I am an international tax lawyer and this stuff is my day job. Consider this comment an AMA.
For smaller companies, the bureaucratic cost of international tax systems is insane. For US citizens abroad ... I will just say that my biggest area of growth is helping people shed their US citizenship and tax paperwork/penalties is the number 1 reason.
Anyway. If you are in a position like The One and Only Netai -- or don't want to be -- AMA.
It's something I've considered. As a now resident of Hong Kong, I was surprised - and delighted - with how incredibly easy it was to handle my taxes. Front-to-back, I could do the whole thing, including payment, in less than an hour and understand the whole system.
Unfortunately, it is nowhere near so simple in the US, and they have no regard for expats. The US treats its expats worse than any other country in the world. The forms are atrocious. And I could go on about being taxed heavily for services I don't use.
Unfortunately, relinquishing citizenship is just not possible for most, including me. With family and obligations, it's just not realistic. But it is appealing.
I would point out that Mint.com was a startup at first, and I can't see how it or Intuit can prevent further competitors, e.g. personal capital. So... While I do prefer free tax filing tools over QuickTax, I'm not sure Mint is to blame. If anything, by using a free service, aren't you costing them money?
Edit: I might be mistaken as in Canada (where I am) it's not as easy as pay what the Government says you owe, but in turn the system does let you login to view your (bigger company) tax forms, your last return results; other relevant forms haven't been too hard for me to get ahold of digitally. Digital deposits are quick and there's multiple competing Windows and web-based clients that are both free (not just for low incomes) and certified as compatible by the CRA for each year's tax season. This has pushed more than one company to offer their products free or at a discount, but I actually really like one of the Windows clients so I'll use it next time.
...that's like saying that by using Facebook and Twitter, you're costing them money. They'll figure out another way to make money, you're just not the customer.
You are so right, they should be undercutting the bidders for building it for the government and really becoming the primary developers. Why can't I deal with Intuit every day?
I think it is Clay Shirky who said something to the effect that bureaucracies have every incentive to not solve problems. Otherwise the reason for the bureaucrats' existence would cease. We won't see solutions from the US government. Ever.
Yes the tax stuff is painful but as in your case there are reasons to keep the citizenship.
Actually bureaucracy was invented to battle corruption. But back then you really couldn't call it corruption, because without bureaucracy there were no rules or laws that could be faithfully executed or their faithful execution monitored. Kleptocracy and outright feudalism was the norm.
So in essence, without bureaucracy there is no corruption just as there is no shadow without the light.
Whenever bureaucracy has to be simplified, keep in mind that the potential for abuse usually increases unless the legislators take very much care.
I think blaming bureaucracy in general is giving a free pass to Congress.
A lot of the federal government is fully aware of their problems, and knows solutions, but they are not authorized dictate policy (except in small, limited ways) or otherwise enact solutions ... they are following their mandate set up by Congress. Congress sets up the bureaucracy to fail, and then blames it for failing. The classic example is the USPS, which is micromanaged by Congress and then berated when the micromanagement produces the expected failure.
That's like saying that programmers have no incentive to solve buggy systems, because otherwise their reason to exist would disappear.
Sure, there are probably a nonzero number of folks making their own job-security out there, but in both cases you'll find plenty of people who would be happy to have the system work better and who have some professional pride in it.
Unfortunately, it is nowhere near so simple in the US, and they have no regard for expats. The US treats its expats worse than any other country in the world. The forms are atrocious. And I could go on about being taxed heavily for services I don't use.
As a U.S. expat, I haven't noticed this. The forms aren't as easy as the Danish forms (which are fully automatic and done for you), but not too complex in my situation of just having a regular salaried job. I paid a CPA $200 or something to do it the first time, because I wasn't sure I would do it correctly myself. But the result was pretty readable and basically what I had thought I was supposed to do. Unnecessarily many pages, but simple enough ones.
And due to the foreign-tax credit there's no double taxation. I compute my U.S. tax obligation, subtract Danish taxes paid, and the result is always $0, since U.S. taxes are comparatively low.
