I'm wondering if it's a good idea to register in UK or maybe Estonia for a small business selling a software product licenses and SaaS subscriptions online. No employees or any physical presence in the EU .
I'm mostly choosing between UK and the US. I've read a lot about US LLC formation and it certainly has it's strengths, but I fear US tax and overall legal compliance issues. And the lawyers are super expensive. And travelling there is expensive. I'm also not going to seek outside investment which would otherwise be a major benefit of a US company.
From what I see on the web though it looks much cheaper and easier to form a UK limited company. Except for getting a UK bank account, which I could instead do in Latvia or Estonia. But this would limit online payment processing options although I'm sure there should still be some.
Have someone been in a similar position and went for UK incorporation? What has been your experience? There's really lack of information regarding this topic on the web, compared to US-based incorporation.
particularly interesting is practical experience with things like:
- what UK taxes do you owe as a non-EU resident member of a UK company on salary (besides the obvious 20% of company income) - can you deduct your salary from company's taxable income? - are there any legal complications from a small software business perspective or is everything simple and transparent - downsides; why would one rather choose a US business entity (or some other jurisdiction) - am I overlooking some important considerations?
I know I should talk to a UK lawyer regarding legal and tax compliance, and I will, but I'd very much appreciate to hear any thoughts from this community first so that I have at least some clue.
It is worth noting that you don't necessarily have to have your bank account in the same jurisdiction that the company is incorporated.
There are many zero tax offshore jurisdictions (like BVI and Cayman Islands) and at a large scale you can get bank accounts and process credit cards anywhere. But, starting from zero I think it's a lot easier to use Stripe or Braintree.
I've listed several jurisdictions that are compatible with Stripe and Braintree by corporate tax rates. You may be able to achieve a lower rate by paying yourself a salary.
Stripe & Braintree
Ireland (12.5%)
Singapore (17%)
United States (~35%)
United Kingdom (~20%)
Lichtenstein (12.5%)
Isle of Man (0%)
Jersey (0%)
Guernsey (0%)
Sources: https://www.braintreepayments.com/country-selection https://stripe.com/global
For me the worst thing about a Europe company is to deal with taxes when you sell to European countries. By lay you have to charge the tax where your client is, it means you have to be aware of where is your client located and the taxes in that country, plus fill all the paper work related. Keep this in mind as it can be worth for you to open the company in your country just to avoid this kind of things.
I don't suppose IRS or any other authority is particularly casual either.
Thank you for mentioning the VAT issues. I've read about that, and as I understand, there's a bunch of services for dealing with VAT collection. Some payment solutions presumably even handle it for you.
It's not at all difficult or expensive to comply if you're a small business; the whole thing is pretty streamlined. You need to file accounts, but for a small turnover you can file "simplified" accounts which are just two tables. There is one subtlety - you can't be a limited company by yourself. The minimum is one director and one "secretary", but you can get company-secretary-as-a-service.
VAT is a separate issue - you have to deal with it regardless of whether you're a company or sole trader, if your turnover is high enough or you're selling digital goods (VATMOSS disaster).
Background info: https://www.gov.uk/topic/company-registration-filing/startin...
e.g. These people offer a full package for £70, which if your time is at all valuable is a good deal: https://www.rapidformations.co.uk/package/all-inclusive-pack...
- what UK taxes do you owe as a non-EU resident member of a UK company on salary (besides the obvious 20% of company income)
http://www.hmrc.gov.uk/manuals/rdrmmanual/rdrm10425.htm : implies you don't have to pay UK income tax, which makes sense. You'd have to pay your local income tax instead. I'm not sure how this applies to national insurance (what Americans call "social security").
- can you deduct your salary from company's taxable income?
Yes, companies are taxed on profit not turnover.
One big thing to beware of is VAT and VAT MOSS scheme - it's a bit of a nightmare to figure out your way around that. After discussing with accounts and lawyers your best option is to not be VAT registered until you know you're going to exceed the £82k threshold. Again - speak with your own lawyer and accountants on this as everyone's situation is different.
Hope that helps!
TL;DR - https://news.ycombinator.com/item?id=11360598 - Covers company formation (and recommends a couple of accountancy options for the UK)
- https://news.ycombinator.com/item?id=11360651 - Covers Legal advice for US and UK startups.
Your articles are well written, easy to read, and seemingly accurate (n.b. without me doing any due diligence to check facts), but the meme images are too distracting, even a bit annoying (this is most likely due to me being a curmudgeon ;). Of course, opinions will vary, and I'm sure others might say the memes break up the reading and help hold attention.
For notes, it's generally a poor idea to submit a bunch of good stories at (roughly) the same time, particularly if they're from the same site. Your submissions will be competing for attention with all other stories, including your own. Though your "101" article is currently sitting on the front page of HN, your second article "Dev Guide" suffers from the others' success. Spacing out your submissions, like one a day, will give you better results. Also, the HN Guidelines (link at bottom of most pages) ask for users to avoid submitting so many links that the new page is dominated by your posts.
