Erik is exactly correct in stating it is not always a win to incorporate in a foreign tax haven. In theory, the idea of the utilizing an overseas tax haven may seem more attractive due to how the benefits of such a move are often glamorized due in part to the obvious tax savings but do not consider the incidental costs and risks that are attendant to such a move.
For a startup one of the more compelling reasons to not incorporate in a foreign tax haven rests in the fact that cost to incorporate and administer a foreign corporation is justified in that the normal startup at the time it needs to incorporate is not bringing in revenue so dumping money into a foreign tax haven incorporation really does not make sense. Further, although it is not illegal, per se, to incorporate overseas to reduce tax liability your company will incur a great deal of unnecessary scrutiny from the IRS. Unless you are a Fortune 500 company who could save millions in tax payments, why bother? Further, if the structuring and administration are not done properly legal and financial risk is not justifiable.
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