantage of having an offshore merchant account. In addition to this, legal tax reduction is a big possibility with an offshore merchant account. A low tax or no tax jurisdiction can help you achieve both asset protection and tax reduction in a totally legal manner if executed properly. There are many countries outside of the United States which welcome foreign investments and offer a high level of technology and banking infrastructure.

Tax Reduction Issues

Being the basic premise of opening offshore merchant accounts, tax reduction is surrounded by a myriad of issues. The main idea is that once you have an offshore merchant account, you have no need to declare your earnings off the activities involved. This may be true for residents of certain countries but if you are a United States resident, the same thing does not hold true.

The truth is, the United States has laws which require its citizens to declare any income made even outside of its shores for tax purposes. As such, if you are an American with an offshore merchant account, you will still be held liable to declare whatever earnings you may have made off your offshore merchant account. As long as you don’t declare it you may be safe from tax issues but eventually, you would have to gain access to your earnings and that is when the IRS would flag you.

Of course, there are ways and means around that, one of which is to totally surrender your ownership to another person or entity, which is also offshore. This is where the other aspects of offshore investment and banking come into play. Again, some may interpret this as shady while others think it is perfectly logical. Whatever your perspective may be, the bottom line is that there are perfectly legal ways to save on taxes by using offshore merchant accounts. You just have to know how to do it the right way.