17 ms·

Ask HN: What is the best jurisdiction for internationally distributed teams?

192 points by SkyAndSand 4y ago

This question is inspired by: "How I would start my next startup in Germany without a GmbH (2020)" (https://news.ycombinator.com/item?id=31601638) Say you want to set up a startup and the founders live in Germany, the US, Australia and Singapore. Your team will be fully remote from day one. You are looking for a solution where - the company is fully operational within days or weeks and can be set up without all founders having to come together in person - day to day business can managed remotely (e.g. together with local tax advisor / lawyer) - the jurisdiction has a solid good reputation - the legal frameworks are understood and accepted by US / EU investors and VCs - complying with all requirements around hiring employees is not too much of a burden - official language of documents is English - you have a good framework for rewarding employees with equity Where would you incorporate and why? I've looked into the US (obviously..), UK, Cayman (I know YC allows Cayman legal entities), Hong Kong, Cyprus etc. and see at lot of pros and cons for each option. If you've gone through the process, can you share some insights and whether you'd do it again this way?

oxff 4y ago
Tax shelters would be my initial guess.
- SkyAndSand 4y ago
  I should clarify that the goal is not tax optimization but rather being able to focus on getting product market fit instead of spending time "managing" the company.
  - cjbgkagh 4y ago
    Typically low “managing” overheads is an additional perk of the tax havens.
    - oxff 4y ago
      This is what I had in mind too.
    - SkyAndSand 4y ago
      Yes, but besides Cayman I don’t think investors would really be happy to invest in tax havens. Also you normally run into issues with substance requirements, opening bank accounts, bad reputation of the jurisdictions and of course tax authorities that will immediately question and investigate your setup. From doing a lot of research I get that the general recommendation is to avoid tax havens (at least the obvious, shady ones - US, Ireland, Netherlands etc. are of course fine).
      - cjbgkagh 4y ago
        If you want investors then incorporate in the US, as the cheapest money by far is in the US and they prefer to invest locally. If that’s how your funding the company then it’s probably the dominate concern. It really depends on how you want to grow. If you’re bootstrapping on profits then tax implications can become very important. You can have a subsidiary in ‘non shady’ jurisdictions for any squeamish customers.
gtirloni 4y ago
Delaware seems to be a common choice.
bombcar 4y ago
You’re likely going to have to establish “business entities” in each county - but if you’re working with VC/other firms I’d say defaulting to US - California would be the most known.
- SkyAndSand 4y ago
  Really, you'd think VCs would prefer California over Delaware? At least YC specifically prefers Delaware: > Why is it that we try to advise all companies, no matter who or where, that Delaware C Corp is the right thing to do? src: https://www.ycombinator.com/library/5C-tips-on-company-formation-and-fundraising https://www.ycombinator.com/library/5C-tips-on-company-forma...
  - _jal 4y ago
    You'd only think that if you haven't compared the burdens associated with each. Delaware has long-specialized in making themselves an attractive place to incorporate. California... has a different mix of priorities, let's say.
- TedDoesntTalk 4y ago
  This is terrible advice. All of it, not just the California part.
troydavis 4y ago
Based on your description, your goals are predictability and low or outsource-able overhead. For those goals, the US is the clear choice. By far the largest pool of investors and employees are comfortable with US entities as counterparties. Plenty of companies will incorporate, prepare tax returns, and handle other compliance items (unemployment insurance) for relatively small fees. As far as states, if you don't care, Delaware is probably the most common. Nevada and Wyoming have no state corporate income taxes, so they are also popular. More on that: https://www.forbes.com/sites/forbesnycouncil/2019/03/04/the-benefits-and-pitfalls-of-incorporating-in-delaware-nevada-and-wyoming/ https://www.forbes.com/sites/forbesnycouncil/2019/03/04/the-... . To incorporate, check out Firstbase (https://www.firstbase.io/ https://www.firstbase.io/) or Stripe Atlas.
- gumby 4y ago
  The Delaware tax is pretty low. Stick to Delaware as it’s corporate law is well known to everyone. The state of incorporation has nothing to do with where you might operate. Keep it simple. Note that I am part of an LLP that a group of us use for investing and consulting projects and it’s a Wyoming corporation with company office in Kentucky and no legal presence in California. These kinds of specialized entities are not worth the hassle except in unusual cases, and almost certainly you aren’t a specialized case. For example this setup doesn’t have much of a benefit for me (though it doesn’t hurt) but it does for a couple of my partners. Also: I don’t mind paying taxes.
  - TedDoesntTalk 4y ago
    There’s nothing specialized about incorporating in Wyoming. And it takes minutes without a lawyer. The amount of paperwork is ridiculously low compared to Delaware. Last I recall Delaware has a minimum $500/year registration fee, more depending on outstanding shares. Not Wyoming.
    - runnerup 4y ago
      You'll also need to consider "alien entity" fees/taxes if you want your "Delaware" corporation to operate in another state, e.g. Texas.
deltaci 4y ago
Estonia is also a really good choice within EU. With their digital residency card, everything can be managed online with digital signatures only.
- SkyAndSand 4y ago
  I've heard lots of people talking about Estonia but can you name any international remote-first startup that became successful and raised money with an Estonian entity? I don't and this makes me somewhat suspicious :)
  - lukeqsee 4y ago
    I don't know of remote-first companies, but I know of many Estonian companies that have raised a lot of money and been incredibly successful. To name a few: - Bolt - Wise (TransferWise) - Pipedrive I have a long history with e-Residency and know many e-Residents (e-Resident since 2015, 3 companies, member of EERICA.ee). Happy to chat about it. Email in bio.
    - mishaker 4y ago
      I second that. There are growing number of startups and increasing capital pouring into Estonia (hence the largest inflation rate in Europe) Wise and Bolt are good examples.
