Long before tariffs climbed to 145%, life was already an uphill climb for foreign trade entrepreneurs.
They are the glue in the global supply chain, navigating language barriers, juggling cross-border logistics, and riding the whims of tax policies and client moods. Margins are thin, surprises are constant, and a single change in regulation can feel like a tectonic shift.
For them, mounting tariff pressures present only two certainties: costs must come down, and efficiency must go up. That means broadening supplier networks, testing new markets, and, perhaps most immediately, trimming expenses wherever possible.
The ultimate cost-cutting move?
Beyond layoffs, leaner inventories, and marketing cuts, there’s one lever that stands out: strategically choosing where to set up overseas entities. While tariffs are headline material, smart tax planning—the legal kind—is where real long-term savings hide.
Let’s get one thing straight: tax planning is not tax evasion. It’s about using legal frameworks to minimize tax obligations, often by setting up entities in jurisdictions with favorable rules. This could involve deferring tax liabilities or selecting countries with lower rates. The real art lies in the structure—deciding where to incorporate, how many entities to open, and what each one is supposed to do.
Once the domain of multinationals and the wealthy, global tax planning is now accessible to small and midsized exporters, thanks to greater transparency and the democratizing power of the internet.
Foreign trade firms typically fall into three camps: general, re-export, and offshore trade—the last being regarded as a nimble model with its own tax calculus.
- General trade is the most direct: export from the production site, import straight to the destination. These companies typically grapple with corporate income tax, value-added tax (VAT), and, depending on the goods, export duties. On the receiving end, there are import duties, import VAT, and often consumption taxes on luxury or energy-related goods. Any distributed profits are also subject to personal income tax.
- Re-export trade brings a third country into the mix. If goods pass through a free trade zone and never enter the local market, import taxes are usually avoided. But repackaging, assembly, or even brief unpacking can trigger VAT and other levies. Long before US tariffs spiked, savvy exporters were using this route to hedge risks. The downside? Higher logistics costs and a potential failure to meet origin requirements. Southeast Asia, while increasingly essential to China’s supply chain spillover, still lacks preferential tariff agreements with the US.
- Offshore trade, meanwhile, strips things down to the essentials. Goods are bought and sold on paper between offshore entities, often without ever touching the soil of the seller’s or buyer’s country. These structures let companies book profits in low-tax jurisdictions and sidestep many VAT and customs costs tied to physical cross-border movement. China has actively promoted this approach, encouraging exporters to operate globally without funneling every transaction through domestic channels. It’s lean, legal, and—if done right—highly efficient.
That said, if you’re already routing goods through a third country for processing or packaging, and if the math checks out, setting up an entity there could double as a smart tax move.
Low taxes, high fees, and everything in between
Offshoring trade has its merits, but it also comes with its own costs. One common concern is the issue of low taxes and high fees in popular offshore jurisdictions.
In Singapore, establishing a company and securing a visa typically runs around RMB 20,000 (USD 2,800). That covers essentials like business registration, a nominee director, a registered address, visa application, and basic tax and accounting services. Annual compliance costs—including accounting, audits, and office rental—add another RMB 16,000–27,000 (USD 2,200–3,800).
Over in the UAE, costs vary by emirate. Dubai, often the top pick, offers two main company structures: mainland and free zone. Mainland firms can operate across the UAE without restriction, while free zone companies face geographic limitations. Business licenses cost about RMB 32,000 (USD 4,500) for mainland setups and RMB 25,000 (USD 3,500) for free zones. Other emirates are more wallet-friendly. Ajman, for instance, starts at around RMB 11,000 (USD 1,500), with lower office and operational costs outside Dubai.
Cayman Islands incorporation is also a common route. Formation fees range from RMB 20,000–30,000 (USD 2,800–4,200), with yearly maintenance exceeding RMB 20,000. That includes filings like annual returns and economic substance declarations. In China, Cayman entities are typically used as holding vehicles in overseas listing structures—often in red-chip models where a Cayman parent sits atop a Hong Kong intermediary, which in turn controls mainland operations.
Still, setup fees are just the beginning. What really matters are long-term fundamentals, and global investors are paying attention.
Kearney’s 2024 foreign direct investment (FDI) rankings showed the UAE and Saudi Arabia making the biggest leaps, alongside China. The UAE, in particular, is in overdrive. Dubai’s D33 plan aims to double the city’s GDP by 2033 and elevate it into the world’s top three hubs for investment, living, and work. Other emirates are following suit. Ajman’s Vision 2030 is centered on workforce development and a friendlier business environment.
Today’s outbound investment decisions hinge on more than just taxes. Viability is about access to talent and tech, the efficiency of legal and regulatory systems, and fluid capital flows. Once-neglected factors—like R&D capacity, digital infrastructure, and workforce quality—are now front and center.
In decades past, companies turned to the British Virgin Islands (BVI) or the Cayman Islands for tax breaks and privacy. And they still draw capital: the BVI ranked seventh in global FDI inflows in 2023, just behind China, while the Cayman Islands ranked 14th. But their edge is eroding. These jurisdictions lack broader economic infrastructure, and their celebrated opacity is now a liability. In 2023, the EU flagged the BVI as a non-cooperative tax jurisdiction, setting off a chain of fiscal penalties.
New routes, new rules
In the end, the key for foreign trade entrepreneurs is to find fertile ground—and fresh demand.
New economic orders don’t materialize overnight. Whether by necessity or design, more exporters are forging deeper ties with emerging markets and experimenting with unfamiliar business models. A compelling playbook emerged during a recent global crisis.
When the Covid-19 pandemic grounded international buyers, China’s Yiwu International Trade City—a cornerstone of wholesale exports—was hit hard. Virtual showrooms failed to fill the gap. The solution? In 2020, Yiwu launched a physical branch in Dubai, giving overseas buyers a brick-and-mortar point of access. The move did more than solve a short-term problem. It helped reimagine export logistics and positioned Dubai as a new conduit between Asia, Europe, and Africa.
Wherever companies turn next, localized understanding will be crucial. More Chinese exporters are dispatching teams abroad to build relationships, navigate regulatory environments, and sync with local dynamics.
If recent disruptions revealed anything, it’s this: exporters are among the most adaptable, forward-looking players in the global economy. The landscape may change—but they’ll adjust. They always do.
As noted in the Records of the Grand Historian, Su Qin once wondered aloud whether he would have united the six kingdoms had he possessed even two acres of farmland by the city wall of Luoyang. His point was simple: comfort rarely breeds ambition.
And in today’s world of shifting trade winds, that lesson still holds.