Ask HN: Where would you incorporate your European startup? Say you had to incorporate an Ecommerce startup that's based in Portugal, currently sells in Portugal and the Netherlands and plans to sell all over Europe? Main issue is tax planning. |
Ask HN: Where would you incorporate your European startup? Say you had to incorporate an Ecommerce startup that's based in Portugal, currently sells in Portugal and the Netherlands and plans to sell all over Europe? Main issue is tax planning. |
Basically, private companies are as public as american public companies. It's ok to have disclosures to make to the government, but here you also have to disclose your financials to the general public.
Basically with a simple Google Search anyone can know your turnover, your board minutes, but even - more shockingly - your balance sheet, your MONEY IN THE BANK (are you kidding me ?) and the amount you paid yourself as a director among many other things. I find this shocking for companies that are supposed to be private.
After research I've found this is due to European Regulations so it will likely be the same - or quickly be the same - no matter where you go in Europe.
For this very reason, I'd say that if you value privacy, the best place to incorporate a European Web startup is in the US. I'm gutted because I was more than happy to pay my taxes here, this is just a shame.
Then it will of course depends on your focus and your specifics. For me, I am not after exposive growth and investors money, so controlling my disclosures and my image is key to make serious deals with big clients / partners.
I hope my perspective can be somehow useful for you.
Smaller companies (and the bar is set pretty high; see https://www.gov.uk/annual-accounts/microentities-small-and-d...) can supply abbreviated accounts. These are pretty useless for anybody looking - it's just a snapshot at year end, with no information about totals over the year. The accounts for my company provide the following details:
- Money currently owed to it [A]
- Current bank account balance [B]
- Amount it currently owes [C]
- Total share capital (also available from the annual return) [D]
- P&L - A+B-C-D
- Shareholder's funds - A+B-C
It's not actually very easy to get accurate figures from this. For a software/consulting/contracting/etc. type business I suppose multiplying A by 6-12 (assuming it's 1-2 months of income owed by clients/payment processor/etc.) is probably your best guess at estimating revenue... but if the year end was at all unusual, you're out of luck. Cash in the bank is merely suggestive, and money owed could be just about anything.
There's a huge lag on this information: people can find out how much you claimed to have on your balance sheet at the time you last filed, which could be something like 18 months ago.
(Do US LLCs really not require you to file accounts? Why does everyone choose Delaware, anyway?)
It basically serves the same purpose as the Experian et al credit scoring system. The purpose is to protect creditors and customers against entering into contracts with fraudulent entities. Part of the tradeoff for limited liability.
I've done company creation and small co filing in the UK, all manually because the company had a nominal amount of money and was a "limited by guarantee". Fairly quick and easy.
Yep! The standard for US LLCs is you disclose ownership and members, which become public records, but that's about it. A sole proprietor LLC doesn't even file their accounts with the IRS (required to produce them in the event of an audit, but the standard return won't include e.g. money in the bank or anything); a partnership return has some balance sheet items reflected but that information is private between the taxpayers and the IRS.
This contrasts to, e.g., a Japanese tax return, where small businesses have equivalent-to-US recordkeeping requirements for books but also have to submit a complete balance sheet with the return every year (along with a month-to-month revenue statement).
Creating a Limited Company is in order to protect company owners from the debts of the company. For me to expose my company to the liability of doing business with your company, e.g. give you credit terms, I would rather like to know your financial soundness.
Society agrees to waive your debts in return for these disclosures. Personal financial ruin through business risk is eliminated through socialising the risk. This is agreed to be a risk society takes in return for an interesting economy.
>For me to expose my company to the liability of doing business with your company, e.g. give you credit terms, I would rather like to know your financial soundness.
I'm thinking : then we can enter into a bilateral agreement and choose an independent auditor that will certify my accounts. (Which is the idea behind the american legislation).
I really think that the government shouldn't force people to make these disclosures. It makes me very uncomfortable, as a citizen I feel my rights and my property are violated. Even at the time I'll be making 10M profit a year, I'm sorry but this is privacy, I should be free to choose with who I share this information.
And don't forget that if someone wants me to disclose but I don't, he is still free to do business with my competitor.
I think if we were to redesign the system from the start, it'd look more like Ebay with feedback and escrow. It wouldn't be enough and it'd need other protections, but my point is the current system doesn't work great neither for customers nor for entrepreneurs. And as a consequence, it may be that it stifles commerce and entrepreneurship.
