Ask HN: Where would you incorporate in 2021? | Hacker News Reader

Ask HN: Where would you incorporate in 2021?

68 pointsnowherebeen77 comments

Where would you incorporate your company if you not a US-citizen and most of your clients are online?

You incorporate in the country in which you live 183 days per year (or more). It's simple.

If you live more than 183 days in country X, but you incorporate in country Y, you'll have a hard time explaning it to the tax authorities.

It is completely possible to have a parent corp in the US that owns a subsidiary in the country you live and employs you. Europe (post brexit) attracts approximately 1/10th the VC compared to the US. Valuations are also 1/10th on average, and sadly this is because E[value(European Startup)] is also 1/10th. Having a US parent parent makes it easier to raise from US investors and make the move once you can sort out visas.

This is an important consideration for companies assuming to be fast growing billion dollar business (startups). Most business do not fit this criteria and should not seek venture capital.

Not sure why this is downvoted - this is the reality in most tax laws worldwide.

https://en.wikipedia.org/wiki/Controlled_foreign_corporation

Not every jurisdiction has CFC rules. There are a few countries that simply don't care if you control a foreign corporation abroad. Now if you pay yourself a salary or dividends from that corporation, that might be taxable on a personal level, but that is another story.

Exactly. The question was about where to incorporate a company, not where to run it from.

Just also be prepared to deal with the massive headache of a company is one jurisdiction and living (and paying taxes) in another. This can be a headache even if you live in the US if you’re split between states.

> be prepared to deal with the massive headache

Which I would assume would be part of the calculations for any recommendation.

So XYZ parent company thats say mature and public, who hires a French CEO who lives primarily in France should be a French company? Why? What if the customers are in the US? Etc

Not really a problem incorporating into the UK: https://1office.co/blog/company-registration-non-uk-resident...

Quite a few places are keen to attract overseas investment and will let you incorporate there.

Conversely, having an overseas company with a bank account there (usually more tricky than the incorporation!) that you don't treat as your personal bank account shouldn't create problems.

Creating a UK corporation takes ten minutes online and costs you USD $20 (and anyone can do it).

But the compliance / Know Your Customer rules are very strict in the UK: it's almost impossible to get a bank account there unless you are legally resident there.

(For people as badly math-challenged as myself: 365/2=182.5.)

from my experience there are no hard times to explain anything. if you have income from your activities from abroad you declare it and might have to tax it additionally, depending on whether the two countries have any treaties against dual taxation or not.

If it's a one man operation, sure. If you're actually running a foreign business, that depends.

Eg. I may start a company in Dubai, access the local talent and pay 0% corporate rate tax. Depending on the country I'm residing in, I may have more or less difficulties in proving things are actually run in Malta and not in the country where I am residing.

Having employees, directors, shareholders meeting in the country could be helpful in doing that. I don't recommend doing it while resident in some countries that are particularly terrible for this kind of setup, such as Italy.

This is entirely wrong and defeateanist.

For example, if you live in Finland you can easily incorporate in Estonia which has a much more preferable tax structure. The only thing you need to do is to have all the shareholder's meetings outside of Finland and it's legal.

What if the founders are located in different countries?

How does that work if you divide your time between multiple EU countries? How can they even know? The Schenghen area is borderless.

I suspect you haven't had the pleasure of living in multiple EU countries. Schengen is borderless for travel. It is not paperless (or borderless) for living. Depending on where you live, you may have to register with local government. If you have a job somewhere, you'll have to register with tax authorities. You can pretend you're a "digital nomad", but as the saying goes: death & taxes! You'll end up paying your taxes, one way or another.

"How can they even know" is the wrong question. "How can you think that you can get away with living places without paying taxes?" is a better question. There is a lot of small scale tax evasion going on, like registering a car in Luxemburgh while living in France. Or buying boatloads of tax free booze somewhere and forgetting to declare it. You can probably get away with that without too much effort. But dodging income tax altogether? Forget it. Property tax? Good luck. If anything, you'll end up paying more because of your ambiguous residency status. There are all kinds of treaties for cross-border workers and all kinds of ways to prevent getting taxed twice. But there aren't many ways to avoid getting taxed.

Most countries have a series of 'tests' to determine tax residency.

I can't remember all the details, but a lot of it comes down to substantial ties. i.e. spouse, family, primary residence, secondary residences, number of days spent in the country, number of years away from country, etc.

