
Ask HN: Are there better countries to start my SaaS company for tax reasons? - kiddz
We are about to launch a sass product and I&#x27;m wondering if it&#x27;s too imaginative to incorporate in another country for tax reasons. We&#x27;re using stripe, based in the US and most of our clients will be in the US. Also it&#x27;s a .com.
======
philiphodgen
Hah.

I am an international tax lawyer and I advise startups that do business all
over the world.

I do not have a good answer to your question. There is insufficient data upon
which to make a suggestion.

However, here are my guidelines:

\- if there is a US person involved in this business as an officer or owner,
you will experience exquisite agony in opening a bank account abroad.

\- until your net profits from non-US sources amount to $2M - $3M per year,
the tax benefits are likely to be trivial.

\- an hour of founder time spent thinking about tax is an hour wasted. Think
about building your product. Think about getting a customer. That's much more
valuable.

\- as soon as you add a foreign corporation to your business structure you
have probably added $10K - $20k to your overhead. Minimum.

There are exceptions to every rule. Your situation may be different. Good
luck.

~~~
ryanmaynard
This needed to be said. I think a lot of the problems founders try to solve
begin as responsible research, and slowly morph into a means of
procrastination. I have certainly done it. Fear of shipping manifesting in
'productive' ways.

~~~
skrish
This is a brilliant way to put it. "Fear of shipping manifesting in
'productive' ways." We tend to manufacture busy work instead of focusing on
what is necessary right now. (OP himself might be in a situation to seriously
consider incorporation, so may not be applicable at all.)

I find so many startups in APAC incorporating in USA, with justification that
they "need" a US company to get customers, or get a better payment gateway
etc. That's just focusing on the wrong problem. 1\. Get enough visitors by
getting the word out. 2\. Convert enough trials. 3\. Talk to (email) real
users. 4\. Get to the point where they are ready to pay. 5\. If objection
clearly indicates payment experience, terms of service (location of company),
then consider incorporation.

By setting up subsidiary / parent company elsewhere, you are committing to too
many overheads in time and money.

------
pieterhg
If you work in the US, and most of your clients will be in the US, most tax
agencies (and probably IRS, but I'm not sure) will effectively presume you're
a US-based company. It doesn't matter if your company is registered somewhere
else, they'll presume it as a US company. The same laws apply in most European
countries.

Why? Because otherwise all freelancers would simply register in the country
with the lowest tax to dodge their national taxes. Obviously governments don't
want that.

If you have the opportunity to physically relocate to another country though,
then it becomes interesting to find places with lower tax rates. Countries
like Singapore won't care if you're a foreigner opening a company and are
never there. It's mostly about your personal tax residency what matters.

An increasingly common construction with people working remotely is a Hong
Kong or Singapore company, and either no personal residency anywhere (e.g.
traveling around perpetually), or a personal residency in a place with lower
personal tax. Think Bulgaria or Panama.

If you're a US citizen, there's extra difficulties here. You'll be taxed for
any income above $100K/y, even if you're not a US resident anymore. If you
don't want to be taxed in the US, you'll have to forego your citizenship (!).

P.S. IANAL.

~~~
alltakendamned
I'm always curious how people that have no personal tax residence deal with
health care insurance? At least in Europe, many private health insurance plans
for travelers have the prerequisite of being covered by the countries social
security first.

~~~
pieterhg
You're very right. This is one of the main challenges for people to move away.
There's expat insurance though (usually in the same country as where you're
from) and usually the fees are way lower since you're now in a pool of higher
educated wealthy expats instead of the overall population.

You can also usually move back, become a resident again and get covered again.

~~~
matt4077
I believe expats insurance (at least the one I had) is significantly cheaper
because they only cover acute conditions + transport back home – meaning they
won't be paying for the really expensive
cancer/diabetes/alzheimers/etc.-treatments.

------
_d8fd
If you're business never takes off, it won't matter where you are
incorporated. Get some decent advice for a professional you trust. When you
start making mad stacks of cash, let the profits from your business pay for
the super duper advice on a tax strategy that makes the most sense for your
business.

About 10 years ago I decided to become a one person tax expert, read a NOLO
press book on incorporating, and found what I thought was a clever solution to
optimizing taxes in the most favorable manner. About a year later, my
accountant told me two things... 1. "I've never actually seen a client choose
this tax structure" 2\. "You picked the worst possible taxation vehicle for
your business, which is hard to do on purpose!"