It costs ~£15 to start a limited company in England and Wales (a separate jurisdiction to Scotland and Northern Ireland). So long as you keep accurate records and file your annual accounts correctly, that's all there is. An accountant would normally do the filing for you. For a small business this can often be done for £500-£1000. If you do your own bookkeeping and keep accurate records, that will keep costs down.
As your business will be domiciled in the UK, it will be subject to the UK's tax regime. But if you're outside the UK, your salary from the business shouldn't be subject to UK taxation (do check that, though - double-taxation isn't something I know much about).
TL;DR - Find an accountant in the UK who'll be willing to give you a free consultation (most of them). You'll probably find one on ukbusinessforums.co.uk (it's where I found mine).
So a lawyer which specialized in this is defiantly recomended.
Things worked out pretty well and the only trouble I had relative to the administration was that my name was on some paperwork that went to vendors and I'd sometimes get calls from vendors who would ask "Is this some kind of scam?" and then I would rattle off a list of well-known names that have important subsidiaries in the Caymans.
Luxembourg seems to be the flag of convenience for the EU, just as Delaware is here in the US, although Delaware puts you smack dab in the middle of FATCA land.
With the Cayman islands, you're looking at $2500 per year, and if you need the lawyers to so much as look at you you have to pay a few hundred dollars. A bank account will also run you $1500 to open and $600/yr. The big draw is that there is no tax, no books to file (but you should keep them), and they generally don't really care what you do.
So, it depends on how much you'll be making. If your earnings will be such that the UK tax is going to be around $3000, go with Cayman, because you don't have the hassle with dealing with a tax authority.
If you plan to market US companies and potentially raise money in the US, then you should incorporate in the US. You don't need to live there, although I'd recommend for alignment with your customers' time and build connections to raise. After initial expenses (i.e. the company is alive and running) it's relatively easy to get a visa.
If you're serious about your biz, you should take any decision to maximize its success, not to save a few bucks at the beginning.
Being serious and looking for ways to maximize (i.e. capitalize on) the existing success appears to make more sense when you already have a working business model. When you're in the phase of experimenting ideas and there is a high chance of failing it sounds better to fail as cheap as you can.
What are the types of markets/customers sensitive to the place of incorporation of their software/SaaS vendor?
I will not try to save money at the expense of the business, but I don't want to spend without understanding why it's necessary.
From what I know you can easily form and operate a company in the US without ever being present there.
You would have to come in person to get a bank account though.
I know there are always companies who will take money for assisting with any kind of crazy stuff. Here I just wonder if anyone who's not selling such services could share some real-world experience.
Incorporation laws vary from state to state in the US, but they tend to be fairly similar. Many states do not have state income taxes for companies, and have business-friendly laws, hence the reason why so many humongous companies are registered in the tiny state of Delaware. A lot of publicly traded companies (and I think most YC-funded startups) are registered in Delaware. In Delaware, all you need in your incorporation filings is an "Agent of Record" and there are many "create your own Delaware company" type sites that provide "Agent of Record" services, including postal mail forwarding and similar.
BTW, you might want to dig on the main YC site. I recall seeing something about incorporation paperwork and such.
Once you have a US corporation, you can get an EIN number from the IRS which is basically your tax ID for filing Federal Income taxes with the IRS. Your EIN number and incorporation papers is enough to get a US bank account for your business. From there, everything else you might want to do becomes even easier.
None of the above is difficult or particularly expensive. It might cost you about $1K total, plus yearly recurring fees for Agent of Record services.
If this is a new business it's not usually worth the administrative overhead unless incorporating in the UK or US solves a specific issue (like stripe support, or some other critical services you made need).
So I would say the main purpose of this whole thing is payment processing in a sane jurisdiction.
In terms of taxation, CIT/VAT are similar to everywhere else in Europe, PIT depends on where you live, so you need to talk to an accountant in your home country.
Is this true?
Would be nice to have a bank account in the same country.
(The HN discussion of the above link: https://news.ycombinator.com/item?id=11103274)
A Singapore corp will require you to pay taxes once on corporate income. After that it's simple - make distributions to yourself and pay only local taxes. It's as if Singapore asked economists what the most efficient way to run a society is and then actually did that.
A US business entity is probably a very bad idea due to things like taxation on global income and just general US insanity.
It was built for this usecase, and allows non-US companies to:
- Get US Bank Account at SVB
- Incorporate as Delaware C corp
- Accept Payments immeadiately using stripe
- have access to PWC consultants about tax and accounting info
- AWS credit
It is in beta, but they are accepting applications. You should give it a go if it makes sense
For the UK there's some info here on getting bank accounts (2013) https://www.rapidformations.co.uk/blog/business-bank-account... I'd recommend phoning them / the banks for the current situation.