Nomad Capitalist Chapter 9: Offshore Companies - Choose Your Own Tax Rate

Henderson is walking along Port Hercule in Monaco, looking at yachts. He notices something interesting. Every boat has its country of registration on the back. The big yachts are registered in the Cayman Islands, Malta, Marshall Islands. The small ones are registered in France.

The wealthiest yacht owners chose the most favorable tax jurisdiction. The smaller boat owners did not bother. Whether the offshore guys had more money because they always optimized, or they just planned better because they had more at stake, Henderson does not know. But the pattern was clear. Going where you are treated best meant a bigger yacht. And the same principle applies to your business.

That is the core of this chapter. You can choose your tax rate. Not by cheating. Not by hiding money. By simply putting your company where the rules are better.

The Real Cost of Not Doing This

Henderson starts with a number that should scare any entrepreneur. If you live in a place like the United States or most of Western Europe, your total tax burden can approach 50% or more. Federal income tax, state tax, local tax, Social Security, Medicare, and whatever other fees they invent. By the time you add it all up, half your money goes to the government.

He tells the story of Tim, a 24-year-old Amazon seller in San Diego making $9,000 a month. Sounds great, right? But Tim had a $43,000 tax bill from his first year. He could not reinvest in his business because all his profits went to taxes and California rent.

Henderson reframed the cost for Tim. That $43,000 in taxes was not just $43,000 lost. In Tim’s business, every dollar invested returned three dollars. So the real cost of that tax bill was $129,000 in missed growth. The tax system was not just taking Tim’s money. It was taking his future money too.

This is the part that really hit me. I have been in IT for over twenty years. I have seen talented people build great things and then watch a huge chunk disappear to taxes. And most of them never even considered that there might be another option. Not because it was hidden. Because nobody told them.

Henderson himself paid almost $1 million in taxes before he decided to change something. Imagine what you could do with that money. Even $50,000 a year saved on taxes, invested in real estate in a place like Tbilisi, Georgia, could give you $500,000 in property and $50,000 in annual rental income after ten years. That is the exact amount you were paying in taxes, now paying you back.

Not Every Business Can Go Offshore

Here is where Henderson is refreshingly honest. This is not for everyone.

A bankruptcy attorney working in US courts with US clients on US legal matters? Not a candidate. Her income is clearly US-source. There is no argument to be made that her business operates somewhere else.

A swimming pool company in Arizona? Same thing. Guys driving trucks on Arizona roads, cleaning pools in Arizona backyards. Arizona and the United States have a good case that you owe them taxes.

But a consultant? A coach? An Amazon seller? A Kindle publisher? An e-commerce store owner? Anyone whose business runs on internet, phone calls, and people who could work from anywhere? Those businesses can absolutely go offshore.

The test is simple. Can you make a case that you and your business operate from the place you claim? If your staff is in the Philippines, your customers are global, and all you need is a laptop, then yes. You have options.

Henderson tells a funny story about a guy living in Asia who still uses a California corporation for no good reason. He is missing out on hundreds of thousands in savings. Why? Because he set it up when he started and never bothered to change it. That is the danger of inertia. The default option costs you money every single year.

Offshore vs. Onshore Companies

This is where the chapter gets practical. Henderson draws a clear line between two types of foreign companies.

Traditional offshore jurisdictions are places like Belize, Seychelles, British Virgin Islands, and the Gambia. They offer zero taxes, zero record keeping, and total anonymity. Sounds perfect, right?

Not so fast. These companies are becoming increasingly toxic. Banks do not want to open accounts for them. Governments are cracking down on them. Some countries are outright blacklisting them. Henderson mentions an Asian country that decided to ignore the tax benefits of any Belize company and treat all assets as taxable. They simply did not trust the jurisdiction.

And there is the client perception problem. If Henderson asked you to send thousands of dollars to a company in the Gambia so he could start working on your tax strategy, you might think twice. Your bank would definitely ask questions.

The better option, Henderson says, is onshore companies in real countries with low taxes. Places like Ireland at 12.5%. Bulgaria at 10%. Montenegro at 9%. Georgia at 15% but with a deferred tax system that can make the effective rate zero. These are real countries with real banks, real services, and real respect from the international financial system.

You trade a zero on paper for something that actually works in practice. A 5% tax rate in a country where banks accept you, clients trust you, and governments leave you alone is better than a 0% rate in a jurisdiction where nobody will open a bank account for you.

The Tax-Friendly Quadrant

This is Henderson’s framework for building a complete tax strategy. It is four boxes, and you need to address all of them. Skip one and the whole thing falls apart.

Quadrant 1: Leaving your home country personally

If you are still a tax resident in a high-tax country, it does not matter where your company is incorporated. You will be taxed at home. An offshore company without personally going offshore just gives you more paperwork.

For Canadians, Australians, and most Europeans, this means establishing a real life somewhere else. Close your bank accounts at home. Sell the house. Get a residence permit in your new country. You need to prove you actually left.

For Americans, it is different. The US taxes based on citizenship, not residence. But there is the Foreign Earned Income Exclusion. If you spend most of the year outside the US, you can exclude roughly $110,000 of earned income from federal taxes. That is not nothing. And if you are an employee of a foreign company, you can also avoid Social Security and Medicare taxes.