~~~
terminalcommand
IMHO tax law also depends heavily on experience.

The rulings and the operation are quite different in most countries.

Since you're dealing with the state, it's also hard to protect your rights
alone. If you're going it alone, I would advise talking with a friend with a
law-degree. At least, that way, you could probably avoid grave errors.

And if you're being audited, or in trouble with the authorities in any way,
definitely try to get some legal help.

PS: These are my own opinions, take it with a grain of salt. I just took the
exam for the first semester of tax law :).

------
jwilliams
Wanted to lob more to the comments here on keeping it simple (and in the US):

You'll find that most US companies want to deal with US companies. This isn't
just preference, but is part practicality. Contracts "Governed by the laws of
Panama" isn't going to fly. I've even seen companies argue over the US state
specified. This can be true elsewhere, but most places are more used to
dealing with US-based companies and contracts than another random country.

Related: As a foreign company you might find you're subject to provisions and
laws you weren't aware. Could be privacy or even simple reporting. Knowing
your own country's business requirements is hard enough, knowing another could
compound that.

It's going to be a similar story if you intend taking investment. To some
investors it won't matter. To many it will matter a lot. Either way, a US
(esp. Delaware) company is simple for both -- and you'll probably find the
investment legals are significantly cheaper.

Eventually you'll want to employ people too. Granted there are ways of doing
this without a US entity, but it's not going to be pretty.

------
matt4077
You've had all the benefits of the country you're in: roads, schools, research
universities that created the software industry, a foreign service that
advocated for your right to sell globally. It's time to return part of the
favour.

(Also what everyone else said: it's premature optimisation)

~~~
yummyfajitas
Question: "Comcast sucks and is overpriced, are there any other internet
providers that give me a better deal?"

Answer: "You've had all the benefits of the internet, which you've already
overpaid [1] for. Rather than switching to a better internet provider, it's
time to return part of the favor."

Spot the flaw in your comment yet? It's a generic non-response that applies to
every possible service and ignores the fact that the service has already been
paid for.

[1] Most government spending - which he has already financed with his taxes -
is merely wealth transfers to non-workers. Only a small fraction consists of
the services you mention.

~~~
matt4077
Your argument is quite dishonest, which is why those non-working 80-year olds
living on the dole are starting to have trouble reading your grey text.

As to your spotted flaws: firstly, it's obvious that people start their lives
with 20+ years of being as net recipients of government transfers, and while
the services you consumed may have been paid for at the time, those that paid
them would now like their pensions, and a new generation of children need
(apparently better) education.

It's unfortunate that three-year olds are not in a position to rationally
choose to rather live in Somalia, and that they therefore become part of a
social contract they never actually signed – but can you come up with a better
arrangement? It's very similar with parents, btw.

Funny thing though: I just now notice that I've actually always shared your
opinion, in that if you actually stop consuming government services, i. e.
leave the country, I'e always taken for granted that you're henceforth taxed
at your new residence (strange US rules nonewithstanding).

But Comcast example is obviously wrong because OP clearly intents to remain
living in the US – i. e. using Comcast. And my arguments above actually make
the case that you should pay severance and assume your share of the debt if
you leave. But, considering the US is the prime beneficiary of smart 18-year
old immigrants, it's probably in your interest not to change the SQ.

Oh, and only about 30% of the gov spending is in transfers, and most of that
is SS and Medicare. While you could make the case that these lazy 80-year olds
should stop sulking and get a job, some of them may protest and insist that
they're just getting back what they paid into the system.

~~~
meanduck
> in that if you actually stop consuming government services, i. e. leave the
> country

Stop spreading the nonsense that Govt is owner of the land. Its not. At best
Govt/Army is protector of the land for which almost everyone happy to pay.

So no I dont have to go anywhere Its my land. The onus to figuaring out
feasible payment method falls on the "mafia" or close the shop, IDGAF.

------
jwr
Consider yourself lucky and incorporate in the US.

Do not, under any circumstances, even think about running a SaaS business from
Europe. EU has made invoicing hell for small businesses, especially those
selling SaaS. You will spend time on things like VAT number checking,
verifying customer's country using their IP (yes, I know), several kinds of
invoices, prices inclusive or exclusive of VAT, calculating VAT for each EU
country differently (and in different currencies), reporting VAT, and lots of
other silly annoyances.

And if you think this is a "solved problem using a third-party service", you
haven't tried it yet.

The only disadvantage of being US-based is that the first serious lawsuit will
basicaly crater your business. Otherwise, you are _way_ ahead of your buddies
in Europe (like me).

