Zero taxes for startups in Albania | Hacker News Reader

Zero taxes for startups in Albania

digjitale.com

61 pointsdcustodio37 comments

To pay taxes there has to be a profit first. The concept of a startup in general is complete focus on fast growth: every penny earned, borrowed, received is invested and therefore no profit is made. So most startups will not pay taxes anyway, wherever they are.

I think a well developed tech culture and VC companies for example are more important.

> To pay taxes there has to be a profit first.

sadly, not necessarily, i.e. you can have taxes on gross revenue[0]

[0] https://en.wikipedia.org/wiki/Gross_receipts_tax

I would rephrase your comment as "To pay taxes there has to be some services first. But yeah i totally agree with you.

Investment is considered as asset gain in some accounting systems, leading to taxes. I am not an accountant, though.

That is capital gain, but I doubt you will get much in the way of capital gain if the institute you invested in is not making a profit.

In fact the opposite is quite common. Companies do an initial IPO to raise capital and then spend the next few years doing nothing but Cash Burn as they burn up all the capital raised during the IPO.

Eventually, if they fail to deliver a profit they run out of capital to burn and they go under.

Investment is basically transforming one asset (cash) into another (tangible or intangible property). It doesn't say anything about profit and loss - and it's profit, that's taxed.

Now, in order to have some cash at all, you probably need some income - and that income, minus your costs is the profit, which will be taxed. So you want to turn your cash out for investment into cost, so you could minimize your earnings before taxes.

The catch is, that the investment is going to serve for years, so you can't deduce it all at once - you have to depreciate it (put a fraction of it's price into current years costs). [Of course, another reason is, that your country wants as much as taxes as possible right now, so for it more taxes paid now are better than zero taxes now and higher taxes next year.]

-- This is not an accounting advice, it is very simplified. Limitations apply. Consult a professional if you need it. There might be error due to printing or mistranslation. You know the drill.

One of the biggest taxes for startups tends to be the employment taxes eg social security and healthcare. That is what most European startups would like to see abolished or capped for startups. All the rest does not really matter.

In Estonia for example there is no corporate income tax for anybody, until you pay out dividends. At the same time, the employment taxes on top of salaries are 33% + there is a 20% personal income tax. That means net salary is just around half of company's cost. The proposal from entrepreneurs has always been to cap the social and healthcare taxes, because there is no good reason why a more educated person should pay more for healthcare and pensions.

Not that anyone would actually want to have a company in Albania, unless they had to. Bulgaria, Cyprus, Estonia, Gibraltar, Malta etc. are good options in Europe.

Switzerland is also good. Very low taxes, high living standard, well-educated workforce, rule of law etc. Read my story here: "Eight reasons why I moved to Switzerland": https://medium.com/@iwaninzurich/eight-reasons-why-i-moved-t... - If you are interested in coming to Switzerland, just shoot me a mail.

Switzerland is good if you are an employee, bootstrapping there is financial suicide.

If you need to hire software engineers onsite, I would not go for Switzerland, that is true.

But it goes both ways. Switzerland is one of the few countries where employees do not need to work five days a week to pay the bills. Some tend to work Monday-Wednesday, because 60-80% of a middle-class salary is enough to live on. On Thursday and Friday one can chill or bootstrap something.

I keep hearing this myth, yet I know plenty who work effectively six-plus days work-weeks and zero doing part-time (at least in engineering)...

Talk to the guys from "Ergon Informatik" for instance - a Java shop from Zurich. Many of their engineers choose to do home-office on Thursday and not work on Friday.

Super high cost of living too, though.

I read your blog post, but it seems that you aren't running a startup in Switzerland, just being an employee.

Switzerland is more company-friendly than Germany and other countries in Europe. That is all I wanted to say. I never claimed that I run anything although I plan to start a consulting business on the side.

Not to mention right next door to Albania there's Montenegro which was getting a lot of coverage for being welcoming to newly incorporating startups (also their cctld is .me which is nice)

How did they manage to get the Albanian Mafia to agree to a tax rate of zero?

It's not a tax if you are a 'partner' in the business.

This is true - I guess that is why we refer to VCs as partners :)

Tunisia also has no tax until you reach a certain threshold. I also guess no taxman will be interested in you until you reach some threshold. Taxes aside, there are many other things to consider if you want to run an Internet company.

- Internet connection.

- Internet and Digital Laws.

- Banking Options.

- Administrative complications.

- Accounting and Legal infrastructure.

- Office space, living costs, labor work-force...

To put things into context:

Companies in Greece have huge problems to transfer money into foreign countries. There is weekly limit and you need approval from ministry for anything over a few hundred Euro. Many of them are moving to Bulgaria or other countries.

There are also many Albanien emmigrants in Greece. Many of them are going back home due to crisis. Many (20%?) people moved from Albania and they really need them back.

And third it is not that bad place to live for Internet based companies. It is near sea, nice weather, cheap etc... EU, Russia, Turkey and Israel are near. Also it is on good path to join EU.

A few US state have zero corporate taxes:

http://taxfoundation.org/article/state-corporate-income-tax-...

And a few states have zero personal income tax:

http://taxfoundation.org/article/state-individual-income-tax...

partially valid point. corporations are still subject to federal tax tho.

Startups and small businesses in the United States organized as "S corporations" also pay zero taxes, and the qualification rules are a lot more permissive.

To be a United States S corp the rules are:

1) Number of shareholders <= 100

2) All shareholders are humans and U.S. residents

3) There is only one class of stock

For more, see: https://en.wikipedia.org/wiki/S_corporation

> Instead, the corporation's income or losses are divided among and passed through to its shareholders. The shareholders must then report the income or loss on their own individual income tax returns.

That's not what I imagine when reading "zero taxes".

Exactly. Everyone is still taxed, is just a question of accounting as to who and how you get taxed. To say U.S. corps are zero-taxed is quite misleading.

Normally, with a C-Corp, there's double taxation. The company pays taxes on the profit, and then shareholders pay taxes on the dividends they receive. But what the shareholder pays is effective his individual tax -- not corporate.

And, I'm guessing Albania has individual income tax. Also, I'm pretty sure most of those countries with low or zero corporate taxes have individual income taxes.

Yeah, that's just "taxes".

>> Startups and small businesses in the United States organized as "S corporations" also pay zero taxes

This is a misleading statement. S corporations are pass-through entities. In other words, all profits they make get passed through to their shareholders as income, who then pay taxes on their personal tax returns at their personal income tax rates. So technically the S corp is paying zero taxes, but only because they're being paid elsewhere by the owners.

Wouldn't the owners/shareholders of companies in countries with low/zero corporate taxes still have to pay taxes on their individual income?

So how would this (S Corp) be different from what Albania is offering?

I am not familiar with Albanian tax laws, so I can't answer that. I would imagine they are not offering pass-through entities though, since those just shift the point of taxation, not remove it.

"shift the point of taxation" implies that there is only 1 point of taxation. That's wrong. With regular corporations, there are 2 points of taxation: the owner/shareholder, the corporation. S Corps eliminate the 2nd point of taxation. It doesn't simply "shift" the tax burden, it eliminates an entire additional class of taxes.

>2) All shareholders are humans

i assume individuals (?)

Yup individuals. The shareholders can't be companies.

Put your startup in H.

If your revenues are less than 38K Euro, no matter where in the world you are, you're not a start-up - you're a mom & pop shop that likely isn't going anywhere, in terms of growth.

Which is still a great incentive for those business owners, but the title is misleading. This isn't about start-ups.

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