Meaning of Letterbox Company in English

Meaning of Letterbox Company in English

Whenever a new tax scandal becomes known, the term letterbox company also appears at the same time . And with the term also many questions about a mailbox company. Quite a few are wondering what exactly is it and what is behind it.

What is a mailbox company?

The letterbox company is a company that usually only exists on paper. This means that there is a letterbox at the specified business location, but no office or business premises can be found there. This mailbox company is managed in a completely different place. You won’t find most letterbox companies in Germany. Rather, in most cases they have an address abroad. Countries like Luxembourg. Holland or countries outside of Europe are very popular for mailbox companies.

What is the purpose of a mailbox company?

In most countries, a company must provide a so-called summons address. This means that the postal address is used to ensure that the management of this company can also be reached in writing. This also makes a letterbox company legal from a legal point of view. In practice, however, a different picture usually emerges with regard to a mailbox address. In most cases, the goal of the founder of a letterbox company is to hide the real location of the company. It also serves the purpose of disguising certain cash flows and also circumventing certain liability claims. Not infrequently, the mailbox company is used to pursue tax evasion in a large-scale criminal style.

Panama Papers

Perhaps you can still remember the scandal surrounding the so-called “Panama Papers”. Many are so designed that they and their mailbox companies build such a complex network of mailbox companies that the tax office hardly has a chance to track or control all of this. In most cases, these networks only serve to make money disappear from the tax office.

If you want to know about the Panama affair more, you will find here a good article in the Süddeutsche Zeitung on the subject.

In most cases, mailbox companies have a very bad reputation for the reasons mentioned. But a mailbox company is not always illegal. There are definitely companies that decide to take this step in order to open up new markets.

How does a mailbox company work?

As a rule, a mailbox company does not conduct an active business. Rather, it is about making it possible to circumvent the tax regulations that apply when setting up a company. The term tax haven is also often mentioned in connection with a letterbox company . This means that there are very low tax rates in certain countries that are keen to set up a letterbox company. The most famous of these countries are

  • British Virgin Islands
  • Bahamas
  • Cayman Islands
  • Liechtenstein
  • Switzerland
  • Luxembourg
  • Panama
  • Netherlands

Is a mailbox company legal?

Starting a mailbox company is not prohibited. You can set up a letterbox company and, as an entrepreneur, move your place of residence abroad in order to benefit from the tax advantages there. That is not forbidden and there is nothing against it. The letterbox company only becomes illegal if your residence remains here in the country, but you have your assets taxed according to the law in which your letterbox company is located. Then the subject of tax evasion usually comes into play and it is known to be a criminal offense.

Example for a mailbox company

To illustrate in more detail how a mailbox company works in most cases, we want to give you an example. Surely you will have a notification of winnings one time or anotherto get. These often appear as e-mails, but also very often as letters in normal mail. When notifying winnings by email, bad spelling is often found and you can quickly see how seriously the notification is to be taken. However, if the notification of the winnings comes by post as a letter, it must be determined that it is very complex and that many people consider it to be genuine. In the vast majority of cases, a mailbox company hangs behind this profit notification. Thousands of people fall for it every year and then pay certain fees before the supposed profit is paid out. Sometimes it is a processing fee, sometimes a transmission fee, etc. Those responsible for this show a lot of creativity here.

What is a winning notification?

The notification of winnings is linked to the request to transfer these fees to a specific account. The winnings can only be paid out after the transfer has been made. If you get such a winning notification, it is better to first read the small print, because this is where there are mostly hints that make the winning notification worthless immediately. Anyone who makes a transfer in response to such a notification usually has little chance of success later in the event of a lawsuit. And behind all of this fraud, there is mostly a mailbox company.

How can you start a mailbox company?

You can start a mailbox company just like any other company. It is also not forbidden to do so. With the legal establishment of a letterbox company, you can reduce the tax burden for your company. All you have to do is explain to the appropriate authorities the purpose of starting your mailbox company. If this does not violate applicable law, nothing stands in the way of the establishment. It is important that your mailbox company is presented transparently right from the start. There are three very important criteria that must be met in terms of transparency:

  • the money flowing into your mailbox company does not come from criminal activities
  • the money is also not intended for criminal activities
  • all funds are properly taxed by you

What does it cost to start a mailbox company?

As with founding a company domestically, the cost of founding a letterbox company depends on the legal form you have chosen. If you found a GmbH or a UG, the costs are about the same. Then there are the costs for renting a mailbox and for forwarding the mail. But these costs are usually very low. But there are also letterbox companies that use a kind of administrator on site. In this case, additional costs arise in the form of fees. Running costs at a letterbox company, for example bookkeeping or balance sheet preparation, are identical to the costs that you would incur at a normal company.

What are the legal reasons for starting a mailbox company?

Even if the letterbox company has a very bad reputation due to many black sheep, there are still legal reasons that justify a foundation.

Legal reason description
Tax optimization With a letterbox company, you can legally use loopholes in tax law to your advantage. It is certainly morally better to tax your income where you are also domiciled. But there are definitely cases in which you earn more money by working abroad. Then it is also legal to set up a mailbox company. Here, too, it is important to have the appropriate transparency.
Estate planning There are many people, primarily private individuals, who are afraid of legacy sneaks. They distribute their assets, including to a mailbox company. This means that they can no longer access this property for themselves at first, but they do not have to take the inheritance law into account. The only important thing is to properly tax this money domestically.
Protect business secrets When a well-known investor buys a company, the announcement can cause the company’s stock to rise sharply. If an investor does not want to be associated with this, a letterbox company is used for the purchase. In doing so, he protects himself from the competition.
Protection from transparency in marriage Usually a marriage should be happy, not asset-driven. But unfortunately there are such cases too. With a letterbox company, you can avoid disclosing your financial circumstances to your partner. Such people want to prevent a marriage from only taking place because of their money. However, if a divorce occurs, this property must then be disclosed.

What are the advantages of a mailbox company?

First and foremost, the most important benefit of a letterbox company is the financial aspect. This can save a lot of money if you are based in a country with particularly low tax rates . The prerequisite, however, is that business activities then take place in this country. If this is not the case, the tax office will very quickly arrange tax audits and other audits.

Important facts about mailbox companies

  • A mailbox company is not always illegal and a front company
  • It is also legally possible for German founders to set up a business abroad
  • You can also set up a mailbox company in Germany. However, this is not worth doing if you want to save taxes.
  • You can set up a mailbox company in almost any country.


Basically, a mailbox company is a legal construct. This type of company can be useful for various purposes. However, it is always important to ensure that the fine line between legality and illegality is not crossed. It is important for a legal letterbox company that an actual economic activity is carried out. Anyone who clearly discloses their reasons and activities to the authorities and the tax office can set up and operate a legal mailbox company without any problems.

Letterbox Company