~~~
Gys
VAT is payed by the buyer. The percentage depends on the country where the
buyer lives. The seller is required to collect the VAT from the buyer and pay
that to the relevant country tax authorities.

The location of the seller is irrelevant for calculating, collecting and
paying European VAT. Its applicably to any company in any country in the
world.

However, for now having a company outside the EU does make it more difficult
to be tracked by EU tax authorities. But its likely that at some point in the
future that will change. And tax authorities fine easily.

~~~
leesalminen
If/when that happens, I would halt sales in EU on my niche SaaS. EU is a
fraction of my user base and just wouldn't be worth all the hassle.

------
mdekkers
Having run companies in various countries, some of them more tax friendly then
others, my advice is to keep it simple. Unless your turnover will be in excess
of about a million USD annually, the compliance hassles are not worth it. with
your money coming from somewhere else, your tax department is going to flag
you up, and turn you inside out. you might not be doing anything wrong, but it
will be something you will have to deal with, and pay lawyers and accountants
to sort out.

I currently have an LTD in Cyprus, and am shortly moving to France. On paper,
it is going to be hugely advantageous to keep my LTD in Cyprus, and move
income via Cyprus to France. In reality, the likelihood of hassles with the
French Tax and social insurance departments is very high, so I'll be setting
up shop in France. When the millions start rolling in, I'll figure out some
kind of construction, if it will be worth it.

------
blazespin
Doesn't Ireland have a 6.5 % tax rate? Isn't that why all the companies like
to incorporate there?

[http://www.forbes.com/sites/timworstall/2015/10/15/ireland-r...](http://www.forbes.com/sites/timworstall/2015/10/15/ireland-
reduces-corporate-income-tax-rate-to-6-5-good-but-correct-rate-
is-0/#6769a77536d8)

~~~
trigger
Ireland's corporate tax rate is 12.5% [1]. The 6.5% referred to in that
article is for particular types of R&D activities.

[1] [http://www.revenue.ie/en/tax/ct/](http://www.revenue.ie/en/tax/ct/)

------
gamblor956
No. You're going to be taxed in the US anyways. Incorporating your company in
another country just adds significantly more tax compliance, and potentially
foreign income taxes, to the mix. Even worse, incorporating as a foreign
corporation may make you ineligible for a variety of local, state, or federal
tax benefits only available to domestic (meaning US-based) companies.

~~~
xiaoma
What exactly in your reasoning is US-specific? Wouldn't everything in your
comment be equally true if "Japan", "China" or "EU" were substituted for "US"?

~~~
smallnamespace
Because the US taxes American citizens' personal income regardless of the
country in which it is earned, which almost nobody else* does.

[https://en.wikipedia.org/wiki/International_taxation#Citizen...](https://en.wikipedia.org/wiki/International_taxation#Citizenship)

* except Eritrea, although China also might want to start doing it [1]

[1]
[http://www.nytimes.com/2015/01/08/business/international/chi...](http://www.nytimes.com/2015/01/08/business/international/china-
starts-enforcing-tax-law-for-citizens-working-
abroad.html?hp&action=click&pgtype=Homepage&module=second-column-
region&region=top-news&WT.nav=top-news&_r=0)

------
tomaha
The country you're looking for is Delaware.

~~~
sean_patel
Why? Care to elaborate?

I asked my Accountant in California about Delaware LLCs. He said that if I am
doing my business "in California", it's not advisable to open LLC elsewhere.
Esp. if physical good are involved - like a Kickstarter product or some other
physical product that is partly or wholly made in another state (i.e. other
than Delaware).

~~~
daveguy
Your accountant is correct. Delaware is preferable for C-corps. So if you were
setting up stocks and a management structure for future growth / VC investment
/ Sale you would go with Delaware for low state tax and pro business courts.
For LLC/S-Corp that just adds overhead. So it depends on your end game with
the business.