    - mishaker 4y ago
      I was e-resident too but had to become resident in Estonia. Cause if you are abroad and distribute yourself dividend (as a sole entrepreneur) your host country would consider your Estonian company local and thus it constitutes a permanent establishment and that becomes extremely complicated
      - lukeqsee 4y ago
        Of course--but this is the case for almost all jurisdictions of record vs jurisdictions of taxation. Few countries want to allow a company to operate 100% in their borders without extracting some degree of taxation. (In fact, this is basic OECD taxation doctrine.) My situation is complex, but, generally, the advantages of Estonian registration are found in drastically simplified and lower-cost business registration and processing (vs say a GmbH in Germany or Switzerland with high share capital and accounting costs) or ease of operation for digital nomads or fully remote companies. A OÜ isn't for everyone in every life situation, but when it fits, it tends to work really well. A LLC or C Corp in the US could work just as well (or better), depending on the situation.
bitL 4y ago
Delaware or Dubai.
candiddevmike 4y ago
Wherever the CEO/founder lives. You can always move the company, better to just get something formed and worry about optimizing for taxes later. Pay folks as contractors and you don't have to worry about having a presence in their country.
- SkyAndSand 4y ago
  I am actually not trying to optimize for taxes but rather for low overhead and not spending too much time managing the company but rather building a great product.
  - ageitgey 4y ago
    In my experience, things aren't that simple. For example, if you start a company in Country A but you are the main decision maker and live in Country B, then Country B may try to claim primary taxation of the company based on the fact that they consider the company being 'effectively run' from inside their borders despite your incorporation. And you aren't going to read about this kind of stuff on forums because it is very situation specific. Multi-country taxation is very complicated. You can get a general idea from asking online, but then you REALLY need to talk to an expert in those specific countries unless your business is just so small that the governments involved would never care. If you don't want to do that, the best/simplest situation is almost certainly incorporating in the place where the founders actually live permanently.
    - deleted 4y ago
      [deleted]
    - nine_k 4y ago
      As the post states, the idea is to hire / contract a number of people around the world. I don't think it would be easy to argue that that the company effectively operates from country A if most of the work is done by people in countries B..Z. IANAL, of course.
      - 4y ago
giaour 4y ago
With a fully remote setup like you describe, what are the mechanics of hiring a foreign team member? Do you need a subsidiary or some legal entity in the foreign country in order to pay employment taxes? If they're direct employees of the US entity, what's their legal status in the US? Can you avoid all these questions by using foreign contractors rather than hiring foreign employees?
- SkyAndSand 4y ago
  These are all really good questions. I am not sure. I think that you could work around these issues by either "hiring" people as contractors or using something like https://remote.com/ https://remote.com/ or https://www.letsdeel.com/ https://www.letsdeel.com/. But I'd definitely be interested in hearing how other companies solved this problem (which is partially why I created the post).
  - lbotos 4y ago
    1. I'm not a lawyer. 2. If you want to hire someone abroad (outside of the business' country) then contractor. 3. If you hire enough contractors, you may be forced to set up an entity or use a PEO. Local governments see that as skirting employment law. (I work at an all-remote company that is pretty transparent, and people lambast us all the time because they are upset we don't hire in $a_country_they_think_we_should and it's almost always "tax and labor law is complex, we can't hire there until we understand the implications better.")
  - hodgesrm 4y ago
    We are US incorporated with staff in 14 countries. We use contracts for non-US staff and recently implemented letsdeel. So it looks good. You do not need a legal entity in most countries and in fact there can be significant disadvantages. The accounting management alone is a nightmare if you do it yourself. Ps most people set up their own company and we contract with that. Edit: add ps
    - SkyAndSand 4y ago
      Thanks for the feedback. Did you generally encounter any bigger issues with this setup or would you do it again for the next company? Also, where in the US did you incorporate? Delaware?
lordnacho 4y ago
I don't see Malta mentioned. They speak English, are in the EU, use Euros, and have low tax. Nice weather too.
- SkyAndSand 4y ago
  Similarly to Estonia I've heard lots of people recommending Malta but can't really name any international remote-first startup that became successful and raised money with an Maltese entity..
  - popcalc 4y ago
    If you look into the egaming and adult sectors you'll find a lot of success stories. But these guys actively try to stay out of the media. >raised money If you want to raise VC funds with no revenue there really is no better option than Delaware. Malta/Isle of Man/Jersey are meant for businesses that generate so much cash you don't know what to do with it.
- kzrdude 4y ago
  Malta ranks high on a corruption index like https://www.transparency.org/en/blog/cpi-2020-malta-lost-in-corruption https://www.transparency.org/en/blog/cpi-2020-malta-lost-in-...
  - KyeRussell 4y ago
    Even better!
speakfreely 4y ago
The jurisdiction where banking and accepting payments will be easiest for you. Probably the US (Delaware, Nevada, Wyoming, as mentioned) or EU. Be careful of common offshore places, accepting credit cards will either be difficult or expensive or both.
gumby 4y ago
I recently had to consider this and was quite surprised to discover that the US was the best place. Compared to most countries the US has been a tax haven for a long time, but the 2017 tax change meant that in most cases the US would be a significantly cheaper place to recognize revenue.* Also the mechanics of getting the boring things done is significantly easier, as noted by the Germany post cited in your question. Because of the US FATCA law you may have trouble opening a bank account in some countries (smaller entities simply can’t be bothered with the paperwork the US demands on accounts for “US Persons”, a term which has specific meaning). In practice this just means you have to deal with larger banks. Note I’ve been a US resident for decades, and started several companies here, but am not a US citizen and have lived and worked on three other continents as well so had no prior bias. * Note 2: this business is intended to be quite profitable relatively soon, rather than a “focus on user growth and toggle the profit switch later business.
