4 ms·
For those of you starting companies that may one day be worth a lot of money, there is a key insight to draw from this: it is better (from a tax point of view)
by philiphodgen 11y ago
For those of you starting companies that may one day be worth a lot of money, there is a key insight to draw from this: it is better (from a tax point of view) to be a foreign company than a US company.
This is especially true if you expect most of your future customers to be outside the US.
In the long run this gives an operating advantage to foreign corporations -- again for tax efficiency only.
In the intermediate time frame all governments change their laws all the time, and there are going to be changes in tax rules coming that will make cross-border SaaS sales painful for tax load and administrative burdens, for instance.
Your choice is when to flip your business from US to foreign status. You can see the government attacking late-stage inversions because that is where the revenue and political brownie points are.
This tells you that early-stage migrations are still possible and may be cost-effective for you. At some level, for small companies, practical considerations can be used to offset unfavorable tax rules. (Translation - amounts are small enough to not matter, or be swamped by normal expenses so that they don't matter).
The US tax system is King Canute.
Source: I am an international tax lawyer in my real life.
- concernedctzn 11y ago> The US tax system is King Canute. Interesting, I had never heard this phrase before. Are you referring to this? https://en.wikipedia.org/wiki/King_Canute_and_the_waves https://en.wikipedia.org/wiki/King_Canute_and_the_waves
- philiphodgen 11y agoYes that is what I meant. The pointless arrogance of the powerful is the lesson. This is expressed in various ways, from the HN chortling about ignorant legislators attempting to define pi = 3, to the extremely correct observation that the bond market holds far more power than any central bank. Politicians are mortal and fallible.
- mtviewdave 11y agoFor those of you starting companies now, probably the last thing you should be optimizing for is the amount of corporate tax your company will be paying after it becomes a unicorn.
- nieksand 11y agoI'm not sure this is true. Many decisions you make today can be changed/fixed-up later. The company I'm at started as a WA LLC before re-incorporating as a Delaware C-corp and taking a $9.2M A-round. Bit of cost and hassle but not the end of the world. We've adjusted the structure of our engineering org several times both as our situation changed and as we learned what worked for us. Again, changeable. However, if you choose to incorporate in the USA you may end up with a permanent, unfixable disadvantage relative to your international competitors. The political left seems hell-bent on both keeping world-wide taxation and bringing in Hotel California style rules. This does not apply to just unicorns. Even a mid-size corp with a large international presence is impacted. You can ignore all this if your goal is to stay both small and domestic. But an organization like Y-combinator which can spread the legal cost/overhead across its cohort? It would be something worth giving serious thought.