Where to go if you want to form a company abroad?
Before we start pointing out which are the best places to form an offshore company it is important to note that there is no such thing as one place that will fit everyone.
If someone is trying to sell you a particular place, without knowing all the details about your business, do not listen to them.
Every business is different, and if something worked for someone doesn’t mean that it will work for you as well. It might be exactly the opposite.
We are going to point out some places that we think are among the best today. This changed in the last 5-10 years.
In the past places like the Marshall Islands, Samoa, Anguilla, etc. worked well and today we simply don’t do them anymore. The main reasons have to do with banking and substance, which are very hard to do in such places.
What are the main reasons to consider if you are forming a company abroad?
When we are thinking about forming an offshore company one of the reasons that come to mind is certainly taxes.
However, it is not as easy as forming a company in a country with no taxes. If you want to understand why this doesn’t work you can watch our videos on management and control and corporate residency, for an explanation on how the international tax works.
That being said, it is necessary to register a company in a country with favorable tax laws. You will simply not have a low tax if your company is in Germany or Australia.
When we talking about taxation there are different ways: Territorial tax, Zero tax, Remittance based tax. So, it is more complicated than just a tax rate.
A very famous example is Apple. They used Ireland for many years. Ireland has a 12,5% tax, which is far from zero. However, Apple paid close to zero tax. Why? Well, because they had a non-resident company which gave them the option of not paying the headline tax.
If you want to learn more about how to legally decrease your taxes, feel free to contact us.
What about tax havens
Traditional tax havens such as Vanuatu, British Virgin Islands, St Lucia, St Kitts and Nevis, Cook Islands, Seychelles, etc. WILL NOT work for you today.
In this day and age, those places are out for company formation. As we already said before, those places will give you a very hard time to do business from. Banking will be hard, and you will not be able to build substance there. In the end, you will just spend money on forming a company you’ll not be able to do anything with.
So, what are the best places to form an offshore company today?
Gibraltar, Hong Kong, Labuan, Georgia, Estonia, Latvia, Hungary, Montenegro, Bulgaria, Cyprus, Malta, USA, Barbados, Jersey, Guernsey, The Isle of Man, maybe Cayman islands and of course UAE.
Those would be the places that you will want to look at today, from the tax standpoint.
What else is there to consider besides tax?
Banking, a nightmare for offshore companies
The most important thing that we want to consider when forming a company abroad is banking. Banking is very hard and challenging to deal with today, and it will only get worse.
Just like we said before, traditional tax havens will not let you do banking from there, especially not good banking. If you can not get a bank account your company is useless.
Let’s compare two realistic options – Hong Kong and Labuan (Malaysia).
If I get a no-tax regime in Hong Kong it will be lower taxes than in Labuan, however, it will be harder to open and keep a bank account in Hong Kong. So, in this case, I might want to go with Labuan even though I’ll be paying some tax.
Hardships with banking will rule out many places from our previous list.
Lots of people will call and require a company in Malta. On paper it seems nice, but where will you bank? The biggest and the best bank will almost certainly not let you open a bank account.
What about Gibraltar? We love this place, and we formed numerous companies there. However, banking got super tough and options are pretty limited today.
How about Bulgaria? Bulgaria has decent banking, and the tax rate is 10%.
A lot of our clients are happy to pay some tax, just so they could show back to their home countries that they’ve paid taxes somewhere. This could save you from lots of hassle, especially when your home country asks you to show tax returns from someplace where you lived abroad.
What about costs?
When we talk about costs we are thinking about the costs of forming and maintaining the company.
This is one of the reasons people don’t like to form companies in the UAE, it’s expensive. High start-up costs will drive lots of people away.
Bulgaria is quite the opposite, forming a company will be much cheaper.
On top of this, you will want to think about operational costs. When you form a company abroad you will want to have a substance there. This, among other things, means that you will want to hire local employees.
You will need to think about where does it make sense to operate. Many people dislike Hong Kong, for this reason, it is quite expensive to operate from there!
On the other hand, a place like Montenegro will be cheap, but you will have a very small pool of candidates to choose from. Bulgaria, Hungary, and Malaysia will be better in that regard because you will have more people.
What are the regulations like?
Needless to say, when forming a company abroad you want to think about the regulations there.
In most cases, we will want to have a place that is very conducive to us.
This is especially important if you are in certain industries, such as crypto, cannabis, gaming, adult, financial services, etc.
If the local regulations don’t align with your industry it will simply be impossible for you to do your business there, or to even register a company.
What is payment infrastructure like?
Another very important thing to consider.
For example, if you want to accept credit cards it will be tougher in certain places. Also, it will be more expensive in some places.
This will be cheaper in the US or Europe, but more expensive in Hong Kong.
Where are your customers from?
This is an interesting part that many people tend to overlook, but it can decrease your costs dramatically if you structure it right.
Let’s say that you’re selling to Americans. If you’re in Australia it will be a hassle to process payments via credit cards for your American customers in USD. There will be conversion costs which will mess up with your margins.
Let’s say that you’re pulling out funds from your PayPal account. You charged in USD and you’re pulling to your Hong Kong bank account, they’re hitting you with a few percent conversion fees to HKD. At the same time, you’re spending USD on your advertising, for example. This, as you can see, creates a lot of unnecessary conversions and needles costs for you.
Therefore, you will want to pay attention to where are your customers and what’s relevant in that regard.
We want to take all the pieces that we mentioned above and work out what will make the most sense for you and your company.
You will need to put a little more effort and money initially and have a long term payoff because you’ll probably want to have this company for years.
We will need to know about your company in detail and based on that decide where it will be best for you to go.
It is very important to know what you’re doing, otherwise going offshore could be a lot of hassle and waste of money. If you know how to do it right this will dramatically decrease your costs – both taxes and costs of operations, and it will bring you lots of upsides that you could never have in your country of origin.
If you want help with forming a company and bank accounts feel free to reach out to us.