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.
I've incorporated in the UK but I kind of wonder if I made the right choice. It's a fantastic country, but one thing that bothers me and that I discovered too late - only a few weeks ago - is privacy. This is a real one, pay attention to it.
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.
I'm a UK citizen. I am more shocked that the information you are uncomfortable in disclosing is not shared by a US incorporation.
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.
Private vs public refers only to the way that shares are bought and sold, corporations don't have a right to privacy. The details that are public about your company are related to the size of the company.
I believe that this is true of all European countries and is not a trait unique to UK companies.
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.
if privacy is an issue open up a Luxembourg SA (société anonyme).
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.
Your accountant will also be working to make the business look as bad as possible on paper to save you tax. With that caveat, it's a tool I've used to investigate markets to see how big they are.
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]
The going rate for setting up an Irish company is around €250, and mine only took a few days.
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.
EIS & SEIS [1] tax breaks for UK angel investors are a strong argument for the UK. Also R&D investment has tax credits too, so startup salary spend on new product dev is treated well by the UK tax office [2]. Don't know if PT & NL offer any similar breaks for startups & their investors.
Take a good lawyer, accountant. I am French and created two companies in UK (Ltd) and one in Germany (GmbH). In theory, UK was better, in practice, because I live in Germany, the GmbH is more convenient. Also, a lot of your optimisations are dependent on your products. Are you selling software (licenses), consulting or goods? Are you doing import from outside of the EU? Sometimes, depending on your product, a country which is normally not "interesting" turns out to be a great place if you setup more than one company and split who is getting the money for what (here I have software licensing and development in mind).
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.
How do you handle the tax authorities in Germany then:
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?
Interesting. What are your obligations in Germany when you have a UK Ltd? How much of a hit do you get on your personal taxes? I've heard of someone with a Ltd operating completely under German tax law, but that sounds like a nightmare.
One interesting aspect of Estonia is the Digital residency: if are you are allowed to live in Estonia (EU citizen or equivalent) you can be asked to be considered a “digital resident”. That means that you can choose to pay tax there. The main advertised advantage is that all your paperwork, including your company’s, can be done entirely on-line, using a super-secure ID card.
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.
Estonia sounds great on paper, has a proof of concept (Skype), English skills are good but the ecosystem around their Ltd (OÜ) is not as widespread as eg UK's where you find tons of resources.
Definitely UK. Usual reasons (very very cheap, like $20 and then $20/yr filing fees), good legal system, you can do nearly all tax/regulatory paperwork online/through APIs (in fact, it's nearly impossible to do it by paper now).
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...
For those suggesting the German UG, be aware that dissolving and operating it can be quite expensive. Fine if you have a solid business, problematic if it's more of a test and you simply needed some 'real' company for that stripe account...
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.
Thanks for the hints. I am planning to dissolve and I am one of those "tests". How can it take one year to dissolve? could you elaborate on that?
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.
I think a major factor in this decision that should not be forgotten is language.
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.
Unfortunately, being incorporated in Malta just screams "shady business" - at least here in Slovenia where such companies belonging to questionable characters are constantly in the news.
[+] [-] r2dnb|10 years ago|reply
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.
[+] [-] to3m|10 years ago|reply
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.
[+] [-] pjc50|10 years ago|reply
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.
[+] [-] SixSigma|10 years ago|reply
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.
[+] [-] MatthewWilkes|10 years ago|reply
[+] [-] buro9|10 years ago|reply
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.
[+] [-] DyslexicAtheist|10 years ago|reply
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.
[+] [-] ukandy|10 years ago|reply
[+] [-] sheraz|10 years ago|reply
[+] [-] unknown|10 years ago|reply
[deleted]
[+] [-] phillc73|10 years ago|reply
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)
[+] [-] bbrazil|10 years ago|reply
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.
[+] [-] hengheng|10 years ago|reply
[+] [-] osullivj|10 years ago|reply
[1] https://www.crowdcube.com/pg/seis-tax-relief-42 [2] http://forrestbrown.co.uk/rd-tax-credits-explained/
[+] [-] Phemist|10 years ago|reply
Don't know about the other part.
[+] [-] mpswardle|10 years ago|reply
[+] [-] Loic|10 years ago|reply
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.
[+] [-] glossyscr|10 years ago|reply
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
[+] [-] vruiz|10 years ago|reply
[+] [-] siscia|10 years ago|reply
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.
[+] [-] bertil|10 years ago|reply
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.
[+] [-] glossyscr|10 years ago|reply
[+] [-] arthurpaul|10 years ago|reply
[+] [-] aharonovich|10 years ago|reply
[+] [-] martinald|10 years ago|reply
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...
[+] [-] cmenge|10 years ago|reply
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.
[+] [-] ForeignEntrepre|10 years ago|reply
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.
[+] [-] mpswardle|10 years ago|reply
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.
[+] [-] ForeignEntrepre|10 years ago|reply
[+] [-] lazyjones|10 years ago|reply
[+] [-] nimbix|10 years ago|reply
[+] [-] kbody|10 years ago|reply
[+] [-] dmichulke|10 years ago|reply
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.
[+] [-] charlesdm|10 years ago|reply
Does Portugal have CFC laws?
[+] [-] aharonovich|10 years ago|reply
[+] [-] dotcoma|10 years ago|reply
Taxes? What about Tallinn?
[+] [-] aharonovich|10 years ago|reply
[+] [-] glossyscr|10 years ago|reply
All EU countries have world's strongest consumer protection rights and labour rights since most local laws are following EU directives.
[+] [-] aharonovich|10 years ago|reply
[+] [-] inderm|10 years ago|reply
[deleted]