- SkyAndSand 4y ago
  > Because of the US FATCA law you may have trouble opening a bank account in some countries (smaller entities simply can’t be bothered with the paperwork the US demands on accounts for “US Persons”, a term which has specific meaning). In practice this just means you have to deal with larger banks. You mean opening a bank account personally or for the company? Because for the company I'd simply use Wise or Mercury and be done with it.
  - kube-system 4y ago
    I believe they are referring to the concept of corporate personhood. FACTA applying to "US persons" means it applies to corporate accounts too.
  - gumby 4y ago
    Last time I looked it's hard to use something like Wise as your bank for your payroll. Wise has been great for managing my personal payments, but I still have personal bank accounts in a couple of countries where I hold property because it just makes things easier there.
FooBarWidget 4y ago
One thing to note if, as a Dutch person (and possibly even if you're another European), you incorporate in the US: Many Dutch financial institutions hate people who have the "US person" status. If you own a US-incorporated company then I believe you will gain that status. Banks, lenders, stock brokers, etc will either refuse to do business with you, or will give you a lot of paperwork headache and/or charge you more tax. I think this has to do with the fact that US persons have to comply with FACTA. For example I have 3 stock brokerage accounts (1 for personal, 1 for pension, 1 for business). They all ask me whether I have the US person status, and 2 of them just flat out tell me that they won't do business with me if I answer yes. Not sure whether financial institutions in other European companies also come with this caveat. But since it's related to FACTA, I believe they do.
- rambojazz 4y ago
  Why are "US person" hated?
  - FooBarWidget 4y ago
    Probably because FACTA compliance is a huge pain.
- SkyAndSand 4y ago
  I am indeed another European and I do know about the issues with being a "US person". Many banks and brokers will simply immediately close your existing account or not allow you to open one. However, are you sure that simply by owning a US company you become a US person? Because according to my understanding if you don't live in the US (and don't spend more than 4 months / year there) you wouldn't actually be tax resident in the US and therefore also not be a "US person".
  - FooBarWidget 4y ago
    I recall that some of the questions mention that having US income is problematic, and that even having a US phone number is problematic. But I'm not 100% sure.
jpgvm 4y ago
If you want VCs then it's always the US and should always be a Delaware corp. For non-VC funded companies HK is great, allows for tax minimization, minimal headaches, access to international banks and potential access to Chinese market if that is important for your business.
- digianarchist 4y ago
  It’s virtual impossible to operate a HK or Singapore LTD these days as a “US person”.
  - jpgvm 4y ago
    Fair. I'm not a US person so I don't run into these issues. I still have to submit appropriate docs for FACTA etc because I do business with US companies.
- robk 4y ago
  The vast majority of valley investors are OK w uk these days.
  - SkyAndSand 4y ago
    Are you sure? Because at the YC doesn’t invest in them unfortunately.
- cascom 4y ago
  HK is over unfortunately
  - jpgvm 4y ago
    Reports of HKs death are greatly exaggerated. What you see in the media is one thing, the reality on the ground (for business at least) is very much the same as it always has been. If anything HK is even more like Singapore than it was in the past.
thruflo 4y ago
I’ve founded companies in the UK, US and EU. I’d recommend the UK. The cost of a limited company is £12. It’s formed in a day. Use https://www.ukpostbox.com https://www.ukpostbox.com if you need an address. The legal system is well known and entrepreneur friendly. Accountancy and company admin are simple and relaxed. HMRC is supportive. You can pay dividends on a flexible schedule. There’s a very large ecosystem of financial support, innovation grants, incubators, accelerators, angel networks and VC firms. Flip to the US for later stage funding. Nice problem to have. Needless to say, IANAL, this is not financial advice, crayons, etc.
- deleted 4y ago
  [deleted]
- SkyAndSand 4y ago
  I've looked into the UK multiple times and it definitely sounds very attractive. It seems that OnlyFans and Hopin (https://hopin.com/ https://hopin.com/) were both started as UK LTDs. Downsides (as you mention) are probably access to US investors and potentially issues with VAT because of Brexit. Just out of curiosity - did you experience any issues selling to EU customers because of Brexit?
- jll29 4y ago
  I would have seconded that up to the botched implementation of Brexit, now there are many areas of increased risk because (a) certain things are not yet sorted out (increased uncertainty) and (b) the process is antagonistic and politicized instead of cooperative, so the issues are unlikely to be resolved anytime soon. The UK is still a relative good countries for starting up, just not as good as it used to be.
  - ushakov 4y ago
    also you get into double trouble with VAT-MOSS system
  - blibble 4y ago
    if you're selling services it's been sorted since Jan 2020: there is no deal (if you're selling beef, cars or washing machines then yes there's potential uncertainty)
lmeyerov 4y ago
What I keep finding non obvious is equity. And especially ideally keeping US side a Delaware C. How to issue international options and shares?
- SkyAndSand 4y ago
  Good point, added that to the list of requirements in the original post. I am asking myself the same question.
  - lmeyerov 4y ago
    Also: hiring (PEO?) & firing (at-will). We do global remote contractors for those reasons + unclear equity, but would like to do more. Per-state US registrations / benefits / payroll are getting easy enough so minor overhead, equity is clear, and all states at-will. But getting that international is unclear.
- jokull 4y ago
  Is there something stopping a US company from issuing equity to foreign citizens?
