Top 5 questions to answer before you register a US based business
Are you an entrepreneur that wants to start a global business? You should spend some time exploring options to register your business in a foreign country! Here is a blog post sharing Aditya's story.
Are you an entrepreneur that wants to start a global business? You should spend some time exploring options to register your business in a foreign country! The world is flat now, and your ambitions should be global from day 1. Choosing the right option to launch your global business can provide many advantages like -
- Tax savings
- Better forex rates
- Less paperwork
- Better subscription payment tools (still a pain in India!)
- Easier access to fundraising
As an Indian citizen building a global software business, I chose to register my new startup in Delaware. I am excited with the opportunities this gives me, but the process of making this decision was a tough one. Here are some of the important questions I had to navigate.
Should I register in the US? What about other countries like Estonia or Singapore?
While registering in Delaware is a very popular option, the two other popular options that I have seen are -
- Singapore - A lot of Indian / SEA founders choose this because of the proximity to their home base. The government gives you a lot of tax benefits e.g. no taxes for the first two years. But be aware of the finer details! Once the honeymoon period is over, you will have to start abiding by rules that are Singapore centric e.g.
- you must employee at least X Singaporean nationals
- spend Y in maintenance fees etc.
I am not sure of all the details here so you should consult an expert before going forward!
- Estonia - The country is innovating fast in the fin-tech space, and has a popular program called Estonia e-residency. I don’t think that you gain any unique benefits by registering in Estonia. The e-residency bit is nothing but an empty PR exercise. People will tell you that you will get access to “European markets” but that’s not true. You can’t get more European customers just because you have a bank account there!
Note - There are of course more options like Panama, Ireland etc that can potentially give you huge tax savings. But I would not recommend that you opt for these tax saving havens for your small startup. These come in to play when you are making much more in revenue so my advice is: keep it simple.
I’m forming in the US: Should I form an LLC or a C-Corp (Inc.)?
StartPack has already written a great article on this here. The tl;dr is that LLCs are less hassle to maintain, and C-corps are better if you might fundraise from investors one day.
Elephant in the room - double taxation
This is often the most difficult answer to get! If you live the majority of your time in India, and run a business in the USA, where will you pay taxes?
At a high level: “taxes are paid where income is made.” If you have effectively collected income in the USA (read: a physical presence there) your USA company has to pay taxes. However, if you do not have a physical presence in the US, you might only have an informational filing requirement in the US. That being said, your home country can also come knocking for their tax dollars claiming that you own a Controlled Foreign Corporation. This is called Place Of Effective Management (PoEM); and the Indian government especially has some tricky laws around this.
In no way does this mean that registering outside the country is a bad option because of this! You simply have to take care of a few things to follow all the rules. Please find a good CA to do this, especially if you are planning to scale up your business fast! And in the US you can chat with a professional CPA as well if you have any questions.
Do you need an entity in your home country too?
Most experts recommend one of the two possible ways to do this -
- Making the US entity the HQ, and home country (e.g. Indian) the subsidiary. Read notes on this by Freshdesk here
- Make home country the HQ, and US entity the subsidiary. Read notes on this by Chargebee here
While this is great for funded startups; solo creators should keep things simple! Do not have two entities, and manage all your operations from your US registered company.
What are the important taxes / fees you will have to pay?
If you do decide to register a C-corp, these are the important dates you should keep in mind:
- U.S. Corporate Income Tax
- Delaware Franchise Tax
In the early days you could do the bookkeeping (fancy word for keeping track of every penny you spend, and every dollar you earn) yourself, and the tax filings too! But as the business grows you would need to hire a professional CPA / tax service for it. Use tools like Freshbooks or Xero to manage your books!
In case you are physically operating in other states (ie warehouses, employees, etc), you might have to pay taxes there too. But I doubt if this would be applicable for an internet entrepreneur.
Note - As soon as you register a company, put important tax deadlines in your calendar. I have already made the mistake of forgetting to file the Delaware Franchise Tax, and had to pay a penalty fee of $100.
Hope these tips were useful!
- LLC vs C Corporation: The Ultimate Guide to Decide Which Is Best For Your Business
- What is the Best State to Form My LLC In?
- Wyoming vs Delaware LLC: The Ultimate Guide to Decide Where to Form Your LLC
- How to Create a Wyoming LLC: The Ultimate Step by Step Guide
- LLC Filing Fees and Recurring Fees by State