------
disordinary
New Zealand:
[http://www.doingbusiness.org/rankings](http://www.doingbusiness.org/rankings),
well actually Singapore because the corporate tax rate is lower (both
countries have a corporate tax rate lower than the US).

But seriously if you're based in the US and all of your employees are based in
the US then pay tax in the US. The US government doesn't look kindly on tax
shells and unless you've got a lot of money to spend on accountants and
lawyers you're going to struggle. The US is the only country in the world that
forces their citizens to pay tax on income earned (and taxed) while living
overseas, so if you were thinking of relocating to a tax haven you'd end up
paying more tax once your income reached a certain threshold.

And it's only going to get tougher with the new administration.

Just pay your taxes, and take joy in the fact that you're contributing to the
society that you live in.

------
geff82
As a European, I would choose the US any time. More friendly biz environment,
many consultants there knowledgeable and no one, even the Europeans, ask why
you are there and bill from there In case you have some really simple mass-
market product, you could also consider the Dubai Internet Free-Zone where you
have ZERO percent taxes, only about 3000 Dollar fees in the beginning (and
some cost for license renewal every year). In case Europe is a must, Cyprus
might be a low-cost option.

~~~
Cyph0n
I'm quite surprised no one else has mentioned Dubai.

------
yummyfajitas
Possibly Singapore. They have very rational and simple tax laws, legal
stability and are generally a good place to do business.

I'd be worried about the EU, even the more corporate friendly places (Ireland,
Estonia) - the recent retroactive ruling on Apple's Irish taxes make the EU
seem potentially third world-like unstable.

Of course, if you eventually plan to bring the money back to the US, probably
incorporating in the US is your best bet.

~~~
matt4077
Yeah, well. technically all tax rulings are retroactive. And while we're
disparaging other nations: I'd also be weary of doing business outside the US.
There's some 3rd world president-impersonator on twitter who's talking an
awful lot about punitive tariffs. (When he's not preoccupied with the size of
his wall/hands/genitalia)

~~~
yummyfajitas
Punitive tariffs going forward are far less scary than going back. But for
different reasons than you [1], I too am leery of tieing my future to the US.
I don't plan to reside there long term.

[1] Trump is just a president signalling being a member of cultural out-group,
I'm also an out-group member so I don't much car e. My reason for fearing the
US is obligations exceeding ability to pay, a weak and sick culture, and also
overbearing tax and regulatory authorities.

------
atmosx
I can make a case for Bulgaria. The corporate tax is 10% and the insurance tax
is about ~ 50 to 80 EUR/month (can't recall exactly). If you pay dividends
it's an additional 5%.

Banking service is rather poor, although they tend to reply via email in 24h.
Finding an accountant that does speaks/writes English properly and reply on a
timely manner can be a challenge but it's not impossible, especially in Sofia.
On the other hand, in other cities you could get an accountant for 1/10th of
the cost.

The major benefit is that the legislation is __stable __which is a big plus.
Requirements for opening bank accounts are pretty loose compare to most other
European states, although account expenses are considerably higher to
neighbour states - but still we 're talking ~ 120 USD/year. Starting a
business is easy and rather straight forward. Most official documents (like
company statute) come in PDF with official (reckoned by the BG state) digital
signature on them. As long as you pay your taxes, mail your invoices to your
accountant, etc. You're good to go even if you live in Alaska.

------
codehotter
Many countries, and I think most countries in Europe, have language related to
"place of effective management" in their tax code. Even a corporation
incorporated in Cyprus (say), it could be considered resident in Germany
(say), if the tax authorities feel the place of effective management is in
Germany.

Interestingly, this link says that in the US: "Generally a corporation is
treated as a domestic corporation if it is created or organized under the laws
of the United States, any State, or the District of Columbia. No other
criteria related to place of management will cause a corporation to be
domestic."

[https://www.oecd.org/tax/automatic-exchange/crs-
implementati...](https://www.oecd.org/tax/automatic-exchange/crs-
implementation-and-assistance/tax-residency/United-States-Tax-Residency.pdf)

If you do decide to incorporate somewhere else, and you manage the company
from the US, make sure it's a place where the tax code also doesn't care about
the place of effective management.

However, if the income is US-source, aren't you always taxed on that income in
the US anyway? "A foreign corporation engaged in a US trade or business is
taxed at regular US corporate tax rates, but only on income from US sources
that is effectively connected with that business, and at 30% on US-source
income not effectively connected with that business. By contrast, US-resident
corporations are taxed based on their worldwide income."

[https://www.pwc.com/us/en/tax-
services/publications/assets/d...](https://www.pwc.com/us/en/tax-
services/publications/assets/doing-business-in-the-us-2014.pdf)