Countries solve the issue of 'competing' for an individuals tax residency through tax treaties which lay out the method in which the tests are applied and who would 'win' in a tie-break situation. This avoids the issue of double taxation but means you'll be subject to tax somewhere in any one year.

That's likely where the 180 days figure comes from as it's one of the most broad and substantive tests to determine tax residency, but it's not the only metric used. The actual details are more nuanced.

For example, if you give up tax residency in one country but then spend 179 days there each year to visit your spouse and kids – they'll probably claim you're tax resident.

The tax authorities of your EU country will know about your all your bank accounts in every other EU country. This is by design.

Out of curiosity. Do tax authorities tap into your travel/passport activities to determine where you are spending your time? Could you just have a local address listed as your residence?

I know maybe bordering a slippery slope towards tax fraud or something, but theoretically, I'm curious how clued in the tax authorities are to where you actually reside vs where you say you reside.

When I was very young, I did a four month internship with the Canada Revenue Agency. I learned three things:

1.) Don’t even think about screwing with tax authorities.

2.) See #1.

3.) See #1.

Same goes for Germany if you're not wealthy. You can do lots of things, but don't try to screw with the tax office.

I once met someone who "lived" in Monaco, and offered me use of his apartment so long as I bought groceries and ate in restaurants using his credit card.

This was obviously to prove he lived there for tax evasion.

Here in the Netherlands the tax authorities go a long way. They have demanded data from parking apps and even from a museum subscription. Judges have ruled that they are entitled to do so and use this information in court.

https://translate.google.com/translate?sl=nl&tl=en&u=https:/...

Apparently the UK can generate a report of where I travelled with my passport, so they can get that data but the systems are probably your typical government mess and there may be way to temporarily escape those checks.

I think using a national identity card to travel would bypass those checks (apparently the trips where I used my national identity cards didn't appear) - maybe driving instead of flying could help as well but I haven't tried.

I think the more time passes the harder it will get to evade that - and problems are likely to be compounded by countries running out of pensions money and the covid economic crisis - so I'd recommend just moving to a country that treat you fairly from a taxation perspective instead of trying to break the rules of a country which treats you unfairly.

Most countries participate in the Common Reporting Standard and share residence and tax information with all other participating countries. Strangely, the USA don't participate at the moment.

https://en.m.wikipedia.org/wiki/Common_Reporting_Standard

They don't need to tap into your travel/passport activities, just your bank accounts.

> Since 2011, the EU has had a system for exchanging tax and financial accounts information between Member States. Tax authorities in the EU have also agreed to cooperate more closely to tax their taxpayers correctly and combat tax fraud and tax evasion.

Usually you want to do it the other way round and be "overseas" from the big western country with the normal tax rate while you pretend to be resident in the Cayman Islands.

At the individual state tax level (and for payroll tax) it can be a consideration.

Pre-investment, you should basically balance the administrative hassle and financial burden of incorporating in the US - specifically, Delaware with the decreased friction of fundraising for a US topco.

Cons of DE:

  - US lawyers are the worst both in terms of quality and cost 
  - You may need local sub to employ you
  - If you're not in the US you may struggle to open a bank account etc in your local jurisdiction

Pros of DE:

  - Everyone knows how to invest in a DE C-Corp no matter how early stage
  - Many tax advantages for investors can be maintained (e.g. EIS for UK taxpayers)
  - Lots of nice tooling for doing company secretarial stuff (e.g. Carta)

Once you have enough cash not to worry too much about the odd moderately expensive and opaque advisory bill for something you never knew you needed, the US looks more and more attractive strategically. To the extent that some people think there shouldn't even be a debate (e.g. https://medium.com/angularventures/us-incorporation-just-do-...)

(Source: founder of UK startup with US sub, acquired by US company)

> US lawyers are the worst both in terms of quality and cost

That's not really a downside of incorporating in Delaware. It's more like a downside of incorporating in the US.

I am actively debating between Singapore or Delaware. The US tax system is unnecessarily complex compared to Singapore. On the other hand, my customers will be in both Singapore and US, so it might make sense to incorporate in Delaware.

There's a thread on Reddit where a guy flew to Singapore to open a bank account for his corp after they confirmed on a call that everything is good. They didn't open his account citing reporting requirements for US citizens.

If you're a US citizen you will have a hard time operating in Singapore without residency.

I don't see why you wouldn't be able to do business in the US with a Singapore company, but some customers might require a W8-BEN.

If you want venture financing. Delaware C Corp. Don't even think of anything else. Use Stripe Atlas. But that's not most businesses.

