You are a distributed company doing business remotely, serving the global market online. Where should you incorporate? Incorporating somewhere ultimately defines your taxes and your access to service providers. Every business is different so does every setup, so all needs to be tied into the best possible incorporation setups – but there are a couple of insights you need to consider when you set up a business.
You are a distributed business – you can go anywhere
Having a business is a legal entity, which means it is a legally binding creation. Set up your business where the business environment is reliable, the government values entrepreneurs and their spirit and contribution to the global economy. Also, consider the value of your public image as a company – not as a business. If you are operating, you have to issue invoices and file legal documents anyway – which country do you want to be listed as your legal address? What image do you want to show? You also want to access all the modern online service providers. Check where companies like Stripe, PayPal, and others accept business account options. Avoid countries that are missing from their lists.
All in all, you need to consider the following criteria when incorporating: visibility, costs, and access.
As for the visibility, you need to incorporate somewhere safe and publicly renowned with a rock-solid business environment. Offshore heavens are not like that, even though, as an online distributed business, you can technically operate from offshore heaven, without a single visit to your legal company address. However, that projects a picture of your company that you don’t want to show: dodgy, shady and not worthy of the trust of others. Stick to countries where incorporation is pure, minimalist and straightforward, possibly can be done entirely online.
You also need to consider the costs of running a business– and here I’m not talking about taxes. When you do the math, even if you pay a small % of your revenue to taxes, it can be still more beneficial to do so, compared to a 0% offshore tax heaven as running those offshore companies tend to be expensive. Privacy has its price. Cost should come to your mind when you calculate your hours of running that business. Necessary hours need to be put in when you run your company – accounting, legal and traditional business operations like invoicing, cash flow management and others. Of course, you can outsource those to experts, but these experts have different prices in different countries. The more complicated to set up a business somewhere, the more hours you need to invest in running the company itself.
Every hour spent should be considered and added to the cost, even more, when it comes to an outsourced expert, like an accountant.
Your company also have full access to the global market. Remember what it means to run a distributed business – it means global access. Your chosen form and location of your incorporation should not limit you from accessing a global market. By access, I suggest you have access to service providers that can help you save time and reduce costs plus your customers have access to your company as well.
Let me give you an example: if you are running an offshore company, a particular type of clients won’t pay your invoices. Simple is that they don’t want to transfer funds to a company that incorporated in a sandy island somewhere. Individual countries are also exempt from having access to service providers like PayPal, Stripe or e-banking accounts like TransferWise and Revolut. You need to incorporate where you have full global access to the market, and you have zero limitations due to the location of your incorporation.
Having said that, do your research and consult with experts but in general, you hardly can go wrong with countries like the USA and their certain business-friendly states, the UK or Ireland with their ease of doing business, the Netherlands and Luxembourg with their commerce-friendly environment, or with Estonia with their minimalist e-residency business setup. If you have a significant amount of profit that can give you leverage on incorporation, you can set up businesses in respected and business-friendly countries like Singapore, Hong Kong or the UAE (keep in mind that running a company there is expensive) but at least, you can choke down some tax bills, and a still run a non-shady offshore business.
The elephant in the room
Speaking of taxes… With that, you should certainly consult your accountant as the accounting will be the only thing that you should outsource to an expert anyway. Anything else can be automated pretty much or can be done by yourself, but not taxes. Not because it is hard to file taxes in business-friendly countries like Estonia or the UK, but because running a global distributed online business has some flaws regarding taxes.
There’s a term called corporate or company residency, where your business is tax-resident. Even if you live in the UK, but your business is incorporated in the Netherlands, your business can be treated as a business in the UK, when it comes to taxes. It is because of corporate residency – you pay taxes in the country after your business, where your business is centrally managed and operated. Now, when it comes to online companies, it is super hard to determine what is considered “managed and operated.” To most, it is based on the shareholders. If you are a sole entrepreneur and single shareholder of a company, your company is taxing in your home country, where you are a tax resident as a person, no matter where your company is incorporated. However, this can be highly varied due to business setups, countries and their local tax laws and your status as a tax resident.
I don’t want to jump into that in this post as this is more likely a tax expert’s area but let me remind you to talk to an expert before you jump to conclusions.
So to recap: stay somewhere visible and transparent, optimize and automate your business and remain accessible & flexible, plus consult with an expert before incorporating. It seriously pays itself out on the long-term.