Be sure not to invest your savings in mutual funds. Form 8621.
Be sure to avoid the local equivalent of an IRA if you want to do retirement savings. The IRS might not think it is a tax-free pension. And they might think that employer contributions are taxable income to you.
Don't own stock in a foreign corporation. Don't become an officer with signature power over the corporation's bank account.
Be sure to report all of your bank accounts and investment accounts on FinCen 114 (the new FBAR). Don't forget Form 8938 as well, if it applies to you.
I'm not saying you can't have a simple tax life as an American abroad. I'm just saying that you have to have a simple life in order to achieve it.
The problem is not with the U.S. tax liability. As you said, the foreign tax credit will take care of that. You won't pay U.S. income tax. The real problem is with the paperwork and the penalties for screwing things up.
Ah yeah that's true, I could see it being a bigger issue even as a regular salaried employee if I had really moved a lot of stuff to Denmark. As more of an expat than a committed immigrant, I have all my financial stuff in the U.S. still: I contribute to an American Roth IRA, my mutual funds are American ones held with a U.S. brokerage, etc. So all I really do financially in Denmark is pull a salary.
Come to think of it, violating Danish tax law is probably the biggest likely issue as a result. E.g. income in the Roth IRA doesn't generate 1099s, because it's not a taxable account. But is that taxable income to a Danish resident? Maybe!
>> not too complex in my situation of just having a regular salaried job
They are pretty much a nightmare if you're an entrepreneur and own corporations abroad. Look up Form 5471.
Even for non-entrepreneurs, I would say your experience is way better than most. Most US people overseas who say that taxes aren't a problem for them generally are blissfully unaware of their continuing US tax obligations.
You have to understand, the incentives and concerns of the two places are quite different between the U.S.A. (a place where expats come from), and Hong Kong (a place where expats go to). The U.S. has little incentive to facilitate Americans taking their capital and leaving. Hong Kong has a lot of incentive to facilitate that process.
I heard Germany and Italy had many double taxation issues also, besides Australia, but they have at least treaties to avoid such.
They only other state which goes after their people living abroad is Ethiopia, but they have double taxation treaties with at least Israel, Italy and South Africa.
So yes, US tax laws are the worst.
We are a UK-based company and want to have a US "presence" as we have found that charging US customers from a UK payment processor results in greater than expected numbers of declined payments due to the "international" element of the transaction [1]
Our plan was to get an EIN number for the business so that we can open a dollar bank account and register with a US payment processor to resolve this issue. We have no plans to hire in the US.
My two questions are:
(a) Is this a reasonable approach, or is there a better way ?
(b) What unforeseen implications (tax, bureaucratic or otherwise) might we be opening ourselves up to by doing this ?
Your approach is sane. Here is what I would do: start from the back end. You know the saying "When Mama's happy, everybody's happy"? Your payment processor is Mama.
Talk to your payment processor and see what they want, then do that. My guess is that they will want a U.S. business entity of some kind, with a U.S. tax ID number. Then they will want to believe :-) that this is more than a mere Post Office Box arrangement where money flows through a pipe. They'll want a physical address at a bare minimum.
Once you are convinced that your payment processor will work with you, then you set up the company in the U.S.
For tax purposes you treat this company as a processing agent. It is essentially a bookkeeper. Operate it and manage the net profit of this U.S. corporation so it shows a slight profit.
E.g., your UK corporation pays the US corporation a 3% override on payments processed. The US corporation uses this money for its overhead and whatever is left over is taxable net profit. The net profit is likely to be small so the tax cost is palatable.
Again, this is more a "make Mama happy" problem than it is a tax problem. Your criteria for a good solution are (1) payment processor happy; (2) paperwork and overhead and brain damage and distraction minimized; (3) tax cost.