If you don't live in a country with CFC rules (not the US) why not Panama? Uses the US dollar and has no taxes on foreign source income. Dividends from companies that earned foreign source income are taxed at 5%. Strong financial services sector that can wire and receive money anywhere in USD.

If you optionally put the company inside a personal foundation you get incredibly strong protection from lawsuits, inheritance taxes, and even divorce.

There is no support from major US payment companies like stripe. So you'll need to handle payments through a foreign company or through a local bank which offers the service (expect to pay more than stripe). I setup an integration over a decade ago (with Multibank), it wasn't too bad, and I'm sure it has improved since then.

Where I live, so that I can be a part of and give back to the community that hosts me. Hopefully that doesn't come off snarky, but I mean it sincerely. Most of my clients are also online, in fact most are from the US and I am not. Our countries have a fair tax treaty, so that's never been an issue.

Exceptions I am sure exist where your home doesn't play very nicely and so taking your business elsewhere is fair.

I am thinking between Estonia with their e-residency program or Portugal with their 0% tax for the first 10 years. (Non-US and Non-EU resident)

Portugal still requires you to actually have a foreign business, not just setting up a company in a remote country.

A popular setup is living in Portugal and setting up a Maltese company and pay 5% corporate tax rate - and several accounting firms are more than happy to setup such structures.

If your company doesn't have a reason to be incorporated in Malta (clients, employees, shareholders' meetings), Portugal could argue that's a Portuguese company and that you should pay taxes in Portugal.

I haven't heard of Portugal pursuing this people, but it's not unheard of countries cracking down retroactively on businesses evading taxes, especially in times of crisis.

Estonia's e-residence is not that attractive for one man operations for similar reasons.

Can you point me in the direction of finding more about Portugal's 0% corporate tax for the first 10 years?

The parent may be referring to the Nonhabitual Resident Status exemption, which provides reduced (potentially to 0%) tax rates for different types of income. However, it appears that this may be changing [0]. "Portugal Golden Visa" is a good search to start.

[0]: https://home.kpmg/xx/en/home/insights/2020/04/flash-alert-20...

It seemed to me that if you’re in fact working from another country, then you could be considered headquartered there, now you have two countries corporate tax systems to deal with.

It depends on the laws, yes. I do recall someone getting burned by using Estonian 0% CIT while living in another country because it was ruled that they are running a controlled foreign corporation, with effective CIT rate of 0%, and they have to retroactively pay off the difference for the last few years, along with high interest.

Wyoming, Nevada, South Dakota, or Delaware.

Wyoming for cheap LLC and anonymity and South Dakota for trusts.

Precisely!

Wherever you want to see your tax dollars converted into public works.

For US Citizens, it's hard to argue against Puerto Rico. Great tax benefits for product companies and service companies. Catch is you have to move to PR, but it's a beautiful island so why not.

This question is so vague I can't imagine there is a reasonable answer to it.

If you are a one person shop I imagine I'd incorporate in my own country under the assumption it would make the paperwork easier.

It's insightful to see how many comments are about avoiding tax. Companies with an anti-society, screw-the-poor, not-my-problem attitude are exactly the kind of companies that make the world a worse place for everyone - except shareholders and (sometimes) paying customers.

Tax is part of participation in democratic societies, intentionally avoiding it is immoral if you also enjoy the benefits of the same democratic system.

If a region has hostile or uncompetitive tax laws, people should be free to take their business elsewhere (literally). It has nothing to do with “participating in democracy” or whatever other moral window dressing you want to put on it.

Pardon the ad hominem, but I would argue that your reply is moral window dressing instead. If you don't like your tax laws, you have two realistic options: voting against them, or moving. Reaping the benefits of the "uncompetitive tax laws" (e.g. good public infrastructure, or maybe good socialised healthcare, etc) while deliberately not contributing seems highly immoral.

Corporate tax law taxes corporations, not individuals. Obviously I would still pay whatever individual tax was required where I live, but if I home a corporation elsewhere why would I pay for that where I happen to live physically? I’m paying taxes there because I’m using the corporate infrastructure, not for the dog parks or whatever.

Expecting "freedom" without anticipating any kind of societal responsibility is exactly what I'm talking about. Participating in society is about mutual responsibility, not just choice.

Anti-social individualism permits this kind of thinking but I can't see a moral justification beyond self-interest.

