How to Accept Payments For a High Risk Online Business
Online entrepreneurs in high-risk industries often struggle with structuring their online business and opening bank accounts and merchant accounts.
In this article, we walk you through the steps of setting up a high-risk business, using an effective Electronic Money Institution (EMI) for accepting bank payments, and using merchant account for online payments.
We go through the main stages of how to structure this setup, and provide tips for getting accepted for an EMI and Merchant account.
Every entrepreneur in the “high risk” bucket might tell you in sincerity that their number one fear is the loss of their bank or merchant account. This stalls the whole business, delays payments to trusted suppliers and prevents you being able to access your own money. And with no revenue coming in, the business is in dire straits.
What is the best way to structure a High-Risk Business?
An ideal business structure ensures access to the financial system, the protection of the identity of its owners, a low tax burden, and full control over the cash-flow.
There aren't many jurisdictions that tick all the boxes. Traditional offshore tax havens no longer provide adequate access to the financial system. A fully onshore business in Europe or the US provides access to the financial system, but doesn’t provide the tax and asset protection benefits of the offshore company.
One solution could come from using the best of both worlds: use two companies. One in the EU and the other one outside of the EU, preferably to a low tax destination, which is not on the black list of the EU.
The idea behind this two company structure is twofold.
First step is getting that EMI or Merchant account that you want for your business. Cyprus is in the EU and this gives you options. In addition, it is not a black listed tax haven. Plus, the Government is not hostile to "exotic" industries.
Usually Electronic Money Institutions require high-risk businesses to have substance; i.e. premises, employees, telephone. Cyprus can readily provide that.
The second step is to get a holding company for the domain of the website. That can be in any jurisdiction that is friendly to the high-risk business in question. Then main focus of this entity is to lower the tax bill of the Cyprus company, as it will be sub-leasing the use of the domain to it. Any profits made in this holding company, can be freely distributed to you.
With this set-up you kill two birds with one stone. A working EMI or Merchant account and a lower tax bill.
Now let’s get to the mechanics of the structure.
The Cyprus company function:
The main use of this company will be to be the operating vehicle for your website.
It is simply easier to do business with an EU company, including banking. Plus, it is easier to deal with VAT, economic substance; tax treaties, tax residence and low withholding taxes. And Cyprus has a favourable corporation tax rate of 12.5%.
Basic functions of the Cyprus company would be chiefly to:
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Receive income from site users (both EU and non-EU).
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Pay content providers (both EU and non-EU).
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Pay the Domain and Platform/holding company a licence fee.
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Incur costs locally to provide necessary substance in Cyprus to run the operations.
The Holding/License Company Function
The holding company will mainly receive licence fees from the Cyprus company for the use of the domain and Platform. There are a number of possibilities relating to the location of this company. Usually it’s a pure offshore jurisdiction that is under the radar and not on a EU black list.
For example, a lot of adult entertainment website owners use Belize. It is affordable, banking is available, and the jurisdiction is not hostile to the industry.
The holding company will be simply receiving licence fees for the use of the domain that is going to be under its name. That produces a significant tax saving for the Cyprus company.
What about banking then? What are my options? Where can I open an account?
The hardest part in Tax structuring for high-risk websites is banking. And honestly, traditional banks are hard to open an account with, even in Cyprus. Luckily, having an EU company opens up a plethora of options for banking.
Depending on the content of the website, many EMI’s (Electronic Money institutions) are willing to fill up the gap left by traditional banks.
Electronic Money Institutions are companies licensed to provide financial services to third parties and store their funds on special segregated accounts. Being more agile and fast in their operations, EMIs are a great alternative to traditional banks.
An EMI operates through an
electronic online platform and its license allows the issuance of debit cards. By extension, payments can be made either by using the EMI online platform or the issued debit card.
Why not a normal traditional bricks and mortar bank?
Banks have become cumbersome and difficult to work with. You try to open a bank account for your company and they will ask you to fill out 20 different forms before they even consider opening the account.
With a traditional bank account you run a bigger risk of the account being closed and your whole enterprise blown to pieces. EMIs are a great alternative to banks. Since they are considerably smaller in size they operate at a faster pace and without the need to physically meet their clients.
You can get an IBAN in just a few steps and be able to send and receive payments on behalf of your company. Yet again they do comply with all banking regulations in their country of setup. PayPal, Apple Pay, Google Pay; they are all EMIs by the way, so this is nothing new.
Don’t forget; a Cyprus company is seen favourable by EMI’s.
Tell me how to use EMI’s for high-risk websites
And EMI is simpler and faster, and although it may charge you in some cases more than a traditional bank (Highly debatable tough) it can be more efficient and less time consuming. You just have to follow these 5 simple rules:
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Have a good structure in place with a solid image. That is why Cyprus is used and not a remote island. In a nutshell show them you are a legit business.
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Explain your business. Imagine being on Dragons Den (Yep the TV show, or Shark tank for our American readers) trying to get funding from 6 rich business owners. You have to be ready to explain what your business does and provide projections and estimates.
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Be ready to hold a reserve account to be funded if the EMI requires you to do so. A merchant account provider may ask you set up a reserve account that it can also access in case of future losses or other unexpected financial issues of your business.
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Get your supporting documents ready. CV’s, utility bills, Education certificates. Due diligence is part of any business structure at the moment.
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Remember: “Nothing is carved in Stone, especially Fees”. You can try to get the best rates out of EMI’s usually by comparing over 3 to 4 and even start to haggle a bit too. EMI’s can be a tad costlier than a conventional bank. However, everything in life is open to negotiation.
Last but not least at all is confidence. Yes, some business owners may be uncomfortable to keep an “x” amount of funds just sitting with a Merchant or EMI bank. That’s perfectly all right. We all know what happened with Wirecard. You can periodically transmit funds to your personal account then as a dividend. It’s really that simple; no need to stress about it.
The Electronic Money Institutions we recommend are regulated. They follow all the rules and necessary due diligence checks just like a bank. Their difference from traditional banking is that EMIs introduce faster compliance procedures for high-risk industries and offer better protection against sudden account closure.
What next? I need a Merchant account asap for my website!
Prior to opening an EU merchant account and establishing a payment processing system it is important to know which merchant account is right for you.
There are various Merchant Account solutions with various banks and providers. For this structure there are solutions for all major debit/credit cards such as VISA, MASTERCARD, and AMERICAN EXPRESS.
These payment providers integrate into your website. This allows your clients to place their payment directly on your site. After that, your customer is forwarded to the secure payment site of the card processor. The landing page can be customized to fit to the design of your website. After the successful payment, the customer is forwarded confirmation details and you receive a payment confirmation via Email. Simple as that!
The fees for the opening of a merchant account vary from provider to provider. It depends on the nature of your volume and size of your transactions. Service agents like ourselves have a large network of contacts and can help you select the best possible solution at the most advantageous rates!
Excited about structuring your Adult Website the right way?
What we have explained here is the best way to structure a high risk website. There are many websites in your industry which have similar structures and operations. Why shouldn’t you as well?
We at Internet Incorporate pride ourselves for our customer service; confidentiality, quick response and professionalism. A “one-stop solution” attitude is what you always receive from our team. Our knowledge and expertise enables us to find the most advantageous solutions – even in the most difficult situations.
If you wish to know more about this structure and how to accept payments for your high-risk site, contact us now with the contact form below to structure your business the right way!