For example, the stockholder, director, and officer information of a Nevada corporation[0] is not disclosed to the public. AFAIK there's no limit on a Nevada corporation's size for these privacy guarantees to continue to apply.
A UK company is cheap to incorporate, easy to manage, has little red tape, and is cheap to dissolve.
The rules are fairly clear, and you don't have to use an accountant to achieve much of the basic stuff.
You may have to use an accountant/lawyer to take advantage of SEIS/EIS relief for investors, or to get assistance with R&D tax credits, but that's about it.
Compared to others Luxembourg has a good standing and no image problems combined with good banking privacy. You can sign contracts with anyone without being labelled as operating in a tax haven. Operating costs are more competitive than France. Most people speak 3 languages. Accountants & Lawyers are familiar with the law and tax code of their neighbours (France / Belgium / Germany).
But if privacy is not a problem I'd always register where my clients are. If you want to do freelancing in Germany and invoice German clients with a UK Ltd then be prepared that it is more likely that the Finanzamt will knock on your door - and if they do they will be taking a very thorough look.
It's kind of on the second tier of tax havens. Cayman/Man/Channel Islands/BVI etc are the first: incorporating there is a dead giveaway of tax avoidance. Ireland on the other hand has a low tax rate and forgiving regulators but large enough to have genuine business operations there. Luxembourg is kind of in the middle.
(thx @unixhero)
Forming a Limited company in Ireland is cheap and straightforward. That is compared to a GmbH in Austria or Germany where you need thousands of Euros in share capital just to form.[0]
Ireland uses the Euro, which might be an advantage over the UK with Pounds Sterling. No forex worries.
Ireland also has a low corporation tax rate of 12.5%
The only two trickier bits are setting up a registered address in Ireland (not P.O Box) and opening a bank account. Not insurmountable tasks, and various organisations can assist for a few hundred Euros.[1]
[0] https://en.wikipedia.org/wiki/Gesellschaft_mit_beschr%C3%A4n...
[1] http://www.companyservice.ie/ (€255 for the basic service. Not affiliated, don't even know this particular company, just found with a search)
Getting an Irish bank account is painful though, and that's with me being Irish in Ireland. I wouldn't try it from Portugal - though presumably you could use a local bank.
[1] https://www.crowdcube.com/pg/seis-tax-relief-42 [2] http://forrestbrown.co.uk/rd-tax-credits-explained/
Don't know about the other part.
If you have some horribly complex multinational structure then you'll have more scrutiny but it's not impossible.
At the end you need the details to be able to find the good answer, because for taxes, it is always a question of details.
If you are resident in Germany and you are the main business decision maker in the UK company, German tax authorities would ask to tax you pay corporation tax for the Ltd. in Germany which can complicate things (I am not talking about your personal income tax).
Is this not a big mess or how should one deal with this? Do you frequently travel to UK to do 'main business decisions' there?
Great thread btw
This is why, the best option is to take a good accountant, you really have no "magic formula". If someone is selling you "package" for a flat fee, you are nearly sure to have problems down the line. Even in good faith, when the tax authorities start to attack you because they consider that they think that maybe you did something wrong, they can make your life a nightmare and this totally legally.
So, handle everything with care, take a good accountant/lawyer and document everything.
https://en.wikipedia.org/wiki/Taxation_in_Estonia#Corporatio....
On wage there is a 33% social tax with is pretty much the same in Italy and I suspect to be pretty much standard across europe.
That comes with the (welcome) assumption that you are not going to speak Estonian, and would prefer strong encryption and associated protocols.
I haven’t tried it myself, but my experience of paper-based administrations vs. Finnish and Swedish (far more IT-friendly) is night and day.
BTW if you are a Portuguese citizen you can register your company in a easier way, from this page: https://e-estonia.com/component/e-business-register/
Finally if you want to open a company in estonia you will need a physical address, fortunately the government is aware of this hurdle, and in it's website suggest an handful of providers: https://e-residency.zendesk.com/hc/en-us/articles/205207022-...
The one with the nicer website is LeapIN, that has very affordable prices...
Corp tax is 20% and up to £~45k pa you will pay no further income tax on dividends drawn down (though I think this is changing this year to 5%).
Flat rate VAT scheme is helpful for smaller companies.
But by far the best thing is the ridiculously good tax breaks the govt offers for startups, esp tech.
SEIS allows investors tax refunds for 50% of their initial investment, plus 25% if you fail. Which means for every £1 they put in, the govt is 'underwriting/giving you' £3. And if you succeed they will pay no further capital gains tax on their realised gains.
