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Ask HN: Questions about running a company from a cheap country

38 points| gringomorcego | 14 years ago | reply

Recently I was thinking about this, and realized that a lot of the money issues I worry about for doing a startup would disappear if I incorporated in Singapore and ran my business (which would be a B2C/B2B hybrid, with possibly handling deposits into customer accounts) from a country which was very cheap to live in (India, Cambodia, Thailand or Vietnam).

What physical things do I have to worry about having to handle? What sort of stuff can I not easily handle with either a telephone call or an internet connection, assuming I'm working alone?

I'm particularly worried about how to read stuff that I'm going to have sent to a PO box and stuff like that. What stupid pitfalls am I optimistically avoiding to think about?

35 comments

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[+] brown|14 years ago|reply
I ran a company in the Philippines for two years. It was a good experience -- good, not great.

Pros:

* Cheap -- You can make it as cheap as you want. You can get down to $100-$200 per month if you're aggressive. But understand that you won't have the western lifestyle that you're used to. If you want a nice western kitchen, bathroom, consistent electricity, consistent bandwidth, then you're going to pay more and more. I found a sweetspot of about $1k/month total expenses.

* Quality of living -- this is related to cost. You can have a full time maid, driver, etc. It's totally normal, totally acceptable, and improves mental health significantly.

* Tropical weather, access to many travel destinations

Cons:

* Far from family and friends

* Lots of business travel -- If you have customers in the U.S. or Europe, inevitably you're going to end up traveling there frequently. This bothers some people more than others. It really wore me down.

* Difficult hiring environment -- It can be really hard to find top tier talent. Either be patient, or be willing to pay above market rates.

* Weak legal system -- As you achieve success, you will unfortunately become target of occasional shady behavior. For example, an accountant who skims petty cash, or a server admin who locks you out of your own servers. In the U.S., those risks are mitigated by a good legal system (and background checks, credit agencies, reliable postal system, etc). In developing countries, you are largely on your own. That can lead to a feeling of helplessness. Toughen up. Hire lawyers.

Non-cons:

* Taxes -- Yes, international taxes are complicated; however, you can easily afford local legal services to handle everything.

* Foreign bank accounts -- Not as scary as FACTA sounds. Hire a good U.S. accountant to do your taxes.

We had a U.S. LLC and local entity in the Philippines. Doing business as a U.S. entity is 1000x easier (think about payments, collections, legal services, etc). Have a local entinty for all local staff and your office.

The Philippines, like many developing countries, has many special government programs to encourage entrepreneurship. For example, we were in a program that granted a 5-year tax holiday and special visas for "job creators".

[+] tferris|14 years ago|reply
Maybe a dumb question but I wonder always how the Internet connection in such countries is in general and even if it's great: does the lag to the western world annoys one after a while??
[+] reledi|14 years ago|reply
How do you deal with the difficult hiring environment?

I'm living in Canada right now but considering starting a startup in the Caribbean (where I'm originally from) but I know from experience that the talent there is nowhere as good as it is here. I'd probably have to recruit from North America, similar to what the guys at Tropical MBA are doing.

[+] philiphodgen|14 years ago|reply
Pitfall if you are a U.S. citizen/green card holder: taxes. Scratch that. Not taxes. Paperwork and the cost to keep it straight.

Your SG corporation will be a controlled foreign corporation.

Unless you are exceptionally well-organized and advised, the income generated by your company would start to look a lot like Subpart F income. Translation: all of the profit of the SG corporation is taxable to you as a human being, every year, on your U.S. individual tax return.

Now. You might say "Meh, profit is profit and if I have to pay tax what does it matter. I will have to pay tax anyway." Well, yes, to a point. But I will gloss over that or what I talk about will look a lot (to you) as snippets of code look to me. Unintelligible.

The real problem is that the U.S. tax paperwork burden is profound. And it is beyond the power of mere mortals to do it properly. You are in the realm of paperwork designed to capture transactions and operations of companies of Google's ilk. Not ordinary small businesses.

And if you screw up the paperwork, the penalties will eat you alive. E.g., Form 5471. This is where you tell the IRS "Hi, I am an American and I own shares of a foreign corporation." File late, and it is $10,000 please as a penalty. Don't fill it in right, and they say it is an incomplete therefore failed filing. $10,000 please.

Things start there and get worse.

The cost of running a SG corporation in SG annually is nontrivial. The cost of people like me is nontrivial. (I'm de-f'ing a SG corporation right now for a guy in precisely this position).

