Offshoring - Tax avoidance comes to New Eden

In the last few days, a new term has entered the lexicon of New Eden: Offshoring. In the real world, offshore companies are companies which make use of tax havens to reduce their tax bill, and, it is the same in New Eden.

With the citadel expansion, broker fees were increased to 3% before standings and skills (from 1%), and the lowest possible fees in an NPC station are 2% (up from 0.187%) with Broker Relations V and 10 standing to both faction and the corporation owning the station.

The first Fortizars (large citadels) were deployed in high-sec last week, and along with them came the opportunity for traders to avoid these new fees, as broker fees inside a citadel are set by the owner.

Offshoring Explained

There are two ways in which traders can avoid the new taxes. Firstly, they can move their operation entirely to the citadel, that is, station trade inside a citadel. There are some drawbacks to this. Firstly, station trading requires traffic coming to the citadel, and while “If you build it, they will come” may be true, these things take time to happen, especially without contracts currently in place for citadels.  

Secondly, if a citadel is attacked and goes into its second  reinforcement (RF) period (after armor has been destroyed), all services go offline for at least 6 days (24h in wormholes) until the hull timer is active. This means the market is not active in the citadel for at least 6 days, so, you have to cancel your orders and move your stuff out, or hope that the owner can save the citadel in the final timer, and just wait. If the citadel is destroyed, all orders are automatically cancelled, and the items on sale will be moved into asset safety, with the minimum 5 day delay that incurs.

The second way to offset some of these fees is to offshore. That is, the trader sits in the citadel near a trade hub, and sets ranged buy orders to cover the trade hub. So, in the case of The Forge, you might sit in New Caldari and place a 1 jump range buy order to cover Jita.  

Due to the way mechanics work in Eve, for ranged buy orders, the broker fee is set at the originating station (the station where you set up your buy order). Note that this is not the same as a remote buy order, where you select a different station than the one you are sitting in to host your order. If you do this from New Caldari and remotely set up a station buy order in Jita, you will pay Jita fees.

There are a few risks to this method. As you are placing a ranged buy order, it can be filled at any station in range (although not in another citadel, due to the way they are set up, ranged buy order originating outside the citadel cannot be filled from inside it). This means you might get items sold to you in locations other than Jita 4-4. In The Forge, this is a low risk, as the vast majority of trade goes through Jita 4-4. In four days of trading, I have had only two items sold to me at locations other than Jita 4-4.

The other risk is the same as with the first method - if the citadel services go offline when it enters the second RF, you have to cancel your orders manually, foregoing the broker fees, and incurring new broker fees when you set them up elsewhere.

Offshoring in Practice

So, now there has been an outbreak of Fortizars in high-sec, with 4 presently in The Forge, 3 in Domain, and 1 in Sinq Laison at the time of writing.

The citadel owners have employed a variety of methods to attract the patronage of traders.

Levon Bedros of Syntonex [SYNTO] (owner of the Perimeter citadel who we interviewed here) has set up the Eve equivalent of “Frequent Flyer Miles”, where broker fee is related to your volume of trade, starting at 1.0% and heading down the more you trade. Levon has citadels in Kylmabe, 3 jumps out of Jita, for those who prefer the quieter systems, and New Caldari, 1 jump out of Jita. In Domain they also have a citadel in Ashab, 1 jump out of Amarr.

In the other main Forge citadel, in Perimeter, and set up by Riemannian Manifold Torus[RMT C] , the owner (Karin Yang) has also implemented “Happy Hour” type discounts, where for two periods of one hour per day, their standard broker fee is reduced by 50%. The discount periods are currently 14:00 - 15:00 and 00:00 - 01:00 UTC (Eve time).

Whilst the primary use of these citadels is for traders circumventing the NPC taxes in Jita to place ranged buy orders, some sell orders are also being placed. These are mostly for PLEX, although the Perimeter citadel has had some minerals and ice products listed there.

As an example of the difference offshoring can make, my Jita alt has almost 0 standing in Jita, and Broker Relations V. Placing a buy order in Jita for a PLEX at 894m ISK costs me 21.975m ISK in broker fees. In Elysium (or Terminus), with my current broker fees there, it costs me 4.470m to place an order to cover Jita 4-4, so this is a significant saving. Of course, when I sell the PLEX in Jita, I pay my normal broker fee and sales tax (and sales tax is the same in citadels as NPC), but, this allows me to enter markets where it would not previously have been profitable, and to increase my profit margin in markets I was already in.

Citadels are also ideal for new traders, as you do not need Broker Relations or standings to benefit from the broker fee reduction. The only issue is that in order to place anything but a station range order from a citadel, you need Visibility (level 2 for up to 5 jump range). I am not sure if this is a bug or a feature, as you do not need Visibility to place ranged buy orders from NPC stations. Visibility requires Procurement 4, and you will additionally need Marketing to list the items remotely for sale in the hubs (this is a prerequisite for Procurement), and Daytrading to modify your remote sell orders. This represents a four-day training time on a new char without implants or remapping.

For the citadel owners, the benefits are obvious; if you can attract enough traders, you can make some nice passive ISK.

There is also a benefit to owning your own private citadel, if you trade enough volume. As the citadel owner, you can have a 0% broker fee, and the increased profits you generate by not paying broker fees on buy orders are enough to make some of the larger traders consider setting up their own personal Fortizars, even if it requires cycling through them as they get destroyed. It may still be worth the savings from broker fees for people who trade in tens of billions or more per day, as a market will be online for at least 8 days if you set the vuln windows correctly.

As an example. one trader I spoke to explained that, if your Fortizar costs 20 billion ISK to set up with a market, to make the costs back, you need to save 2.5b/day (assuming it dies in 8 days). This equates to 125b of buy orders per day, so just over 125 PLEX/day. Moving this volume of PLEX takes around 35 minutes of activity on a weekday, and less on weekends.

Finally, some numbers on activity so far.  Take-up of offshoring has been limited, due to players not understanding the mechanics, traders lacking the ranged skills, or concerns about getting buy orders filled in unwanted locations. I spoke to both the citadel owners mentioned in this article, and they report similar numbers. One is generating 1-3b per day, the other 2-4b per day. Both are reporting 4-5 traders at any given time, with around 15-20 regulars in the Perimeter citadel.

Take up of the “Happy Hour” discounts has been low, perhaps due to the times of day they are available.

It remains to be seen whether offshoring remains a niche activity, or whether more people move to it over time, especially if CCP further increase NPC taxes.

Either way, it is an interesting change in dynamics in high-sec.

Station trader and guest on Talking in Stations, I am mostly found lurking in chat channels trying to figure out the next hot item to trade.