  - cascom 4y ago
    No
    - lmeyerov 4y ago
      It takes the complexity of international hiring (vs contracting) and raises it up a notch. Your home country like the US doesn't care (afaict) but the country they are in will have extra levels of compliance to go through, including labor protections & equity laws. Likewise, if you were planning to use an EOR to simplify foreign registrations, that just got weirder too. And.... IANAL, we pay people to figure this stuff out or stay away from it.
t312227 4y ago
imho this decicions also heavily depends on the topic of your startup. afaik for example for blockchain related stuff switzerland, especially the canton/city of zug is a very good choice - for legal reasons etc. br, v
jokull 4y ago
Delaware company and then all team members get set up as contractors in their country of residence. If they are in the EU they can contract from where they are from but live within the EU - more flexibility. But putting people on payroll has a huge overhead - better compensate employees to pay a local book keeper to invoice and process their payroll. Encourage people who have not contracted to research what contractor fee covers their salary. It will be tricky to compare apples to oranges when it comes to salaries, not just because of different rates in different places, but because salaries are quoted differently and have different insurances. Where I'm from there's a compulsory payment from employer to the employees pension fund of choice. Salaries are quoted to include this payment. And on and on ... very different across countries. Contractor fee "normalizes" this and places some burden on employees to research what their USD contractor fee is. Ask people to invoice a week ahead of international transfer and transfer 1-2 business days before month's end. This will result in monthly salaries being paid out on time.
- WanderPanda 4y ago
  I'm pretty sure this would be illegal for employees in Germany because of the "Scheinselbstständigkeit" (False self-employment?)
  - codethief 4y ago
    Does this also hold if your employer (i.e. your client) is outside Germany?
    - tdullien 4y ago
      Yes
  - Aeolun 4y ago
    I think the important thing there is that you are ‘actually’ independent? Obviously this isn’t the case if they make you deal with days off, forced working hours etc. But I can totally see someone just billing by the hour, paying their own taxes, as actually independent.
raverbashing 4y ago
There are plenty of good suggestions about jurisdictions, but I'd say that's not the only thing you should pay attention to What you should check is what's the best way for each person to own their share in the company. Straight ownership might have some issues. Having each one have a company that then owns the parent company might be a way. Or having a company own your company then the founders own the parent company.
MichaelRazum 4y ago
Germany obviously has a high overhead. If you own more than 50%, CFC rules might apply and will make things very complicated.
thrill 4y ago
There's a reason the Cayman Islands have two-thirds of the world's hedge funds incorporated there. It has a long and stable financial history and has stated that any structural financial changes will be grandfathered where legally possible. That sort of stability is worth the $100/month it takes to keep an international business there.
- Nextgrid 4y ago
  Do you have more info about the $100/month to keep a business there? Is that a third-party service or is it an official fee to keep a company on the register?
- SkyAndSand 4y ago
  I see your point, but do you actually know any big, international startups that are incorporated there? I only know if Brave (the browser).
- cascom 4y ago
  But to be fair, none of those hedge fund’s employees are employed by the caymans entity, and the only reason they are not in the US (at least for US hedge funds) is to accept non-taxable us investors and foreign investors, U.S. taxable investors typically invest through a Delaware LP.
gyulai 4y ago
That's a pretty complex question with a lot to unpack. (Except: Minimize your contact surface vis-a-vis Germany. That part seems easy.) First off: There is no such thing as a "remote friendly" jurisdiction. Estonia is trying to market this, but don't drink the Kool Aid. Someone is going to have to make a trip to the bank or the notary every now and then. They'll have to show their faces. They'll have to affix their signature to things. With ink on paper. You will have to deal with business partners who will think this way: "This guy is based where I am based. He knows that if he tries to defraud me, the police will come knocking. So he's probably not trying to defraud me, so it should be safe to do business with them." Versus "This guy is just someone on the other side of the planet sending e-mails. He knows that if he successfully defrauds me, I won't be able to do anything about it. Therefore I don't want to take the risk." A lot depends on trust and interpersonal dynamics between founders. If there is a lot of trust between the founders, I'd pick one of the jurisdictions where a founder is actually based. Say you pick the U.S. for ease of access to capital. This means that the person who is physically in the U.S. would probably end up having to liaise, frequently in person, with banks, accountants, government offices, etc. This puts a huge admin burden on that person, and also requires a lot of trust from the founders in the other jurisdictions that this person won't abuse their privileged position. If that founder drops out and there isn't yet any physical presences in the U.S. except for that founder, the others will be in a difficult position, because their own jurisdictions might not recognize that this is legitimately a U.S.-entity if there is no actual person in the U.S. who is connected with this entity. So that's why it requires a lot of trust. An alternative might be: Set up 4 sole traderships and a "placeholder entity" in a zero tax jurisdiction that kicks into gear when real money starts getting to the table. So: * Frank Deutschmann registers with German authorities as a German sole tradership. * John Smith registers with U.S. authorities as a U.S. sole tradership. * Aussie Australian registers in Australia as an Australian sole tradership. * Sing Singapore registers in Singapore as a Singapore sole tradership. * Startup Inc registers in Bermuda, with each of the four holding a 25% ownership stake. Startup Inc passes the following resolution, and correspondingly makes a contract with each of the other four entities: Revenues: We intend to sell an API to clients at $1 per 100 calls. To achieve that, Startup Inc will subcontract Deutschmann to run one server, Smith to run one server, Austrialian to run one server, Singapore to run one server. When a request hits a server, the server should use a random number generator: With a 25% probability it will handle the request itself. With a probability of 25% for each of the other three servers, respectively, it will redirect the client to one of the other three servers. Every partner has to pay the costs for their own server (AWS bills etc). Every partner gets to keep revenue of up to $100k per year for requests their server serves. Revenue in excess of that goes to Startup Inc. Intellectual Property: All IP belongs to Startup Inc. The thing about the API was just an example, but you can think of analogous ways of e.g. splitting sales of widgets. The load balancing algorithm is obviously stupid, this was just for simplicity of exposition. The great thing about this arrangement: * As long as your api makes below $400k, Startup Inc doesn't handle any money. The German authorities only deal with a German sole tradership and tax it on its small profits, and don't care about the rest. The U.S. authorities only deal with a U.S. sole tradership and tax it on its small profits, etc. * The Bermuda entity is the key to the whole thing and yet no jurisdiction would have a reason to scrutinize it or try to poke holes in it or attach any real significance to their respective citizens holding shares that are legally worthless in a company that is legally not really doing anything. * No founder enjoys a privileged position that requires almost unlimited trust. If any founder drops out at this stage, the other three continue to operate almost as if nothing had happened. * While it makes a lot of sense for the four to take advantage of economies of scale by sharing heavily, there is also potential for some autonomy which reduces the potential friction if there's something that founders can't agree on (e.g. every one goes to their favourite bank and hosting provider, picks an accountant they personally trust, etc.) * If they end up making a loss, everybody gets a loss on their personal income tax which they can each offset against future earnings. * In this stage the whole thing legally just looks like four people coordinating their efforts on a joint venture of sorts. But the main thing is each of the persons. Which is the actual reality of the thing at this stage. * For each additional dollar that the API makes beyond the $400k per year, the whole thing starts gradually to look more and more like a corporation, both legally and in terms of the real life circumstance that the legal structure represents. Increasingly, what matters is no longer the four people, but the IP and money held by the Bermuda Inc with every individual being pretty replaceable. And the legal structure actually reflects that, automagically turning from joint venture-like to corporate-like.