All of that money you save living in Cambodia will go to pay the overhead of your corporation. I don't recommend living cheap just so you can give $10,000 to someone like me. :-)

If you are an American and you want to live in a cheap country, kind of under the radar, and run your business from there, set up your company in the USA. Run it from there.

The probability of making a mess of international tax filings approaches 1.0 in a very few years. The probability of making a mess with domestic corporate or LLC filings is very low.

The cost of talent to keep your international corporate structure straight is extremely high. (I'm $750/hour and I'm not taking on any new clients at the moment). The cost of talent to run a generic domestic corporation -- you can get that anywhere from any random accountant and corporate lawyer.

That's my suggestion. Running away is the best strategy. Said Brave Sir Robin.

[+] cgag|14 years ago|reply
So is there any real downside to what you mentioned, just incorporating in the US and living somewhere cheap? That's something I had been wanting to ask about, since I'm surprised I haven't heard anything on here about people doing it. If you're bootstrapping a company, why not live somewhere you can survive on hundreds a month?
[+] gringomorcego|14 years ago|reply
First off: thank you for taking the time to respond. Your answer was incredibly insightful.

Usually I'm pretty good at googling stuff, but when it comes to this I feel like too dumb to know what I don't know. If you know a link or two that answer most of my questions below, it's cool if you just post those. I feel like I can't even tell what info is right when it comes to this stuff.

----

Okay, so I'm a US citizen. If I understand you right, most of my problems stem from wanting to incorporate in Singapore. If I incorporate domestically but run it while traveling, that'll cover most bases and make life much easier, correct?

Secondly, I don't doubt your talk about the complexity added on by incorporating in Singapore. But Singapore is really banking on people starting to incorporate there, I mean there must be some sort of national effort to automate/lessen the hurdles, right? I mean your random comment literally saved me from thinking that incorporating in SG/HK would be a good option.

I don't know, just after reading sivers.org I just assumed that the complexity was much more manageable. Maybe I'm just gullible/easily misled? Or does this option only make sense when you have a certain number of people working with you/certain profit? Could you guess as to what those numbers might be?

If I did want to incorporate, is there a big difference between incorporating in HK/SG/better place I don't know of?

[+] alain94040|14 years ago|reply
You might as well keep a corporation in the US, but move to a cheap country like Thailand. That gives you the best of both worlds: access to all the deals, payment platforms, of a US company, with the low cost of living. As long as it's just you to bootstrap, it's great.

You'll face scaling issues eventually: how do you hire 10 great engineers? But hopefully, once you reach that point, your business generates enough revenue or traffic that you can pay for it.

[+] mbenjaminsmith|14 years ago|reply
FYI, unless you're willing to live like a bum Thailand isn't a cheap place to live. My rent is 75% of what I paid for a Nob Hill apartment and my car payment is 100% more expensive (import duties). If you're willing to live like a bum you've got tons of options, including moving out to Nowhere USA. My parents spend part of their year in Tucson, AZ. I've seen ok homes for sale there for under 100k. The used car market is incredible as is the case in most of the US. You'd have to deal with chain restaurants and strip malls but at the fraction of the cost of most urban centers.

I would recommend setting up your company offshore. It's not as complicated as people make it out to be (unless they're selling their services) and I know plenty of long-term expats who have done so without issue. Chances are if you're asking this question here you're not going to be on anyone's radar with your company.

The US does want you to: 1) File taxes regardless of residence. If you're declaring personal income you're exempt up to 95k or so but even if you make under that you're expected to file. Having said that I don't know anyone who does or anyone who has ever had an issue. I talked to the IRS once about it (I was young and wasn't making over the limit and hadn't filed taxes for years) and they suggested to get up to speed to just file back reports and ask for the exemption as normal. 2) I guess now you're supposed to declare any foreign bank account with more than 10k in it. I've never heard of this being enforced in any way.

As far as I know probably your easiest route it to move to HK. They seem to have the most lax immigration policies and it's easy to set up a company there. Rent is like central SF (same size/price ratio). If you're not selling products in HK you're not liable for taxes (standard tax haven stuff).

Or just setup your company there and live somewhere else. If you do that though you're going to have to deal with immigration somehow because you'll permanently be a tourist. If you're a tourist in most of these destinations you're looking at moving in and out of the country 3 - 4 times a year or more. Between my first and second company I was living here and fell into a sort of immigration limbo, having to live as a tourist for quite a while. I assure you that going in and out of the country to keep your paperwork current gets old really fast.

This was assuming you're a US citizen. If not ignore the US-specific info.

[+] MortenK|14 years ago|reply
"FYI, unless you're willing to live like a bum Thailand isn't a cheap place to live."

