Of course we’re going to be discussing these strategic dynamics of operating an online business from the perspective of its subsequent tax implications, which more specifically suggests that we’re focussing on the tax reduction significance. I’m not going to get into a debate about how wrong or right tax avoidance is – tax avoidance, not tax evasion (which is against the law) – so nobody is encouraging criminal activity here.
So, getting right into it – there are obvious tax advantages to running a business remotely, which basically means it would be registered in a jurisdiction that has what are considered to be very favourable tax laws. Tax havens come into focus, naturally, but for the most part these are quite expensive places to get set up in with your business, because you might need to rent some office space, even if you’re not going to be occupying it physically. It’s like paying that monthly fee for those virtual offices which come fully equipped with an administrative secretary to complete tasks such as scanning and emailing physical legal documents that need to be handled as such.
It also has a lot to do with the prestige that comes with, well, having a prestigious business address where your company would be registered, for example if your permanent business address is somewhere in the Cayman Islands, automatically there is some prestige associated with it. It’s automatically associated with the kind of success suggested by the cost of registering a company there and maintaining offices.
However, there are indeed clear advantages to officially setting up your web based business at a permanent address such as one which would be in the Seychelles, for instance, because in such jurisdictions there is no income tax levied on a business whose income is not from the local market.
Otherwise some of the biggest tech companies in the world do it, like how a Google Ads earnings cheque would come from Ireland though the post. You can do your own research about the business tax laws in Ireland…
Beyond tax however, the dynamics of operating an online business perhaps all come back down to savings in overheads, simply because these would be very low. What you essentially have to spend on is the technical infrastructure on which your online store operates, such as the web servers hosting your site, but there’s no need to get technically involved in that side of things. The save the date templates you can use to create your save the date cards to be delivered to you don’t exist physically until you have them printed out and sent, for example, and so they don’t take up any physical space in a high street store somewhere for which rent would need to be paid – the additional costs thereof which would have been passed on to the customer, of course.
So the bottom line is online businesses take advantage of favourable tax laws and production-cost reduction mechanisms to ultimately focus on delivering a great product or service at the lowest price they can manage.