Ask HN: Best country to run a boostrapped startup from? (After Section 174) | Hacker News Reader

Ask HN: Best country to run a boostrapped startup from? (After Section 174)

56 pointsjustinram1132 comments

I'm currently a US Citizen living abroad in Taiwan.

If I want to run a bootstrapped startup while living in Taiwan that sells to mostly US based businesses, but is developed by 1099 contractors in Asia (which have a 15 year amortization period I believe?), is there a new "best country" to open the company in? Singapore? HK? Taiwan?

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I cannot answer for Taiwan, but if you're interested in an EU-based company registration from abroad, I recommend Estonia. The tax system is extremely straightforward: a company pays tax for its employee's wages (so, no tax for contractors, for example.) Flat rates, very easy to understand. In addition it's a very IT-based country; not relevant if you're not personally resident but worth being aware.

In my experience explaining the tax system here, which takes _less than a single page of text to understand_, generally blows most US citizen's minds :) It is very business-friendly.

Check the section "Estonian tax system" on this page: https://learn.e-resident.gov.ee/hc/en-us/articles/3600007215...

The problem with offshore Estonian companies is banking - no Estonian bank will touch you, and few real banks (not emoney) will deal with you. Even Wise is no longer an option. Registering an entity is easy, using it is hard.

Why is Wise no longer an option?

Three months ago Wise stopped accepting new business clients from the EU (and, mostly, the UK).

The US Congress is working on some special tax legislation related to Taiwan. It’s part of the same package that will delay Section 174 from going into effect (retroactively???). It’s a bipartisan deal so there is a greater-than-zero chance it passes. I’d look into that before jumping ship and heading somewhere else.

I run a business in HK, and generally it’s incredibly easy. Easy to set up, accounting is easy, ongoing fees are fairly low. So far I haven’t encountered any issue. But I’m well aware of the political issues being registered in HK might bring, and some (especially US) businesses might be wary of doing business.

If you want something more aligned with the US, the UK is a good choice. You can set up everything online for around £20 and for small businesses you don't technically need an accountant to file yearly accounts. They are friendly to company owners not being UK based.

Corporate tax rate on profits are 19% - 25% though.

The 16.5% corporate tax is definitely a benefit here, and for now it makes sense because I also live here.

If I were to return back to Europe, the UK might indeed be a decent choice.

And there's no jobs in HK. And no real tech. I haven't found anything here in a year. Looking to leave in the coming months.

There’s quite a few jobs in finance. But in terms of startup, or non corporate jobs, there’s very little.

Where will most of your customers be? If this is a startup with an enterprise sales component, that's important to know, because you'll be doing sales calls with them (at least initially)

This is the right answer. Your legal entity is best and easiest located where your target market is because that will streamline all of the administrative details that otherwise become possible blockers. Where your employees are isn't all that relevant, that could, especially with today's support for remote workers, be theoretically anywhere.

It'll depend on how you sell to your customers. Do you have 2/3 very large invoices in a year; or are you in the subscription model with thousands of customers.

Malaysia+Singapore/UAE is a good combo. Malaysia is cheap and loose. Sg/UAE have decent banking and low taxes.

My advice, however, is to just start as long as you can process payments. You can care about jurisdiction and taxes later when you have enough money.

Taiwan starts enforcing the CFC rules in 2023. if you open a company outside Taiwan in a low-tax jurisdiction (liek Singapore), the revenue and profits of that company might be subject to taxation in Taiwan under the CFC rules. But there is some exemptions : https://taxsummaries.pwc.com/taiwan/corporate/significant-de...

If you intended to pay yourself in dividends from outside Taiwan: Taiwan Taxman will ask you if the dividends were generated from the work done while in Taiwan.

Open a Taiwan company? Probably not, it's such an hassle to get payments from the US with Taiwan's fintech (no stripe like company yet that make payment easy)

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To be domiciled in Singapore but then run it from Malaysia is a good option. SG has solid tax incentives for startups and operating costs across the border are tiny, rent and bills are a rounding error, it gives you a lot of runway to work with.

I've been through the MDEC entrepreneur visa process and it was all fairly straightforward. Believe they have one of these digital nomad visas also now, if you are pulling out personal income while working on the business that's perhaps an alternative.