Seeing as there are more lawyers than ever with more influence in Washington than ever, do lawyers have any motivation to fix this system? It seems to me with taxes, patents, immigration, regulation, healthcare and criminal justice the laws are purposefully hard to follow precisely because the lawyers who wrote them like it that way. Do you believe there are too many lawyers in this country (we have the highest per capita in the world by far http://wiki.answers.com/Q/What_country_in_the_world_has_most... ) and if so what can we do as a tech community do to replace most of them with simple laws and web applications?
Laws are like sediment dropping to the bottom of the lake. Eventually there is no lake.
I see no appetite for the wholesale dredging needed to fix the problem. To the contrary -- everyone is looking for government to help. See Tesla's experience in New Jersey yesterday, for instance.
For what it is worth, what I see in the tech community (in only a few situations at the moment, admittedly) is people opting out by renouncing U.S. citizenship and establishing their companies in more amenable climates. This is one solution.
The other solution is to not be part of the problem. Don't be one of those people who want Auntie Sam to help you win some sort of competitive advantage, and resist efforts by people (like the car dealers against Tesla) who attempt to screw things up.
And if Gov. Christie attempts to run for President, remember Tesla. Vote well.
This is probably the most stupid question you ever heard:
I'm from Indonesia, working in Malaysia. Mid of last year I incorporated a C-Corp in Delaware. The reason is so I can use Stripe to accept CC payments. Apparently to open bank account in the US, I need to be there in person, so I'm now stuck with a "sleeping" company (because I don't have time to go to US just to open a bank account, not to mention the expenses).
I have paid the franchise tax through my registered agent. Is that all?
Extra bonus if you can give me direction to get out from this stupid situation.
My experience with this is yes that you need to be in the USA to open the bank account for the US corporation.
It MAY be possible to work something out if you deal with one of the multinational banks like Citi or HSBC but don't count on it.
To keep this sleeping corporation alive:
1. File the paperwork in Delaware every year and pay the fees there.
2. File a Form 1120 (the corporate income tax return) with zero income and zero expense. Technically a corporation has to file a return even if it has zero profit. Don't forget Form 5472 (foreign shareholder of US corp) if it applies to you.
Solution from this mess? Find a US partner who can co-own this thing with you. Then you have a US-based human as an officer/director who can do the footwork to open the bank account.
Meta solution to this mess: someone can start one of these things as a service for 10,000 people like you. This carries thermonuclear risk of course, which is probably why no one has done it.
My CPA opened me a bank account in the USA (he's from USA too) without me having to visit the states, is this legal? Or is there any risk to this approach?? I'm in the same case as the parent question you have answered :S
Not sure about that, though that's definitely part of what makes it harder and transactions tend to take longer to process. Ironically, it seems I already have a US account from years ago and never noticed. And I signed up for it online, though I had previously visited a Canadian branch. Apparently at least part of it is the routing numbers attached to the account. http://f.redflagdeals.com/showthread.php?t=1327886&mobile_ty...
Thank you! I do hope someone can do what you suggested in the last paragraph. There's already similar services in e.g. Singapore to appoint local directors.
Hmm. All I can offer is that I know of at least one instance where Canadians were able to open bank accounts in the US so long as the bank in question was Canadian-owned. It's not standard-practice so it usually involves being a good customer for the bank or having a special paid plan. Here's a thread where people had the same issue: https://forum.lowyat.net/topic/1300881/all
I managed to open a US account with HSBC without being in the US but it was incredibly painful.
It involved getting a solid introduction to a client manager and relentlessly following him up over the course of 2 months to make it happen.
Incredibly painful when we were waiting for an account to put our investment capital into. If I had to do it again I would likely fly out - so long as I could tack on some business development in the process.
What do you think about an offshore corporation for Bitcoin startups? Considering the regulatory environment in the USA, is it better to incorporate in someplace like Panama or Switzerland?
The intersection of bitcoin and business and tax is an interesting place to be. Governments will, I think, want to reach out and smother Bitcoin with a pillow. How you prepare for that is an interesting question. He said. :-)
In choosing where to form a corporation you have to think about the protection that the country offers you.
