E-Commerce is now synonymous with the marketing, ordering and sale of goods over the Internet, ranging from digitised products (i.e. items that can be reduced to bits and bytes such as music, e-books, newspapers or software), to services (e.g. travel, investment and on-line games) and of course physical products such as books, toys, electrical goods etc.
E-Commerce consists of both business to customer and business to business commerce, which together generate revenues of around US$180 billion. With huge projected growth in the European, South American and particularly the Asian markets, these revenues are expected to rise to over US$1000 billion in the year 2002, of which approximately 80%will be from business to business transactions.
Two broad categories of participants have emerged in the E-Commerce arena:
- new and already established companies wishing to either compliment or diversify their existing business and traditional sales and marketing structures and
- a new brand of start-up electronic company or "virtual company", structured entirely around its fully automated web-site, through which it conducts all of its business.
By transcending international boundaries, the Internet and the world-wide-web enable a company to efficiently and cost effectively market, sell and deliver, by electronic means, products and services to customers located in target countries often thousands of miles away.
Offshore jurisdictions, unable to offer "complete" business solutions to traditional forms of business - due largely to the obvious geographical difficulties – are - due to the Internet and today’s technical resources - ideally positioned not only to provide complete solutions for E-Commerce, but to do so on terms better than those available in onshore jurisdictions. This is particularly true in respect of those E-Commerce companies selling digitised products and services that do not require warehousing or physical delivery. With the correct technology and support infrastructure in place, good offshore jurisdictions can offer companies engaging in E-Commerce an enormous edge over their onshore based competitors.
The benefits of locating an E-Commerce company in an offshore jurisdiction are no different than those valued and recognised by traditional forms of business:
- Low taxes
- Light regulation
- Ease and speed of incorporation
- Competitive cost structures
Much is made of the tax advantages of doing business from an offshore jurisdiction, and these advantages are of course important. But they may not necessarily be the most important consideration for an E-Commerce company wanting to establish offshore. In fact tax considerations alone should never drive and shape a company’s E-Commerce strategy.
Equally as important is government attitude towards, and its regulation of, E-Commerce. In an industry that is changing daily, where yesterday’s technology and business practice is often considered obsolete today and innovation and flexibility are essential in order to successfully compete and grow, operating from a lightly regulated E-Commerce friendly jurisdiction, is of paramount importance.
The good offshore financial centers all have tried and trusted corporate structures, designed exclusively for conducting international business. Although these structures are very suitable for E-Commerce, for international tax (see "E-Commerce: Thinking Tax") and regulatory purposes it is essential that, not only should the company be incorporated in an offshore jurisdiction, but also that the server on which its web-site is located, its payment processing and its banking are all located offshore.
There are currently a number of offshore centers around the world competing to attract E-Commerce to their shores. Many of these have either recently enacted legislation, or are presently considering new legislation, specifically designed with E-Commerce in mind. While legislation does create some certainty and business/consumer confidence it is not in itself a pre-requisite for E-Commerce. Factors influencing a company’s choice of jurisdiction for E-Commerce should include:
- Reputation and integrity of the jurisdiction (track record in the offshore financial industry)
- The availability of reliable, state of the art, telecommunications at competitive prices
- The presence of an established professional and banking infrastructure
- Local government support for E-Commerce
- The availability of local technical expertise
- Political and economic stability
- Accessibility of jurisdiction (managerial/technical staff must be able to reach the jurisdiction quickly)
- Standard of living and quality of lifestyle (to encourage expat employees to re-locate if necessary)
Notwithstanding various initiatives from certain international economic and trade organisations, carefully selected offshore jurisdictions will continue to offer enormous benefits to E-Commerce companies. However, due to the very nature of these companies (i.e. engaging in daily, cross-border commercial transactions in a dynamic, technologically driven industry) choosing the right offshore center for your E-Commerce venture is critical.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.