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Pitfall if you are a U.S. citizen/green card holder: taxes. Scratch that. Not taxes. Paperwork and the cost to keep it straight. Your SG corporation will b
by philiphodgen 15y ago
Pitfall if you are a U.S. citizen/green card holder: taxes. Scratch that. Not taxes. Paperwork and the cost to keep it straight.
Your SG corporation will be a controlled foreign corporation.
Unless you are exceptionally well-organized and advised, the income generated by your company would start to look a lot like Subpart F income. Translation: all of the profit of the SG corporation is taxable to you as a human being, every year, on your U.S. individual tax return.
Now. You might say "Meh, profit is profit and if I have to pay tax what does it matter. I will have to pay tax anyway." Well, yes, to a point. But I will gloss over that or what I talk about will look a lot (to you) as snippets of code look to me. Unintelligible.
The real problem is that the U.S. tax paperwork burden is profound. And it is beyond the power of mere mortals to do it properly. You are in the realm of paperwork designed to capture transactions and operations of companies of Google's ilk. Not ordinary small businesses.
And if you screw up the paperwork, the penalties will eat you alive. E.g., Form 5471. This is where you tell the IRS "Hi, I am an American and I own shares of a foreign corporation." File late, and it is $10,000 please as a penalty. Don't fill it in right, and they say it is an incomplete therefore failed filing. $10,000 please.
Things start there and get worse.
The cost of running a SG corporation in SG annually is nontrivial. The cost of people like me is nontrivial. (I'm de-f'ing a SG corporation right now for a guy in precisely this position).
All of that money you save living in Cambodia will go to pay the overhead of your corporation. I don't recommend living cheap just so you can give $10,000 to someone like me. :-)
If you are an American and you want to live in a cheap country, kind of under the radar, and run your business from there, set up your company in the USA. Run it from there.
The probability of making a mess of international tax filings approaches 1.0 in a very few years. The probability of making a mess with domestic corporate or LLC filings is very low.
The cost of talent to keep your international corporate structure straight is extremely high. (I'm $750/hour and I'm not taking on any new clients at the moment). The cost of talent to run a generic domestic corporation -- you can get that anywhere from any random accountant and corporate lawyer.
That's my suggestion. Running away is the best strategy. Said Brave Sir Robin.
- cgag 15y agoSo is there any real downside to what you mentioned, just incorporating in the US and living somewhere cheap? That's something I had been wanting to ask about, since I'm surprised I haven't heard anything on here about people doing it. If you're bootstrapping a company, why not live somewhere you can survive on hundreds a month?
- philiphodgen 15y agoNo downside that I can think of. If you are living below the radar in another country you are fine. If you are visible you probably need a company there for all sorts of local reasons.
- cmadan 15y agoThe only potential downside I can see is visa issues. Countries such as India have layers of bureaucracy so it might to awhile to get a visa (even a tourist one) or especially, renew it. Background - I'm an Indian citizen. I went to graduate school in USA and worked for a year. I moved back to India because I am bootstrapping my startup out of my savings and have a much longer runaway living in India.
- pajju 15y agoWhat's your startup and where are you guys located? Your HN profile is blank!
- gringomorcego 15y agoFirst off: thank you for taking the time to respond. Your answer was incredibly insightful. Usually I'm pretty good at googling stuff, but when it comes to this I feel like too dumb to know what I don't know. If you know a link or two that answer most of my questions below, it's cool if you just post those. I feel like I can't even tell what info is right when it comes to this stuff. ---- Okay, so I'm a US citizen. If I understand you right, most of my problems stem from wanting to incorporate in Singapore. If I incorporate domestically but run it while traveling, that'll cover most bases and make life much easier, correct? Secondly, I don't doubt your talk about the complexity added on by incorporating in Singapore. But Singapore is really banking on people starting to incorporate there, I mean there must be some sort of national effort to automate/lessen the hurdles, right? I mean your random comment literally saved me from thinking that incorporating in SG/HK would be a good option. I don't know, just after reading sivers.org I just assumed that the complexity was much more manageable. Maybe I'm just gullible/easily misled? Or does this option only make sense when you have a certain number of people working with you/certain profit? Could you guess as to what those numbers might be? If I did want to incorporate, is there a big difference between incorporating in HK/SG/better place I don't know of?
- fleitz 15y agoSivers has an awesome post on how him and his dad screwed up some paperwork when he started CD Baby, IIRC, CD Baby was officially part of his dad's company, it cost him $3.3 million to fix it. http://sivers.org/mistake http://sivers.org/mistake Keep in mind that for sivers it would make sense to do something like pay someone $750/hour to make sure his paperwork gets done right. Whenever someone talks to me about saving money on taxes I remind them of a man named Al Capone and what he actually went to jail for. It wasn't killing people, it wasn't running guns, booze, gambling or many of the things that people think of him as doing illegally... It was filing his taxes incorrectly.
- cnxsoft 15y ago"Run it while traveling on a tourist visa?". Maybe I misunderstand, but if you are going the illegal route, why to do it all the way? Just run a company without paperwork.
- 15y ago