BUSINESS STRATEGY

Part 4 of a 6-part series

[Part 1, Part 2, Part 3]

In previous articles, we discussed the basics of corporations and their use to create confidentiality for an investor that does not wish to be associated with an adult business.BUSINESS STRATEGY

Part 4 of a 6-part series

[Part 1, Part 2, Part 3]

In previous articles, we discussed the basics of corporations and their use to create confidentiality for an investor that does not wish to be associated with an adult business. In this and the next article, we discuss the misunderstood world of offshore business as a means for creating nearly total privacy. This article will be a general primer on the offshore business world.

Flying Low On The Radar Screen – Part 2

As you may recall from the previous article in this series, you nailed down the highly profitable concept of a site featuring naked Greenland models. As with any outstanding business idea, you were faced with the problem of raising money. This can be particularly difficult in light of the stigmas attached to being involved with an adult business. With this in mind, let’s assume that you have found a wealthy investor who is willing to pony up the money. The only problem is that the investor has a very public persona and cannot risk being exposed as a shareholder in an adult business. The best means for creating nearly absolute anonymity is to go offshore.

What Is Offshore?

What exactly does one mean when they say they are going “offshore?” Going offshore merely means that you are doing business in a location other than your native country. That is it. If you have a bank account in Canada and you reside in the United States, you have gone offshore. Congratulations. Not exactly what you expected, is it?

If you had to guess the identity of the top five offshore jurisdictions in 2000, what would you say? Switzerland? No. Bermuda? No. The five biggest offshore centers were Tokyo, London, Hong Kong, the Cayman Islands and… New York for non-citizens of the United States. Remember the stories about money laundering by Russians at the Bank of New York? To a Russian, banking in New York is going offshore.

How much business is done offshore? More than you could possibly imagine. Let’s take a stereotypical offshore jurisdiction such as the Cayman Islands. First, find a globe or a map on the Internet and take a look at the size of the Cayman Islands. They are close to Cuba. No, that is not a speck on your contact lens. Now that you have an idea of the size of the Caymans, how much business could possibly be done there? In 2000, the figures were as follows:

Registered Offshore Companies: 57,900
Total US Dollars Held By Banks In Caymans: $747,600,000,000
Financial Institutions On The Islands: 465

These figures are undoubtedly LOW! The point to be taken from this is that a serious amount of money moves in these jurisdictions because they are extremely business friendly. No, most of it is not drug money.

How Could A Dinky Collection Of Islands Get This Much Attention?

There are two primary benefits to going offshore: privacy and a lack of taxes. Many countries have enacted laws that provide for complete confidentiality when doing business in their country. As long as you are not actively creating or selling the company product in the country, they will also waive all or most taxes on your business. Put simply, if I form a corporation in Bermuda for the purpose of building computers, nobody will be able to discover that I am the owner of the corporation. Additionally, I will not be taxed in Bermuda as long as I don’t move my manufacturing to Bermuda or try to sell the computers in the country. If I start the same company in California, anyone can discover that I am the owner and I will have to pay state taxes as well as a minimum of $800 a year for “the privilege” of doing business in the state, not to mention worker’s compensation, health benefits, etc. If you replace the computer business with an adult business, where would you want to be incorporated?

A Note On Taxes

Going offshore is not a tax strategy for US citizens. As a citizen of the United States, you are taxed on your worldwide income. There are strategies that can be employed to eliminate taxes by going offshore, but they only apply if you have at least $15,000,000 or so in disposable income. If you have this laying around, for the love of God please call me! Well, back to reality. Many of you have been spammed or “heard of” some great method for avoiding taxes offshore. 99% of these programs are scams that accomplish only two things: prying money out of your hands and getting you in trouble. Don’t be a sucker. As to the other 1%, feel free to call me collect if you have $15,000,000 or so laying around.

If you have an offshore account earning interest or collecting revenues and you are not reporting taxable income to the IRS, you are breaking the law. Ah, but they will not catch you, right? Wrong. Sooner or later they will. Recently, an offshore bank with a branch office in Florida was ordered to release the identity of all US citizens who had offshore accounts with American Express Cards. There were thousands of people. A lot of those people thought they would get away with it also. How is it turning out for them? Flash on over to the IRS auction site. I am sure you can pick up one of their cars fairly cheap.

Well, what is the worst that could happen if I get caught? Initially, you should understand that you can go to jail for tax fraud. Your property will also be auctioned off to pay your tax debt. Cutting to the chase, you can be wiped out. As a result, don’t use offshore jurisdictions as a tax strategy unless you have professionals handling everything and you can afford to pay them. The sole purpose for most companies should be confidentiality and asset protection.

Picking Your Offshore Country

Okay, you and your investor have decided to go offshore. We will discuss the incorporation strategy to make this a reality in the next article, but first you must figure out which country you are going to use. How do you do this?

First, you must get an attorney who practices in the offshore arena. Yours truly does, but there are many available. Interview them and find out how often they have done this before. Don’t be the first client!

Secondly, where are you going to put your business? Slow down and use your common sense. Do you speak Spanish fluently? No? Well, Venezuela is probably not a good choice for you. Don’t speak German fluently? Then don’t try to open an account in Andorra or Northern Switzerland. If you have a question for your banker at some later time, you want to make damn sure the two of you are speaking the same language.

Third, pick a jurisdiction with a low profile and a stable economy. When you think of the Caymans, what comes to mind? Drugs, mob money, cheats and scam artists. Do you think this is a good place to open your account? Probably not. In the previous paragraph, I mentioned Andorra. Have you ever heard of it? Do you even know where it is? Might it not be a low profile location? Remember, the point of this exercise is to create anonymity for you and your investor. Don’t spend a lot of money going offshore and then walk around at one of the conventions telling people what a big shot you are because you have a corporation in Andorra. Creating status is not a smart reason for going offshore. The overall theme of going offshore is to create security. All decisions on your offshore strategy should be focused on this goal.

That’s it for now. In the next article, we will apply the above information to the Greenland Girls business.

Richard Chapo is the lead attorney for AdultInternetLaw.com, based in San Diego, California. AdultInternetLaw.com provides legal services to adult businesses, focusing on business strategy, corporate and contract preparation and site reviews. He can be contacted at adultlaw@yahoo.com. This article is for general education purposes and does not address every facet of the laws surrounding the subject. Nothing in this article creates an attorney-client relationship.