My prediction is that after the USA has beaten Swiss banks into a pulp they will start marching through the Carribean. What is a tiny country going to do when Uncle Sam's minions land with a thud?
If you are a US citizen it doesn't make a difference. You'll still need to register it as a foreign entity within the US and US laws will still apply. If you're not a US citizen you're lucky.
I have a loosely related question, which I hope you might consider as well.
I am a startup employee in the US with stock options on a standard 4 year vesting schedule. I am not an American citizen. In my home country, if I exercise the stock options I would not be liable for taxes. Can I avoid paying taxes, if I move outside of the US for that tax year where I excise my startup options?
Generally the U.S. tax system likes to tax options based on whatever makes the most money for the U.S. tax system. :-)
Until I know more about the specific stock option program you have, you should assume that the U.S. will want to tax you if (1) the option grant occurred while you were employed in the USA; or (2) the options vested while you were employed in the USA; or (3) both; or (4) you saw a picture of a U.S. tourist landmark on television when you were 8 years old. I'm just kidding about #4.
The date of exercise of options -- and where you are living when you exercise the options -- is usually unimportant.
Meta point. The people who REALLY care about taxation of options are the people who run the company you work for. Your employer is going to bend over backwards to sacrifice you to the Almighty Tax Gods if it is going to protect the company from potential tax liability, even if it costs you money. Just sayin'. This is what I've seen.
Most countries (the U.S. included) follow fairly similar standards when it comes to taxation of stock options - if they have a vesting period, taxation is proportioned accordingly with where you spent that vesting period. So, if they vested over 4 years and you spent 2.5 years of that in the U.S., it doesn't matter that you moved back home for a year to exercise. 2.5-years worth of stock options are considered U.S.-sourced and you owe taxes to USA when exercising them.
I'm an American planning to live in Japan for 1-2 years starting later this year (I'll be studying the language and working for my existing small US business). I won't be working for (or, likely, doing any business with) Japanese companies.
I assumed I'd be best off hiring an accountant who could take care of whatever inane forms come with paying taxes in this situation (I do also pay quarterly estimated taxes, if that matters)... aside from the cost of retaining this person, are there any gotchas or pitfalls I should be aware of and/or worried about?
The magic form you need to remember is Form 2555. This is the "foreign earned income exclusion" form. The first "close to $100,000" (the amount changes annually for inflation) of income you earn abroad is free of income tax in the USA.
The hard part is knowing whether you qualify for this or not. You need to be physically out of the USA for 330/365 days in a 12 month period (not a calendar year--this is stupidly overly complicated and tricky), or be a "bona fide resident" of the other country. Look at the instructions on the form to help you here. Most people fail on this point, and this is the first vector of attack by the government to try and tax you.
CAUTION CAUTION CAUTION. I see any number of Americans abroad who work as self-employed independent contractors. Oh, hypothetically, software engineers living in Thailand and working. They successfully spend 330 days out of the USA. They use Form 2555 to eliminate income tax on their Schedule C self-employment income.
But Form 2555 _does_ _not_ _eliminate_ the self-employment tax -- the equivalent of Social Security tax for self-employed people. See Schedule SE.
Sorry for using all caps and fakey-fake underlining to emphasize this problem. It happens all the time. I saw it yesterday. You think you have no tax liability and you end up owing $16,000 for self-employment tax. Not fun. At all.
The next magic form to remember is Form 1116. This is the foreign tax credit. If you earn a dollar of income in Japan and pay Japanese income tax on it, Uncle Sam will give you credit on your U.S. tax return for the Japanese income tax you paid.
This is usually the better way for Americans abroad to go when they live in high-tax countries. This is why Americans in Europe pay many thousands of dollars to have a tax return prepared but never give Uncle Sam a nickel of tax.
If you are an American abroad working for a foreign employer, you don't have to pay U.S. Social Security. You should look at the totalization agreement between the USA and Japan to see if you can eliminate the need to contribute to the Japanese old age pension schemes since you aren't going to retire and die in Japan.