This is only if you live in Bangkok or maybe Hua Hin. Most other places will have you live exceedingly well for 1000 USD pr. Month all included. Cars though are indeed extremely expensive, better to get a motor bike / scooter or a motor cycle.

[+] issa|14 years ago|reply
If you are just looking for a cheap place to live, you're actually better off staying in the US. Medium size American cities (think Portland, Richmond, etc) are essentially free compared to SF, NYC, DC, etc. While they aren't as cheap as some other countries, you don't have to buy a plane ticket, and you have all the convenience(ish) of home.
[+] redwood|14 years ago|reply
I'd say stay in the US... but then again I'm coming from a pretty extreme case right now (Bangladesh where I'm living for the year). It's amazing how much we take for granted in the states... things that add up to make you efficient in your work. Little things like not having reliable commuting options (transport), reliable electricity and internet, and having automatic laundry and dishwashing machines make life in the states so easy so you can focus on other things. It's fun to live in the moment as South Asia forces you to do, but it's tough to be anywhere near as productive.

Here there are moments of uninterrupted efficiency but so many things are unreliable

- internet: slow during peak hours, not unlimited, western prices

- electricity: cuts out for about 2 hours a day randomly...HUGE productivity killer and makes it really hard to plan, stay cool, etc

- weather: extreme heat and humidity, always fighting elements, dust, drying clothes outside in moments between rain downpours etc

- transportation: getting across town can take an hour in choking smog

- politics: shut down the city's commerce once a month

Now you can get around most of the challenges above by paying enough, hiring service, living where you work, etc, but then you're spending almost as much as you would in the states.

Then you need to consider how there are fewer opportunities to sell, share, network here... but that depends. If you're selling something for developing countries then it's a different story. I'm using my time to do something unique to this market while I'm here.

[+] kiwidrew|14 years ago|reply
I thnk Bangladesh is far behind Southeast Asian countries such as Thailand and Vietnam. Most of the issues you raise simply aren't a problem in Bangkok or Ho Chi Minh City (except, perhaps, the traffic in Bangkok... my god is it bad...) and as others have mentioned, it's both inexpensive and expected to have a maid to deal with laundry and cleaning.

Having lived in both cities for periods of time, I was amazingly productive because I didn't have to worry about mundane chores and could get healthy and inexpensive food at any hour of the day or night. And it was cheap.

[+] MortenK|14 years ago|reply
I've had a company incorporated in Hong Kong (HK) while living in Thailand, and a company incorporated in the British virgin isles (BVI) while living in Russia. These were both very small software development shops around 5 employees.

The cost of incorporation in both HK and BVI is around 2 to 4 thousand USD, if you pay a company to sort out all the paperwork, bank accounts etc. You also have to pay every year (roughly the same amount though a little less), to maintain the company. This again if you pay an agent company to take care of all the paperwork, which I'd highly recommend.

As for internet, both in Thailand and Russia it was absolutely fine for most purposes. You do have the occasional outage, but it's seldom. We did however have a backup 3G mobile internet line we used in these cases.

Whether or not you have to worry about handle physical mail, depends entirely on your business. We didn't have any use for it, but we were doing software so your mileage may vary. In most cases I'd think you'd be fine with a physical mail address in the US (or whereever your customers are), that can forward any mail to you.

As for tax, I wouldn't really know US rules - I formally emigrated from my home country, thereby making me tax exempt (but also non eligible to receive any services). Whether or not you need to pay personal income tax in your new country of residence, depends on the individual tax laws of the country. If you live like most expats do (on some form of a tourist visa), you usually don't pay tax there either. But you really should consult a local lawyer for details on this, as you generally do not want to risk breaking any laws in a country like Thailand or Cambodia.

As for corporate tax, this is zero percent if your company is incorporated in either HK or BVI. Heck, in BVI you don't even have to file annual accounting papers!

If you are curious we used www.ocra.com to incorporate in BVI and www.willsonn.com for incorporation in HK. Both of those companies can get the job done, but neither of them are very good at customer service. If I had to do it again, I'd probably look for a different agent.

Apart from that, there is really not much to it. Again depending on your situation, almost everything can be handled on telephone, email or fax (!).

Main issues are as others have mentioned:

You are far from family and friends.

You may have to do lots of expensive business travel.

It can be really hard to scale the business, unless you are able to work within a distributed team.

[+] reledi|14 years ago|reply
Why did you set up a software development shop in the BVI, are the problems they are solving specific to the BVI?

I'm asking because I'm considering starting a startup on a Caribbean island that I'm originally from. If you have any advice you'd like to offer, I'd be glad to read it.