R&D allows you to get back 23% of qualifying R&D costs in cash (or deducted off your corp tax bill).
Put those numbers together and you can see why you should incorporate in the UK...
Yearly filing must be done by a tax accountant and you have to pay for the 'services' of the Handelskammer, which is around 800 and 200 EUR at least, respectively, per year. Dissolving takes one year at the very least and incurs additional cost of at least EUR 500,- plus the year in which the company lives as a zombie, so 1.5k total.
Why I am leaving?: - My experience is that (my) accountants are bureaucrats, which may be necessary because. They only know about filling up forms and hours to charge you more and no advising. I am in a small city but the company is very big (BDO). Still the country encourages you to have an accountant (Even in the FinanzAmt, even in cases that in other countries you would do it yourself) - Taxes are huge (for a netto salary of "only" 2000€/m, so 24k year, is about 50-60k for the company). - Mentality is oposite to that of startup's. "You can feel it in the air" which means in everything you do, from lawyers, accountants, banks, even investors. - There is no benefit for investors (although I think there is some on work). However the for Handelskammer you only have to pay if revenue (or profit) is over a minimum, but I think it depends on the state. The first year that shouldn't be a big issue. Moreover, I would not start again in Germany because: - It is costly (500 min for standard basic in notary fees) - and long. No matter what they say in the official sites: is not 8 days; they don't count that you need to set (that means in advance) appointments with bank, notary, finance-amt,... usually several with each, It took me over a month to have the tax-number and wanting the VAT-number to operate internationally all was about 4 months. There is no one-stop company like in many other countries.
Sorry Germany, but in this situation it is a no-go.
Estonia, Irland, Luxemburg, I have hear about Bulgaria for low taxes too (10%). Spain, also problematic: you need to live there 50% of the year, you pay taxes even if you don't have income (this is crazy and it has been like that for... ever). Good thing, is not that high taxes and salaries are low for a very skilled people.
We have a German UG that is a wholly owned subsidiary of a UK Ltd. My co-founder speaks German but without this it would have been extremely complicated to setup and operate the German company.
Income tax + social security is approx. 1/3, so for each 1k net invoiced (excl VAT) and paid in salary, you'll receive ~667
In addition, interest rate payments on loans are tax-deductible. Locals speak French, German, English and Portuguese (and Luxemburgish of course).
My second choice would be Estonia but maybe only because I don't know Ireland that well.
Does Portugal have CFC laws?
Taxes? What about Tallinn?
All EU countries have world's strongest consumer protection rights and labour rights since most local laws are following EU directives.
Too bad. If you want our money, that's the deal.
I'm currently living in Austria, but operating out of my UK Ltd company. While it does work, there are a few pain points around banking, currency exchange and my residency in Austria (am I exercising my EU rights, living in Austria but still officially consulting for and being paid by a UK Ltd company?). It would make my life a bit easier to have an Austrian based company, but the amount of share capital required to setup a GmbH is quite high.
I am sure is not something that they would put on the first page, however I am a little surprise.
Do you care to elaborate ?
Almost every country in the world taxes their residents' income, even if it arrives from a company abroad. And US (in)famously taxes their citizens' income, even if they do not live in US.
So if you run a company remotely, you still have to check with your local tax rules to see how much tax you may need to pay if this company pays you salary or dividend.
Those are not "extra" taxes, those are regular taxes on your income...
edit: Here is article about it in finnish http://www.yrittajat.fi/fi-FI/uutisarkisto/a/uutisarkisto/vi...
Translation of key point (by me)
– Jos liiketoiminta tapahtuu Suomessa ja omistajat ja päätöksentekijät asuvat Suomessa, myös verotus tapahtuu Suomessa, vaikka yritys olisi perustettu Viroon. Jos yritys harkitsee toimivansa Virossa, pitää aidosti mennä lahden taakse, asua siellä, pitää kiinteää toimipaikkaa ja harjoittaa liiketoimintaa, Akselin sanoo.
"If business operations are conducted in Finland and decision makers live in Finland the taxation also happens in finland even if the company has been founded in Estonia. If company thinks of operating in Estonia, you have to actually go over the sea and live there, have actual business location and operate your business there Akselin states. (this is a guy from finnish Accounting firm)"
(my note: it doesn't have to have all of the above meaning operations and management, it could be one of the above for example just management living in Finland)
(Poor) Google translation of the article
https://translate.google.com/translate?sl=auto&tl=en&js=y&pr...