I don’t think your response is relevant, but ignoring that, I also don’t think my government is going to spend the tax money it squeezes out of me in a socially beneficial way. If I thought they would spend the money productively I would be less driven to avoid unreasonable tax burdens.

You are denying the legitimacy of democratic public spending because you think it's not productive enough. Your position undermines democratic structures of governance. If the problem really is with how governments spend money, you should be looking for political change instead of a faux-protest that justifies blatant self-interest.

> Your position undermines democratic structures of governance

You say this as if it were manifestly a bad thing.

Dubai is a pretty easy option. Friendly tax regime, convenient location, good infrastructure.

Very hard to open a bank account, you'll need to rent space in "free zones" and upfront costs are high to incorporate.

Not true. Very hard to open a bank account only if you aren’t willing to spend approx $3k to facilitate everything.

It’s also easy to start an “onshore” company now

For some there might be moral blockers.

Especially for women.

If morals are OP's thing, incorporating somewhere to evade taxes probably shouldn't be the goal.

And if the question wasn't about tax evasion, then I'd love to hear what it was about. If it makes them feel better about themselves, they can replace evasion with optimisation and then pat themselves on the back.

Oddly enough nobody is bringing up gitmo or police murders in response to all the comments recommending the US. At least nobody gets shot for being black in the UAE. Even prisoners are treated well here and not used as slave labor like in the US.

UAE really isn’t particularly bad compared to the more common proposals here.

You may have Dubai confused with some of their neighbors. In Dubai Women can drive a car, don't have to wear a veil, and they can move around freely

Also where they can be raped and then sentenced to jail along with the rapists. Happened to an Australian woman working at a hotel there.

It's not a woman friendly country.

... in 2008. I don’t think you really appreciate how fast things have been changing here.

Might as well talk about how things weren’t so great for women in the west a little over 100 years ago. Despite what you might read in the Daily Mail, these countries have been catching up at a very accelerated pace.

There is a big difference between 8 years and a hundred. Also I have no reason to believe those rape laws are not still enforced the same way.

2008 was 13 years ago. The past 13 years in the UAE have been nothing like even the past 30 years in the west. The difference between now and 2008 is incomprehensible, it’s simply not the same country.

In the past week I’ve visited a gay bar in a big Dubai hotel, the local synagogue and ate with the local Rabbi at a kosher restaurant in one of the top Dubai hotels (There’s one in the Burj Khalifa(!) and another at the Zabeel Saray) . In 2008 these things could’ve been unimaginable, today it’s normal.

The rulers are well aware that they can’t survive unless they modernize and at the very least catch up with the west.

> Also I have no reason to believe those rape laws are not still enforced the same way.

They literally don’t exist anymore, and hadn’t been enforced for years before they were struck off anyway.

I understand you wish that to be true in the UAE, but that's not the law.

Here's a case from Nov 2016: https://www.independent.co.uk/news/uk/home-news/british-woma...

Some quotes from the article:

> It’s against the law to live together, or to share the same hotel room, with someone of the opposite sex to whom you aren’t married or closely related

> The burden of proof required for rape under the UAE’s interpretation of sharia law – a confession from the rapist or witness statements from four adult men – means that cases that reach court are heavily skewed in the defendant’s favour and are frequently dismissed or turned around to prosecute the alleged victim.

> Ms Stirling said the UAE has a long history of penalising rape victims. “We have been involved with several cases in the past where this has happened, and we work with the lawyers and families and have campaigned to change attitudes in the police and judiciary,” she added.

> “The horrible case at hand shows that it is still not safe for victims to report these crimes to the police without the risk of suffering a double punishment.”

2016 was 5 years ago. These laws have been struck since then.

And in any case, we don’t know the specifics of what happened there.

Burden of proof is on you. I backed up my claims.

Don’t be lazy, this is easy to google.

https://gulfnews.com/uae/government/uae-introduces-changes-t...

https://apnews.com/article/dubai-united-arab-emirates-honor-...

https://www.thenationalnews.com/uae/government/uae-sets-out-...

It's a bad country for women's rights. Among other things a woman needs the written permission of a male guardian to enter or leave a marriage.

It's only "good" in comparison to their neighbors.

Not true for expats, so approx 90% of the population.

Yes that's a fair point

Yeah, great option if you don't care a lot about human rights and stuff like that.

At least it’s better than the big north american country running overseas torture camps.

Estonia is probably your best choice if you’re particularly worried about human rights.

I've seen this exact thread before, with the same comments (from different users) a day or two ago.

Possible bot/spam/GPT-3?

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