renewiltord 4y ago
My friends and I have a seed-investment fund that we needed to be low overhead since we're all running companies. The Delaware process was fairly low-overhead. Some things needed to be notarized and it was a pretty easy process to get a virtual mailbox and everything (notarize.com was in the loop and they're neat!) Sorry it isn't directly against your constraints but we are foreigners in the US so I thought I'd mention it. More information is always better :) Good luck! Eager to hear how it goes.
- SkyAndSand 4y ago
  So basically you are a group of non US citizens living in the US and wanted to have a shared entity to do investments? Well I guess then a Delaware C Corp is the logical solution? Did you use Stripe Atlas to set it up?
  - renewiltord 4y ago
    Yes, right on the money. Though there's a slight natural difference for us to accommodate later participants. Yeah, we used Stripe Atlas, though none of the startups we run are through that. Overall, quite painless to be honest.
    - SkyAndSand 4y ago
      Awesome, thanks. May I ask why you went with the C Corp and not an LLC? Probably to make it easier for new investors?
      - renewiltord 4y ago
        Actually, I just checked our Stripe Atlas. Originally intended the C corp so we could bring people in but we were instead advised to just start a new LLC each time if we wanted and that we could have one LLC just be the owner of the other. So I should correct this. We did end up with an LLC but the C corp would have worked just fine apparently. Thanks for bringing that up. I'd forgotten.
yakak 4y ago
Ireland seems like an obvious one to look into. English language. Simplified relationship with the EU as a market and source of employees. Used to dealing with US paperwork but not going to cause anyone to get the viral US person disease.
- digianarchist 4y ago
  Pretty low corporate rates too (12.5%) but dividend withholding taxes are high.
- SkyAndSand 4y ago
  Is that an assumption or are you speaking from experience?
  - yakak 4y ago
    Ireland? That is my envious observation of things Irish startups indicate they can do by the offers they make in EU markets. Before Brexit, UK and Ireland appeared to be able to payroll a worker in another EU country, now just Ireland. For Switzerland, we could recruit them to work here or contract them but we could not directly payroll a worker who permanently lived and worked outside Switzerland. US Person problems? Those are just part of the annoyances the US will bring you if it becomes a meeting point through the logistics of the boss needing to go there in person more often. I've met people working in Switzerland for the FAANGs in a tier beyond the people who work out of Canada to get around US travel complications, for additional US made complications for traveling to Canada. An accidental US person by marriage who travels with their partner and has a different income situation might also find they needed to be counting days in the US for tax reasons, etc. Many companies seem to end up dual homed in Ireland and the US and that seems to work. Personally, I would start with seeing what Ireland alone looks like and delay anything in the US if possible.
yayr 4y ago
Be careful regarding taxes and "Betriebsstätten". If you are living in Germany and your company management is mainly operating in Germany you are liable still for local taxes ("Hinzurechnungsbesteuerung"). There are also special rules depending on how much of the company stock you own. Also you may have to register a "Gewerbe" in certain cases if you are doing business in Germany (e.g. selling something) from a foreign entity. So in a bad case as majority owner you will then have to do the taxes and other admin topics in the country of your company AND in Germany and you'll always have a special relationship with a curious tax office. So the only way to have really a startup in a non-German jurisdiction is to make sure that your management decisions (and usually also some infrastructure) is set up there.
- petesergeant 4y ago
  The general name for these are CFC laws, and most developed countries have them in some form. https://en.m.wikipedia.org/wiki/Controlled_foreign_corporation https://en.m.wikipedia.org/wiki/Controlled_foreign_corporati...
- SkyAndSand 4y ago
  Yes, that is a good point which applies to a lot of high-tax countries. If you are a single company founder and run a company in jurisdiction B from country A then country A will usually have provisions that the company will be resident in A. The question that I am wondering about is more like - you have four founders with 25% each who live in four different countries. Where is the company resident in that situation?
  - tluyben2 4y ago
    I have had this issue in NL and ES; both tax offices accepted that the the decision making was not in respectively NL or ES because most of the decision making (directors and shares) were not in either country.
notyourday 4y ago
One of the "tax heavens". This is the actual reason why multinationals move headquarters there.
jll29 4y ago
Reading this thread (and remembering past pains) I posit that things are too complex almost everywhere. Some innovation-minded billionaire should buy an island - a white spot on the map (not this one: https://en.wikipedia.org/wiki/Principality_of_Sealand https://en.wikipedia.org/wiki/Principality_of_Sealand) - and create a new jurisdiction optimized for incubating remote startups.