~~~
golergka
What if the team is made of digital nomads working remotely from different
areas?

~~~
codehotter
Good question. I'm not a lawyer; I assume edge cases will be decided by the
relevant tax authorities. Speculating here, but if there's a single place
where management decisions are made, say where the CEO lives, the corporation
might be tax resident there. Otherwise, they might decide to tax you in place
of incorporation.

For such a company, what address would it have? Maybe where you place its
headquarters has some significance too.

~~~
cperciva
IANAL, but my understanding is that common law jurisdictions generally
consider a corporation to be resident wherever "management and control" is
exercised; corporations which are at risk of being considered resident in a
jurisdiction where they do not want to be considered resident normally ample
evidence of the locations of their board meetings and the physical presence of
board members in order to prove that control is not being exercised within the
avoided jurisdiction.

------
Bashmaistora
Start making money before worrying about taxes.

If you are planning to bootstrap the company then incorporate wherever you
want. On the other hand, investors would be a lot more comfortable investing
in a US company and clients prefer to deal with other US companies.

------
jswny
Did you mean SaaS?

~~~
manojlds
Nope, it is a Bootstrapped startup :)

------
ivank
[https://en.wikipedia.org/wiki/Controlled_foreign_corporation...](https://en.wikipedia.org/wiki/Controlled_foreign_corporation#United_States_Subpart_F_Rules)

------
kxyvr
Note, I am not an accountant, but these are my experiences running a business
in the U.S.

If you are a passthrough entity like a sole-propietorship, partnership, or
S-corp, probably not. Note, this doesn't matter if you're an LLC or not
because the IRS doesn't care. Basically, passthrough entities calculate all
business income minus deductible expenses as personal income. Therefore, the
amount is subject to federal and state income tax as well as payroll tax
(FICA). Certainly, income tax is tiered and FICA caps out at $118,500, but
let's assume that you're pulling in $100,000. This mostly puts you in the 25%
tax bracket. We'll assume that there's also 5% of state income tax. For FICA,
since you're both the employee and the employer, you pay 15.3%. All together,
that means you're losing about 45% to tax off the bat. Note, this taxes apply
regardless of where you register your company unless you live out of the
country for 330 days a year or can claim foreign residency. Then, it gets
complicated because a certain amount of income is tax free, but not over a
certain amount. Anyway, if you decide to live in the U.S., that 45% or so of
tax from above applies regardless of where the company is registered. The
reason people register their company outside the state where they do their
business, other than liability and tort concerns, is because they're trying to
avoid sales or gross receipts tax. However, everyone just bills that amount to
their customers anyway, so it's really a wash.

If you really want to know the implications where you live, just hire an
honest accountant for an hour and ask. That's what I did. It's worth the
money.

\--- Edit 1 \---

Look, if you really want to save money on taxes, just make more money. That
sounds silly, but it's true. Register as an S-corp. Your first $118,500 are
brutal because you're paying an extra 15.3%, but after that FICA goes to 0%.
Now, the top tax rate in the U.S. is 39.6%, but dividends are how people cheat
that rate. Basically, an S-corp is required to pay the people who work in the
company the prevailing wage for that position. However, money above that
amount can be distributed to the shareholders as dividends. These are taxed at
15%. Note, you can't just underpay yourself and then claim everything as a
dividend. That's illegal and you will get caught eventually. That said, the
overall tax rate for someone who's running an S-corp and making $300k is
almost certainly lower than someone making $100k. For example, if you can
convince the IRS that the prevailing wage for your position is $120k, and you
made $300k, then the first $120k gets taxed at 45% or so (see above) and the
last $180k gets paid out in dividends and taxed at 15%. That's how you get
your tax rate down. Note, at this point, really, just hire an honest
accountant who can do the correct calculations and paperwork.

\--- Edit 2 \---

Note, I talked about being an S-corp above. However, even if you register your
company out of the country, it doesn't matter. Americans must file their taxes
every year regardless of where they live. If you are a bonified foreign
resident, then the first $100,800 is tax exempt, but we still have to file
this number. We also have to file what bank accounts have foreign assets over
$10k at any time during the year. So, basically, when you file your taxes, the
IRS doesn't care where your company is registered at all. You're going to pay
your income tax and FICA, which is going to be in the 40% range if not more.
Quite simply, if you're self employed, you're paying 15.3% in FICA. If you try
to cheat this and your employer didn't pay the other half, the IRS will still
want its money and you'll get caught. Even if you setup a foreign bank account
with a foreign business, if a company pays you more that $600, they're
probably going to file a 1099 in order to deduct that expense from their
taxes, which means that the IRS knows about your income. Further, if you try
to wire the money into the U.S. from your foreign bank, that goes through a
check as well. Really, the IRS wants to get paid and they will one way or
another.

It's not that illegal action can't hide money. Certainly, it can. However,
it's difficult to hide money or reduce tax liability unless you have a lot of
money to pay someone with a lot of know how to do it for you. At that point,
just be happy that you're rich.