> You need to be physically out of the USA for 330/365 days in a 12 month period (not a calendar year--this is stupidly overly complicated and tricky)
That it how you capture partial years. I moved abroad in November of one year, stayed abroad the whole following year, and repatriated myself the follow June. Using the rolling 12-month period I got out of paying US income taxes for the entire time I was out of the country. The forms were straight-forward enough.
Thanks very much! To be clear, my company is incorporated in the US, and we don't and won't have an office or subsidiary in Japan. On the off chance we do end up with Japanese clients, I'd anticipate them paying the American company, and not me directly.
I'll definitely save this information and look into it so I have some context and questions when I finally end up working with a tax preparer.
As a French expat living in Japan, creating a personal company in Japan was surprisingly easy (assuming you have a work visa of course).
It was just a matter of filling a one-page form at the tax office. Filing tax was also very easy, I basically just went to city hall and they filed them for me.
So despite its reputation as a bureaucratic country, Japan turned out to be much better than France.
Of course, I can't help you with the U.S. side of things…
Yes - to qualify for the Foreign Earned Income Exclusion you have to be out of the U.S. for 330 days each year, in which case you can write off roughly $100k
I'm an expat in Canada, and I'm considering shedding my U.S. citizenship over FBAR/FATCA. I don't really want to do so, however, as long as my parents are alive. I will probably do so very quickly after they pass because holding onto my citizenship is providing me no benefit other than being able to see them without hassle.
What I am looking for now is someone who can help me catch up on my U.S. taxes (I'm a few years behind, but I think I might qualify for the catch-up amnesty if I get it done for this year) without costing me an arm and a leg.
For catching up, your risk depends on your income and the kind of stuff going on in your life (owning businesses, etc.). Here are the category of choices:
1. Just prepare the tax returns and file them. Good for regular people; the likelihood of you owing any U.S. taxes is low. You have risks of penalties (undisclosed bank accounts = FinCen 114 form filled in online -- that's the biggest one). If you are a very small potato floating in the stew pot of life, that's probably fine. You either start now and ignore the past, or you go back in time and file. Usually three years is sufficient, sometimes six.
2. Search for "Streamlined Procedure" via your favorite search engine and you'll find the IRS official "Come to Jesus" program for US taxpayers abroad who are "low risk." Like most bureaucratic endeavors to write rules controlling all humans, the procedure is contradictory. If your income tax is under $1,500 you are probably safe. If your income tax is even slightly above $1,500 in any one year, the program's FAQs say it's OK but the questionnaire you have to fill out says you are not eligible for a "no penalties, just file" solution to the problem. Find the questionnaire, look at question 2, then look at the paragraph below question 3.
3. If your situation is more complicated (higher income, or you own stock in Canadian corporations -- like your business!) etc., you need a more nuanced analysis. Here your primary risks are undisclosed financial accounts (heavy penalties for not filing FinCen Form 114, IRS Form 8938), Form 5471 (you own stock in a foreign corporation), Form 8621 (you--God Forbid!--bought regular Canadian mutual funds as an investment), or you have a Canadian tax-free account that is not an RRSP or RRIF. You need someone to tell you the best way to jump back into the pond.
4. You have gobs of money and high income. In that case you look attractive as a mugging candidate for the IRS. There's money to be made here for the government, and they like to threaten you with life-altering penalties (300% of your bank accounts is something I have seen as an opening bargaining position) and prison. You really shouldn't Come to Jesus on your own here. You need the Pope and St. Peter to guide you. :-)
The problems that The One and Only Netai (I love that, by the way) complained of in the business context apply equally in the individual context. So take care in how you choose a solution. Shoot me an email and perhaps I can connect you with someone in Canada who can help you. I will be in Toronto next Tuesday, FWIW.
Email sent. I'm probably somewhere between 2 & 3 (my income has gone up fairly substantially over the last two years) but there are some complicating factors.