- SkyAndSand 4y ago
  Well, you have these jurisdictions already (e.g. Cayman). However if the employees are all based in other countries then you’ll always have to comply with employment regulations there.
gtvwill 4y ago
Lol I wouldn't, I'd head for the hills. If choice of where to incorporate is being made to align with mitigating tax liabilities. I wouldn't work for that company as it doesn't align with my ideals. Gross business is gross. Other than that probs EU. Gdpr is good, murica has crap like HIPAA, straya well we're basically the wild west rife with white collar crime. Which I mean is ok if you understand from the get go the playing fields aren't even. Dice roll between those three.
xupybd 4y ago
I'd say New Zealand. Purely because the labour is cheap. But if you're remote first that doesn't really matter.
p3nm8 4y ago
From a litigation standpoint, if you stay in Europe, consider Switzerland as a neutral jurisdiction (Rechtswahl). This is independent from where your company will be registered. Else the US, as mentioned already, is a good place. Generally to keep in mind is, that apart from the tax standpoint consider also questions regarding labor regulations and civil damages (Schadensersatz).
cascom 4y ago
(Not a lawyer etc.) If you didn’t have a US founder I think you’d have more options, but since you do, just embrace the US - it’s will also be the easiest from a fundraising standpoint, and one of the cheaper options. I actually think the US gives you the most choices from a vendor standpoint, and is the cheapest (or one of the cheapest from an administrative standpoint). Regardless, definitely do it in a jurisdiction where one of the key founders actually resides (ideally the CEO and/or CFO) as that just makes the administration much easier to have someone on the ground.
- SkyAndSand 4y ago
  That is good advice. What would you do in case there wasn’t a US founder?
  - cascom 4y ago
    Short version - do it where or near where the bulk of your 1) customers 2) investors 3) leadership team are likely to be located, that also is not an administrative hassle. Stay out of continental Europe and tax havens that you’re never going to step foot in. From a practical standpoint all small companies are out of compliance with tons of laws, they just fly below the radar, and do their best (not from a desire to be non-compliant, but that the laws are impossible to comply with without armies of accountants and attorneys) So do the best you can and move on with your life. You’re going to have the same employment problems with your German employee regardless of whether his employer is in the Isle of Man or Australia, so just suck it up and hire a an accounting firm to do the personal tax returns for the team and focus on your business.
iqkznnft 4y ago
Since we're on the subject... Can anyone just incorporate a company in the United States? Even if they don't have permit to work? Separate question, can they be employed by the company they incorporated, remotely, and use the company to bill American customers?
- cascom 4y ago
  Yes they can
- AlexITC 4y ago
  Having queried an US accountant, you should be able to create a US company without being there, you mostly require an ITIN and fill paperwork, you can hire an accountant to do that. On the other hand, you won't be able to get a bank account unless you travel to the US, I'm not sure if alternatives like Mercury could get you a bank account without being at the US. At last, you can't be employed by your company unless you have a work permit. I have even saw companies that promise to open you a US company + bank account + handle taxes for a monthly fee.
- SkyAndSand 4y ago
  Speaking from experience - yes you can create a LLC without being a US citizen or green card holder. You also can get bank accounts with Wise and Mercury for your company without traveling to the US.
rr808 4y ago
Why do you need a company? You need for contracts between the company and customers, company and employees, company and investors. Lots of people here recommend USA, I'd guess that is unnecessarily expensive. I'd think UK, Ireland, Luxemburg, Netherlands is simpler. It depends a lot on where your customers, employees, investors are.
hestefisk 4y ago
Singapore maybe.
el_nahual 4y ago
If you intend to get VC funding, then you have to "keep it standard." Don't do anything new, weird, etc. The "Cayman-delaware sandwich" is quickly becoming the go-to structure for Latin American startups. It's well known and has a ton of advantages, but I believe it only works if your business is not actually US-based: if the bulk of your customers are in the US, for example, then you might have to do a Delaware corp.
- SkyAndSand 4y ago
  What exactly does the Cayman Delaware sandwich look like? Cayman Holding and Delaware C Corp as operational company? What is the purpose of the Cayman holding then?
  - el_nahual 4y ago
    The Delaware company is an LLC which then owns all the operating companies in-country (which you will need, if only for payroll/hr /payments/tax/vat reasons).
- plumeria 4y ago
  Can you recommend some pointers to learn more about the Cayman-Delaware sandwich? I assume the payment processing would be in the US?
  - deleted 4y ago
    [deleted]
  - SkyAndSand 4y ago
    I’d also love to learn more. Sounds interesting!
InvOfSmallC 4y ago
I’m absolutely not an expert but I think when choose the country you also choose the problems so I think it’s more important to chose a country you feel comfortable working with (same spoken language, knowledge of laws). Then there are plenty of company that offer as a service to hire for you in the other countries removing you from the hassle of figuring out the technicalities of other countries.
jmkni 4y ago
Try Northern Ireland :) Why? * Anybody from Northern Ireland is entitles to both UK and Irish passports, meaning they can live and work in both the UK and EU * Booming tech industry, 3 Universities all with a strong focus on tech * Can trade into both the EU and UK markets * Great broadband etc * Lots of VC's/Investment opportunities
PaywallBuster 4y ago
Anyone have experience with "non-resident" US LLC ? That would be one way to avoid corporate taxes while being established in a reputable jurisdiction? But for online businesses I guess at some point you'd be selling to US customers, so would that complicate things?
- SkyAndSand 4y ago
  I do, what do you want to know?
