E-Commerce can provide you with a good opportunity to set up an internationally based business. Such a business can be operated at arms length from your own home (high tax) jurisdiction or from anywhere in the world. Depending on what is being sold, an e-commerce business is the ultimate portable venture.

To take advantage of the e-commerce opportunity for tax optimization purposes, you need to set up an offshore corporation that you neither own nor control. This then can be your platform for an international business with great tax benefits.

A few of the basic ingredients would therefore include:

1. An IBC and a bank account in a tax haven country.
2. Web hosting in a country other than your own.
3. Credit card merchant account - outside your home country.

To make this arrangement even more secure, you should also ensure that whatever product or service is being provided is also based in, or distributed from, an "offshore" location. Consequently, there is no literal business activity-taking place on your home territory. Even better, you can employ people offshore. What you want to achieve is a genuinely international business, one outside your own tax jurisdiction.

The corporate structure (IBC) forms the basis for this strategy as it provides you with the legal framework for doing business. The web-hosting location adds another layer of protection - and enhances your international location. The third element of the strategy is your merchant account by which you are authorised to debit people's Visa / Mastercard (and others).

Getting a merchant account in your home country should not be difficult but that is not the best option. You need a merchant solution that is outside your jurisdiction. Why? Because the proceeds of all sales should bypass your own country's banking system. Remember, this is an "international" business you're setting up, so you need an international payment solution.

To activate your international merchant account, you need the services of a clearinghouse - a third party service that will allow you to bill using their merchant status. And, as you would expect, this type of service costs more that one in your country of residence.

Most domestic merchant accounts will require a 2.5% -3% discount rate - the percentage they take of your turnover. However, when using a clearinghouse service, the discount rate is higher. You can expect to pay anywhere from 4% to 15%. The higher rates are being reserved for the riskier businesses.

Additionally, the clearinghouse will require you to put up a security deposit in order to protect itself from any fraudulent use. This is usually collected in the form of a "rolling reserve," which means they retain say 5%-10% of your sales revenue for a period of three to six months. Thereafter, your funds are released on a pro-rata basis.

The advantage of this type of clearing service is that they will wire your sales proceeds (less discount and reserve) to your offshore corporate account. If you are selling information services - then it's even easier, as you can have the actual information located offshore as well. What that means is that you have no trading base in your home country. You have no operations, no stock, and no transactions - nothing. You can also contract with third party fulfilment companies anywhere in the world to ship your product / service, and many will provide you with credit card payment options as well. Drop shipping is also a very commonly used option since you will have no inventory costs to consider.

That leaves just one thing. What about the money you make and how do you get it back onshore without tax liability? The obvious way, of course, is to use a non-associated offshore card to draw funds from an ATM but this is not a long-term solution, especially if you need to show some income to justify your lifestyle.

The easiest solution is to treat this e-commerce business as a secondary income stream and build up an offshore nest egg. However, if this were indeed your primary income, then you would need to repatriate funds at some stage. This "drawn" income would be taxable in your home country (and you'd need to have proper paperwork to justify this income) - leaving undistributed profits to accumulate offshore.

For instance, let's say that you are selling a magazine. The company publishing this magazine would be the IBC and all the accompanying business arrangements already discussed would be in place. You maybe contracted as the editor of this magazine - and therefore receive remuneration accordingly. That income would be taxable in your home country - but would not represent the full profit picture of the company as a whole. The balance of your profit would be retained offshore.

Implementing a turnkey E-Commerce business:

Sovereign Management Services can assist you in all the steps to set up an e-commerce here in Panama. Once your structures have been set up we can assist you with the setting up of a bank account to receive payments from the credit card processor. The principals of our firm have been in the merchant credit card processing business for over 10 years and can provide you with the right processing platform. There will be a number of variables depending on your business model. Other then the bank account, the following package of information will be needed to initiate your credit card processing service:

1. Financial References: financial reference letters are required to open the account.

2. Professional References: Two professional reference letters are required to open the account.

3. Letter Describing Your Business: A letter should be provided with the following information:

A. Summary of your business activities.

B. Description of products and/or services sold online.

C. Jurisdictions your company is currently doing business in.

D. Year your company was incorporated.

E. Previous or expected business volume (annual revenues, sales, etc.).

G. Estimated charge-back percentage.

H. Website URL that will be used for selling your product or service.

I. Jurisdiction where site is hosted.

4. Photocopy of passport for all company directors, officers, and legal representatives or signatories of the account.

The cost to fully set up your credit card merchant processing account in all its aspects will vary in the $1000 to $1500 range depending on the amount of work involved.