The only way for a US citizen to fully exit the tax system is to renounce citizenship. Henderson covered that in an earlier chapter. For most people, the FEIE is enough to start with.

Quadrant 2: Moving your business out

If your business is just you and a laptop, this can be as simple as closing your US LLC and starting a new company elsewhere. If you have intellectual property, patents, or passive income streams, it gets more complicated. You might need to sell assets to yourself, and your old country might want taxes on that sale.

Henderson’s advice: if you are just starting a business, start it offshore from day one. Do not build something in your home country and then try to move it later. Moving is always harder than starting fresh.

Quadrant 3: Choosing where you personally pay taxes

Several options here. Move to a zero-tax country like the UAE or Cayman Islands. Move to a territorial tax country like Malaysia, Georgia, Singapore, or Panama where you only pay taxes on locally earned income. Since your company is in a different country, your income is not local. Tax rate: zero.

Or move to a country with a lump-sum tax program. Italy, Greece, Gibraltar, Switzerland, and others will charge you a flat annual fee regardless of income. If you make $10 million a year, Italy’s $100,000 lump-sum works out to 1% tax rate. Not bad.

Henderson also mentions temporary tax exemptions. Portugal and Uruguay offer multi-year exemptions for new residents. You could live in Portugal tax-free for several years and then move on when the exemption expires.

And there is always the perpetual traveler option. Never stay long enough in any one country to become a tax resident. Henderson’s Trifecta strategy from Chapter 3 fits here. Split time between three bases. Never exceed six months anywhere.

Quadrant 4: Choosing your corporate tax rate

This is the final piece. Henderson identifies four corporate tax systems around the world.

First, the traditional zero-tax offshore jurisdictions we already discussed. Good on paper, bad in practice for most people.

Second, low-tax onshore countries. Ireland, Bulgaria, Cyprus, Montenegro, Mauritius. Tax rates from near zero to 12.5%. Real countries with real banks.

Third, deferred tax systems. Estonia pioneered this. Your company pays zero tax on earnings until you distribute them. Keep the money in the business and it grows tax-free. Only pay when you take money out. Georgia and Macedonia followed Estonia’s lead.

Henderson illustrates with the classic penny-doubling story. A penny doubled every day for a month becomes $5.3 million. But add a 30% tax on each day’s gains? It becomes $48,000. That is the difference tax makes on compounding growth. If your business reinvests profits to grow, deferred tax systems are incredibly powerful.

But if you run a cash-flow business and need to pull money out regularly, deferred taxes do not help. You just end up paying the regular rate every time you distribute.

Fourth, tax exemption systems. Hong Kong is the prime example. Corporate tax there is 8.25% to 16.5%. But if your company does all its business outside of Hong Kong, you can apply for an exemption and potentially pay zero. Malta has something similar, reducing its 35% rate to 5% or lower for non-resident owners. You run a legitimate onshore corporation that gets special treatment for not competing with local businesses.

Putting It Together

Henderson walks through a complete example. You set up a Hong Kong company that does business outside Hong Kong. Corporate tax: zero. You become an employee of that company. You establish tax residence in Portugal under their non-habitual resident program, which exempts non-Portuguese income. Personal tax: zero.

All four quadrants addressed. Total tax: zero. Legally.

Is it that simple in practice? No. Henderson admits he skipped over many details. You need expat accountants, international lawyers, and people who actually understand cross-border tax planning. Your regular CPA back home will not know any of this. Henderson’s own US tax firm, which produced a tax return the size of a phonebook, had no idea he qualified for the FEIE when he started traveling.

But the principle is real. You can choose your tax rate. Not just at the federal level. Not just by moving from California to Nevada. You can choose it across countries, across systems, and across all four quadrants.

Key Takeaway

The most important idea in this chapter is not any specific country or tax strategy. It is the shift in thinking. Most people accept their tax rate as a fixed reality. Like gravity. Henderson says it is not. It is more like rent. You can move somewhere cheaper.

Starbucks, Google, and Facebook all do this. They shift profits through subsidiaries to low-tax jurisdictions. They use the Double Irish Dutch Sandwich and other structures. The difference is they need armies of lawyers and complex networks of companies to pull it off. A small business owner with a location-independent company can achieve the same result, often with a simpler setup and an even lower effective rate.

You do not need to be angry about taxes. Henderson is clear about that. Nomad Capitalists are not anti-government activists. They are pragmatists. The government is not going away. What you can change is whether you stay in a system that takes half your income when there are legal alternatives.

Even if you save $25,000 a year on a $100,000 income, that money compounds. Invest it. Build something with it. Or just enjoy a better life. Henderson says he increased his charitable giving once he kept more of his money. That is an option too.

The bottom line: your tax rate is a choice. Most people just never realized they could choose.

Book: Nomad Capitalist by Andrew Henderson | ISBN: 9798461831486

Previous: Chapter 8 - Offshore Banking Next: Chapter 10 - Foreign Asset Storage

Part of the Nomad Capitalist series