  - PaywallBuster 4y ago
    would be good to know more in general, if you'd like to share I'd like to know, specifically about my last point > "But for online businesses I guess at some point you'd be selling to US customers, so would that complicate things?" because selling anything online like SaaS / digital products / etc, would be very easy to get a few american customers and that would incur corporate tax? at least for that portion of the revenue ?
kahnclusions 4y ago
You need to be aware that if you choose to employ remotely internationally, then you aren’t just choosing one jurisdiction — you are potentially tying yourself up in many jurisdictions. This is because your foreign workers will have local tax obligations by virtue of being physically present in another country while working for you. It doesn’t matter what’s written in your contracts, local law wins. They can also claim rights under their local employment law, and those countries could deem you to be operating locally and subject your company to corporate registration, reporting and taxation. Be careful to analyse the local laws and tax situation before hiring people in another country.
jokethrowaway 4y ago
Among the ones you mentioned, Singapore. If you're happy to relocate / create substance (director, offices, employees, board meetings) in another country so that the tax man in your countries of residence won't pursue you, then I'd go with Dubai or some zero tax Caribbean island if you don't care about Anti Money Laundering regulations (aka you don't care about investing the profits in European / American banks). Malta at 5% if you care about accessing European markets (even better if you have residence somewhere with little or no dividend tax like Portugal with NHR or Cyprus at 2.5% extra). Company formation / bureaucracy is generally not a big concern, just avoid Germany, Italy, Spain, France (no reason to pick them to do business anyway) and get an accountant to deal with the pain.
manxman 4y ago
Be careful with the offshore jurisdictions. The low taxes can be offset by a lot of weirdness and org crime. It works if you’re a big corporate and have the right protection. Everyone knows each other in the small islands and scams get run from MITM attacks in local cafes, profiling from people in restaurants/cafes/coworking and a general lack of confidentiality among islanders between people they’ve known all their lives. Also there’s a level of hostility towards outsiders being successful in some of the offshore locations even though their economies depend heavily on such investment. I speak of Isle of Man, Guernsey and Jersey but there are horror stories from some of the Caribbean islands too. Again YMMV but if they do target you expect major friction in kind of the manner the Chinese do to force you to go through a local “partner”.

lmeyerov 4y ago
Such fees are basically nothing for a company that makes money High % taxes are where things get way dicier, e.g., some US states have high capital gains / transaction taxes while others are basically 0, which vastly changes how good exits are for employees "Penny wise, pound foolish" => optimize for low opex overhead on growth. Another example: $1K to setup a new state registration for an employee sucks, but is fine relative to their salary, so not the the # to optimize on.
- TedDoesntTalk 4y ago
  The annual filing fees and documents required by Delaware is arcane. Things like “annual meeting of the shareholders” for a single-person S-corp.
  - markdown 4y ago
    Are you saying that Wyoming doesn't have those requirements?
    - TedDoesntTalk 4y ago
      Not if you mark your corporation as a “close” corporation (limited to 35 employees). The entity type does not matter (C, S, LLC). “Abbreviated governance - shareholders may agree in writing to treat the corporation as a partnership, operate without a board of directors, dispense with annual meetings, and make a shareholder agreement. Advantages • Limited liability - the law says shareholders don’t have personal liability even though they relax corporate formalities in operations. • Ease of operation - operates without pomp and circumstance required in regular corporations where hundreds of shareholders must receive information and vote. • Cost of operation - relaxed corporate governance means lower legal, accounting and administrative fees for lower total costs of operation. • Deadlock prevention - provides access to court when shareholders are deadlocked and harm could befall the corporation through lack of action. • Buy-out provisions - shareholders may buy out a deceased shareholder’s interest according to shareholder agreements” https://sos.wyo.gov/Forms/Publications/ChoiceIsYours.pdf https://sos.wyo.gov/Forms/Publications/ChoiceIsYours.pdf Many of the disadvantages listed are no different than for other corporate entities.
      - markdown 4y ago
        Hey thanks. That's very helpful.
  - gumby 4y ago
    I can’t agree they are arcane. Back when the tax form was filed on paper it was a postcard-sized form: calculate one way on one side, the other way on the other side, and pay the lower amount. And the point is that once you are established the laws are well known and understood by corporate lawyers (in other words the opposite of arcane, at least for lawyers) and so will be easier to deal with for all parties. If you’re starting a small business just incorporate in the state you live in. If you’re starting a startup, don’t go for a false economy.

krn 4y ago
Just to clarify: since you are only an e-resident of Estonia, are all your three Estonian companies paying the corporate income tax (CIT) in your personal country of residence? Since Switzerland is currently the only country in Europe without CFC rules[1], it seems that an Estonian company can only be managed from Estonia or Switzerland without being considered as local for tax purposes in another jurisdiction. [1] https://taxfoundation.org/controlled-foreign-corporation-cfc-rules-europe-2021/ https://taxfoundation.org/controlled-foreign-corporation-cfc...
- lukeqsee 4y ago
  From my last post: > My situation is complex This means my situation pretty much does not apply to anyone else, and the tax residency question is very complex in my case, as well. I won't bore you with details. :)
  - krn 4y ago
    Sure. But since you have a lot of experience with the Estonian e-residency, maybe you know any real life examples where managing an Estonian company without personally being an Estonian tax resident made sense?
    - lukeqsee 4y ago
      Yes, hundreds. :) Here's a few examples: In Germany, it reduces the overhead of owning a company dramatically (the overhead of a German GmbH is quite a bit more than just taxes, including mandatory registrations, etc.). In Switzerland, it reduces necessary share capital from 25'000CHF to 2,500EUR (which can be deferred). In the US, it probably doesn't make sense unless your situation is very special. As a digital nomad, it gives you a clear business home while traveling the world (and running everything online is essential). Estonian accounting and business management is all electronic, so you can essentially run your business 99% in Estonia, do yearly tax reports in your resident, all while reducing the day-to-day complexity of running your business significantly. (No more paper or faxing!) For non-EU residents, an Estonian entity gives them a clear legal path to marketing and selling in the EU with proper VAT, etc. reporting. Every one I know has had slightly different reasons while Estonia made sense for them. I'm also purposefully not addressing the intangibles of registering a business in a well-functioning, well-regulated, forward-looking jurisdiction, which is a large component for many of my friends. (We care about Estonia, like its ideals, and want to see it succeed on a global scale.)