It seems the Financial inCentives here are FuBARed. Seriously, this is making my head spin. Sure I get taxed out the wahzoo here in Australia, but at least is sort of simple
I may form a corp which would have many casual, occasional, remote (often lesser-developed country) individual contractors. The US IRS requirement to get an ITIN is a big burden on them, so I, a US citizen, am considering an overseas incorporation.
Are there any countries worth researching for low complexity and low paperwork when using overseas contactors? (I'd happily pay more in local payroll or withholding if it could free the contractors themselves from worries about faraway-country compliance issues.)
Do you think bureaucracy and regulations make it (deliberately) hard for US residents to invest in seed stage companies abroad?
For example, if a California resident Bob injects capital into a foreign company, say $20,000 for 1% of the brand new company as it is formed in the UK, and receives preferred stock and passes voting power by proxy onto other investors, what are the personal tax and filing implications?
My understanding is that any tax impact is only when the preferred stock is converted to ordinary stock and sold for a capital gain or loss. No different from buying and selling regular stocks from ETrade.
Regarding filing, form 5471 does not apply, as Bob would have <10% of the company, and the voting power is only %1 and has been granted by proxy to somebody else. On the other hand, if either equity ownership or voting power was >10% then Bob would need to file 5471 and translate the accounts of the foreign company which is a major pain (and accounting expense thus reducing the return on investment)
In a nutshell, US residents should only invest small amounts in any foreign companies and make sure equity ownership and voting power is minimal?
No. While Congress tries to limit the outbound movement of capital from the U.S., generally contributing to a foreign company is not much of a tax issue unless you're using deferred earnings (i.e., you're making the investment through a corporation you own) that haven't yet been subject to tax.
If you contribute post-tax earnings its usually a very simple event. Depending on your ownership stake, you have some information reporting, i.e., Form 5471, Form 926, but that's about it. If you don't have to deal with Form 5471 because you own a very small stake in the company, you'll want to have an accountant look into PFIC reporting, especially if the foreign company is engaged in "passive" activities like renting, licensing, investing, etc.
People are scared of Form 5471, but it's really not a big deal. It's also not very expensive, in the scheme of things. If paying roughly $100-$250 for a Form 5471 is too great an expense, you probably don't have the financial leeway to be making the foreign investment in the first place.
Also, Translating accounts is not very difficult. You simply apply the appropriate exchange rate (the average rate, or the year-end spot rate, depending on whether you are translating the income statement or the balance sheet). It takes at most a few minutes if you use any sort of organized accounting system or software.
I am a US citizen considering starting a company (possibly with 1 or 2 others) to do sports betting (illegal in US). I'm happy to live abroad (likely in Europe where sports betting is legal/popular) and potentially hop around from country to country. I'm trying to figure out my options. My understanding is that in order to do the sports betting I will need to open up a bank account abroad regardless (likely in the UK.) Any help on the follow questions would be greatly appreciated!
1) Be a self-employed nomad or incorporate? My understanding is that with the former option I would have to change countries every 3-6 months since I would be staying places under a travel visa -- is this correct?
2) If I incorporate...
A) where should I do it?
- Is it legal to do it in the US? The income would be going into a foreign bank account, if that matters. Could I then supply my own work visa to stay abroad in the same country for longer?
- Can I incorporate in someplace like the UK? Does this carry tax benefits over being self-employed? Would this affect how long I am able to live in one country at a time?
B) what type of corporation?
- in US -- LLC? C-Corp?
- in UK -- LTD?
- other?
Please excuse my lack of legal knowledge, I'm very new to all of this. Thanks again!
We're running a startup incorporated in European Union and planning to incorporate c-corp in Delaware as our mother company. C-corp will simply buy-out 100% shares in our European company which will be still hiring our employees (located and working in Europe).
From what we've checked we shouldn't have any hassle (event the c-corp bank account will be opened in European bank) or are we missing something?
Thank you for the comment. We are doing this US mothership thing in anticipation of next round of funding from US investor and according to what we know and have heard, US incorporated mothership is the only realistic way to go, right?
So I presume that it would be the best to only delay the IP transfer from Europe to US just before the investment and formal links (US company owning 100% of European company) might be already in place?