~~~
zerr
Wow 45%? What is this, the socialist state without any benefits of it? In
Germany you pay less taxes (30%-42%) but you get free healthcare, education, 1
year maternity and paternity leave and tons of other similar benefits...

~~~
kxyvr
It's actually worse. The numbers above do not include the cost of healthcare
nor retirement past what FICA pays for in social security. Say we're working
with the magical $100k number above. In my state, my healthcare premiums were
$500/month, which are not tax deductible. That means, I lose another $6k in
premiums, or 6% of the $100k. My out of pocket max was $3300. I never want to
be in a position to not go to the doctor because of money, so I always budget
for it. Though, the payments for qualified medical expenses in that $3300 are
tax deductible. So, let's pretend that 3.3% is really 2% after tax savings.
That means that I spend 8% of $100k income on healthcare. If I add that to the
45%, then we're at about 53% of the money gone. Again, the number is slightly
lower because of graduated tax brackets, but, candidly, it's not that much
lower.

I lived a few years in Norway and have my company registered out there as
well. I paid less in taxes there and got more in services. Other than culture,
it's literally easier to start and run a company is many socialist countries.
Simply, the taxes are lower; the services are higher; and the risk is lower
because there's a safety net to fall back onto. That said, cultural does count
for a lot and American culture is supportive of taking a risk as a small
business. The U.S. is also the home to some of the world's largest companies,
so opportunities to make contacts and contracts here can be higher.

~~~
mahyarm
Employment law also makes it harder to hire employees. Every employee hire in
places like Germany and such are huge risks to small corps, since it's very
hard to fire bad employees who are net negatives, and they know it and abuse
it. That is ironically probably the biggest barrier to starting a corp in
Europe for me.

Health care insurance costs although should be tax deductible, and there are
things like FSAs and HSAs that help make health costs even more tax
deductible. Are you talking about the costs for paying other things in health
care costs, like the $XXs per doctor visit and so on?

\-----

America is ironically a high tax nation, but these things usually reduce tax
and COL:

1\. The mortgage interest tax deduction. That is easily a +$20k/yr tax
deduction right there. There are other small tax deductions that can remove a
few thousands here and there.

2\. States like Washington or Nevada that have no state income tax.

3\. Almost everything is significantly cheaper to buy in the USA

4\. Sales tax / VAT is %0-%10 vs the common ~%20 that is common in the EU.
Because the US is a mismanged mess governmentally, buying something online
from another state is a common sales tax dodge.

5\. Pay is significantly higher in the USA for software professionals. I once
read it doesn't matter how much you spend, but really how much you make and
that can make up for the tax rates.

------
FlopV
Have you looked at US territories like the USVI? Might make things simple and
keep a low corporate tax rate from what I hear.

------
wineisfine
It just depends where you are located most of the time yourself.

------
mankash666
In general, your lawyer and accountant should review anything you bring to
their notice, especially suggestions via the internet, before finalizing
things. Incorporating in Hong Kong is said to have many benefits, though
please remember to be compliant with FATCA. Detailed blog [1]

[1]: [http://www.locationindependent.co.uk/nomad-guide-to-
incorpor...](http://www.locationindependent.co.uk/nomad-guide-to-
incorporating-in-hong-kong/)