hodgesrm 4y ago
Delaware, though we originally incorporated in the UK and then flipped as a condition of receiving investment. (Thanks Accel people!) The flip was the most complicated thing we've done--accounting, lawyers on both sides to avoid the dreaded taxable event, etc. I would absolutely do the same in future. The contract to individual or individual's company is a standard model for remote companies like us that work on open source software. Some of our staff just have email & github access and that's it. My email is in my profile. Send me email if you want to discuss. I'm happy to share details directly.
- SkyAndSand 4y ago
  Thanks for the offer. Will get in touch later but I think that public replies could hopefully be helpful for others. The setup sounds great! I assume that you flipped to a C-Corp? Are most of the founders in the US or are you living abroad? How long did it take to flip the UK LTD? Do you force your contractors to set up companies or is it up to them? At least if the contractors are in Germany and are working full-time for you then I think they would get issues with “Scheinselbständigkeit” if they don’t have a company, that’s why I am asking.
  - hodgesrm 4y ago
    (Sorry for the delay, on the road.) We're a US C-Corp. Our founders are spread out over the US and Europe. I'm not one of them myself, but rather joined later. The flip from UK to US took 2 months end-to-end and cost close to $100K all-in. This might seem like a lot, but we had a working company with contracts and needed to be careful to avoid creating a taxable event. We also had to arrange transfer payments as we kept the UK company as a subsidiary to avoid the aforesaid event. (A real headache--it's better to keep just the US company if you can, post-flip.) If anybody is coming out of the UK I strongly recommend Ashfords LLP on the UK side and Wilson, Marshall, Taylor on the US side. They are both super and guided us well. As far as staff--we don't force them to do anything in countries where we don't have a legal presence. We leave it up to them to make whatever arrangements they find reasonable and route payments accordingly. In general having your own company seems to be the best route across many companies. I used that myself in the US before we flipped, because I was being paid from the UK. I can't speculate on German labor law as I've not had experience with it. Our approach is to take things a day at a time and work things out as they arise. It has worked well so far. To be honest we've probably had more issues with US jurisdictions than non-US. The state and local tax regime in the US is very complicated and requires accounting and tax advice on a regular basis. I was surprised how much attention it needs. Happy to answer more questions if it helps people.
- __d 4y ago
  Second this: I worked for years as a contractor for US-based companies from US, DE, and AU. No issues tax-wise -- it's just a service agreement between the two companies/legal entities. Similarly, I often had just a Google (email, calendar, docs, etc) and GitHub account. Legal agreements were like 3 pages total (mostly an NDA).
  - hodgesrm 4y ago
    Right. We put a lot more effort into ensuring people get on-boarded and properly integrated. That's the hard part (on both sides) to making the distributed company model work. I don't think you can ever do enough on that. We owe a debt to other companies like MySQL AB who provided models for remote organization.

glenngillen 4y ago

Wow you’re getting some bad takes here. Having a phone number does not make you a US Person. Having a bank account there does not make you a US Person. I can only assume people are confusing this with the domiciled test that can exist in other tax jurisdictions. It’s mostly the same criteria as the usual tax resident status (so all citizens + those with work visas + if you’re in the country for 183 days). HSBC had the most succinct summary I’ve seen: https://www.fatca.hsbc.com/-/media/fatca/pdfs/global---common-files/fatca-gpb-glossary.pdf https://www.fatca.hsbc.com/-/media/fatca/pdfs/global---commo... The Australian Tax Office has a reasonable guide on the overall scheme and how it applies: https://www.ato.gov.au/General/International-tax-agreements/In-detail/International-arrangements/Foreign-Account-Tax-Compliance-Act/ https://www.ato.gov.au/General/International-tax-agreements/...

jokull 4y ago
The way I do it, I set up a limited liability company that is just my own name. I then charge for services rendered and income goes into a company in my sole ownership. I then pay salary to the only employee (me). This is common and completely legal.
- logifail 4y ago
  > I set up a limited liability company that is just my own name. I then charge for services rendered and income goes into a company in my sole ownership. I then pay salary to the only employee (me). This is common and completely legal This approach exploded fairly spectacularly in the UK for many of those deemed by the tax office (HMRC) to be using it purely as a device to attempt to avoid being "on payroll" https://www.gov.uk/guidance/understanding-off-payroll-working-ir35 https://www.gov.uk/guidance/understanding-off-payroll-workin... Even BBC presenters were setting up "personal service companies" to try and avoid taxes (allegedly at the urging of the BBC) and ended up owing the tax office a bunch of back taxes.
  - jokull 4y ago
    The issue here is not calculating a fair salary - and its an insanely popular way to avoid taxes all over the world. Tax authorities turn a blind eye, I suspect because the practice is just too common among politicians and their friends. This might not be an issue if the corporate income tax + financial gains tax comes out the same as payroll tax. The bigger issue here is that you can use the remaining funds to invest and losses form a tax deduction base. More commonly however people just cram as much personal consumption inside the companies before paying out the salary, even things like travel and dining out. In the EU, VAT is commonly quite high and you get refunds on that if the expenses are on the company.
- csomar 4y ago
  I highly doubt this is completely legal, maybe unless you are not expensing the company anything (and transferring all of the revenue as salary).
  - jokull 4y ago
    In my country it is but you have to pay a fair salary and only expense strictly business related things. At the end of the month it's not illegal to have some funds remaining - as it can be because of irregular income, a business reality for many (most?).
- Aeolun 4y ago
  This is basically how all sole proprietors work right? You have more reporting requirements as a LLC, but otherwise the same deal?
- softveda 4y ago
  You can do this in Australia too. A simpler way is use a labour hire company, they keep you on payroll and bills the client for your work (an agreement has to be drawn between them and the company) (you need to submit a weekly timesheet). They take a commission (which includes services to run payroll and provide personal liability and professional indemnity insurance) and remkist the rest as normal salary.