Here's my situation: I've been working on a pretty successful project with a friend (selling eBooks), and we're thinking about incorporating (up to now we've been taking in income separately through our own personal companies).
Given that I live in Japan, and he lives in Australia, does it make more sense to incorporate in the U.S., in one of those two countries, or somewhere else (Hong Kong)?
The main advantage I can see to incorporating in the U.S. is being able to use Stripe or other similar services. But I don't know if that alone is worth the trouble?
For a company that only sells digital products and doesn't need an office in the U.S., is there any benefit to incorporating there?
I think the question of where you incorporate depends on two factors. First is citizenship. Are you (or your friend) U.S. citizens? If so you have a bunch of tax hobbles that will slow you down.
Second is where your customers are. This is both a tax question (you want to pay less tax) and a business question (you want to collect more money more easily).
If you need Stripe or its equivalent, you dance to the tune they play. Organize in the USA and bend to their will.
If your customers are in the USA you have to look at whether you have "U.S. source income" -- a defined technical jargon-y concept. If so, it doesn't matter where or what you (or your company) happen to be. The U.S. wants tax.
You have to look at brain damage, complexity, and cost. Don't focus so much on financial cost when thinking about your business structure. Think about opportunity cost. An hour spent thinking about this is an hour you did not spend writing books or marketing them.
Until the stakes are high -- several million a year of revenue -- don't get too complicated. Yeah Apple 'n Google do fun stuff. But they have billions of dollars and you (and I) don't. :-)
Keep it simple. Don't optimize for tax too early. You'll make more in building your business fast than you will spending the same amount of time and thinking on tax strategies.
Where in Australia is he? I'm an Aussie, and I've done a startup and a regular business, and my mother is a(n ex-)partner at KPMG, so I have a whole stack of resources and info I can give him if you guys decide to incorporate here. My email is in my profile :)
I've set up more vanilla cos here in Aus, but I'm (we're) pretty confused about all the tax implications of selling eBooks to domestic and international audiences, and my accountant doesn't seem to be much more clued in.
Any advice you can provide would be highly appreciated.
Hi, I just wanted to know if all companies not in the US have to go through the same process? For example, if I owned a company in Canada and wanted to incorporate in the US would I face the same difficulties as the company in the blog post?
The answer is yes. You will face some variation on the problems that OP described in his post.
The level of paperwork and pain you will face depends on (1) where you are "doing business" (and that is a nuanced phrase); (2) what type of business you are doing; and (3) the humans who are doing the work -- U.S. residents or nonresidents.
The problems arise from the multiple government entities that have the ability to impose tax on a business. From the top:
- income tax from the Federal government, (most) State governments, and (a few) cities.
- various employment taxes to fund government retirement benefits, unemployment relief, medical care for the elderly, etc. etc. This is Federal and State. Solve that problem by handing the whole f-ing problem off to a company that specifies in payroll services. Hint: despite marketing promises to the contrary, all payroll services are alike, except for the ones that steal your money. Buy services from an established, reputable payroll services company.
- sales tax. There are a maddening number of jurisdictions nationwide that impose sales tax at a maddeningly different set of rates. Some things are taxed in one place and not in another. My experience with the California bureaucracy that administers this tax is that they are the second-lowest level of Dante's hell. (The lowest level of hell is reserved for the employment tax bureaucracy).
- City business licenses. It never ceases to astonish me how stupid local governments can be. The City of Los Angeles imposes a tax on the privilege of running a business within the City limits. It is a percentage of gross revenue, FFS. Yet adjacent cities (I'm in one--Pasadena) charges a vastly smaller tax, based on number of employees. A business can save tens of thousands of dollars simply by putting its offices in the correct place. Then the City of Los Angeles has budget woes and wonders why. Oh, well. The immediately former Mayor has his name in big-ass letters in the international terminal at LAX. C-o-r-r-u-p-t-i-o-n. But I do not judge. And I am not bitter. :-)
Having said all of that, it IS possible to create an outpost in the United States and keep the paperwork and tax burden semi-sane. Assuming your business generates some kind of software, I would do the following:
1. Choose your base of operations in the USA on purely business grounds. Where are your potential employees? Where are your potential customers. Let's say it's California.