If you are willing to pay the higher corporate rate by domiciling directly in Malaysia then you can also apply to get a business visa as an employee instead.

I think Puerto Rico stands a lot to gain from these changes.

Residents and businesses here file taxes with PR's Hacienda, not the IRS, therefore Section 174 doesn’t affect PR as far as I know. On top of that, PR already has several tax breaks and incentives that may tip the scales even more for some.

It will be a very interesting year though as the head of Hacienda just resigned, so it’s anyone’s guess as to how we’ll end up.

Actually PR and USVI use the IRS tax code, and for USVI add +10%. There are some local tax breaks in both place for international, non continental us business activity. PR does have some kind of tax break on 'investments' but I don't know if that is only for passive investments, as opposed to your own business. But this is a good suggestion as it is in the USA and is often a great tax deal, with the catch you have to spend less than 180 days per year in the actual states, and spend at least 6 weeks per year in those two US territories. I think you have to spend New Year's Eve there too!

The UK is pretty good - quick and easy to set up a company or you can be a 'sole trader' which basically means you have simplified accounting but you don't have any limited liability if someone sues you etc

Also, an overlooked benefit - we have public healthcare so you don't have to worry about keeping a job in order to get health insurance. It's kinda overlooked point but it's weird that America has this system which incentivises you to have a job in case you get ill.

Also, everything is in English. I personally woulnd't want to file my accounts somewhere that I need to hire someone to translate the bank letters/contracts etc.

If you're a UK company (it's doable but) it can be a pain holding your bank account in dollars (which you'd want to do if your main customers are in the US and if you're paying your employees in dollars). Last I checked, Stripe wouldn't allow you to accept US dollars into a UK-based bank-account that holds US dollars. Maybe this has changed in the last few years.

As of April-ish 2023 there are now very strict UK rules on contractors as well. They now must be hardline treated like contractors and can not be treated like employees with special contracts, e.g., no bonuses, no perks, no company supplied equipment, etc. Too many UK companies were abusing contractor employees in order to pay low wages and skirts benefits requirements whilst simultaneously treating them like full employees.

It can be a pain just getting a bank account at all with a UK company as a non-resident

Lucky you; Taiwan is a great place to live!

I would say that selling into US businesses is going to be a real drag, though. Those 11 AM PST meetings start at 3 AM in Taiwan...

Not an expert... but foreign investments require extra paperwork and tax for you at a minimum.

If it was me, I'd keep everything under the US system until you're profitable enough to hire an expert and not ask on HN.

Also if you're going to raise investment, I would stick to the USA.

You might get into legal or hiring issues if you only get contractors though.

I disagree. I think that HN is a fantastic online forum to ask questions about and talk about issues that concern startups.

Trained Professional > hacker news commenter

Experience > Training.

How are the tax (filing and actual $ burden) complications of being a a majority owner of a foreign corporation?

Terrible. You're stepping into the territory of highly paid tax consultants due to a mountain of regulations which are unevenly enforced. You will be slammed by GILTI and FATCA and more.

US citizens involved with foreign businesses must file various reporting forms, including Form 5471 and Form 926 (foreign corporations), Form 8865 (foreign partnerships), Form 8858 (foreign limited liability companies), Form 3520 and Form 3520-A (foreign trusts), and FBAR. Form 8832 enables a foreign limited liability company to elect to be classified as a corporation, partnership, or disregarded entity for US tax purposes. Failure to timely file a required reporting form can subject a US citizen to significant civil and criminal penalties.

Wild. Have you personally experienced this? I've done a bunch of research but haven't heard an actual experience of it being painful and what it truly cost them in $. I'm debating taking US citizenship but may return to Canada someday.

You don't care where your developers live. If you do business with US then they want you to be a US corp. Who wants to do cross border business?

Why would a Taiwanese company use "1099 contractors"? That's a US tax thing

> US Citizen

> sells to mostly US based businesses

> 1099 contractors

This sounds to me like you should just do it in the US

I mean - isn't this really just a choice between your citizenship, your country of residence, and your target market? Sure you can tie yourself (and your lawyer and accountant...) in knots trying to come up with the ultimate tax and legal strategies, but at the start up / early-stage phase, getting something to market and getting customer feedback (and reaching some kind of profitability...) feel like they are going to matter a lot more than saving a few ducats in taxes, for most businesses.

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