2. Next, examine carefully the different municipal governments in your target area to see which cities have the best city business license set-ups. You might find that these places are popular and rent is expensive. Go figure.
3. Next set up the business entity you need. If your company in Canada is a corporation, you almost certainly will use a corporation in the USA. (Hint: ignore everyone who tells you about LLCs. CRA treats U.S. LLCs as corporations for tax purposes. Just set up a corporation). First preference is to set up the corporation in the State where you are actually doing business. It saves you money and paperwork. Success in business is all about avoiding paperwork.
4. The U.S. corporation should probably be owned by your Canadian corporation.
5. Staffing the U.S. corporation with employees. If you are coming across the border you will need a visa. Look at the TN visa or the L-1A visa categories as the easiest way to be here, work, and live. If you are hiring locals, you don't need a visa for them, obviously.
6. F-ing payroll taxes. Hire a giant-ass payroll services company. I have used one after another and they have all f'd up my payroll at one point or another. F-ing Intuit's f-ing QuickBooks Payroll is the worst. "Oh, we really can't track that $120,000 and can't really tell you where it went." But I am not bitter. Really. Not much, anyway. :-)
7. Hyper hyper critical for you coming across the border and working here: payroll taxes. You have to contribute to the U.S. Social Security system with your taxes even though you will never get a penny of benefits here. There is a treaty with Canada. Look for "totalization agreement" in your favorite search engine. You can eliminate U.S. Social Security taxes for 5 years using that method.
8. Your business SHOULD -- for certain definitions of "should" -- pay income tax to the Federal government and the State of California. If you have a sufficiently high level of business activities in other states, they will want to impose income tax on your profits, too. Strive to avoid those activities in the other states. That's where you need guidance.
A big part of my "coming of age" was realizing the US is not some business, capitalist paradise, nor is it a "low tax" jurisdiction. If you live in most of the big centers, you pay as much tax as Europeans, and receive almost nothing in welfare benefits (whereas your European peer will receive tens of thousands of dollars, if not more, in government services over a lifetime). If I didn't have health insurance through my spouse's employer, I'd be paying $1,600/mo in student loan minimum payments and catastrophic plan health insurance (which will only get more expensive as I get older and have children). Add that on top of federal taxes, payroll taxes (self-employed, so I have to pay both sides), New York state and New York city taxes (NYC conveniently double-taxes S-corp earnings, btw), and I'm paying far more than any European would in my position.
Doing business is also a huge headache, with so many different taxes to navigate, on the federal, state, and local level. Payroll taxes are a joke. Why not just collect it along with FICA and earmark it at the government level? Because politics. They think, if you label the tax "Medicare" or "Social Security," they won't think of it as a tax but rather a savings account. Right.
And I'm a lawyer! I can't imagine how much precious capital is wasted on CPAs and attorneys by small business owners trying to start a business the right way.
More and more I realize that the US is actually quite mediocre at many things, especially governance, not exceptional. What we are is a huge homogeneous market, and that's where much of our wealth comes from.
Conversely, in the exact same field, one of my biggest areas of growth in new business...is people wanting to acquire US citizenship. I've had 4 this year, and so far they've already created about 100 jobs between them.
I also disagree that the international tax system is insane. It's about as complex as dealing with multi-state tax issues and (with regards to US+foreign setups, like US+China, or US+Australia) its far less complex than trying to manage a multi-national corporation in the EU. It's not simple, by any means, but it's definitely not the worst place to be located.
Thank you for taking the time to answer questions here. Reading all the information you have posted so far makes me glad to be apart of this thing we call the internet.
Now my question:
- Me and a friend started a company in the US two years ago (both US citizens), and we run a consumer web app and in the near future will also provide SaaS. We just started to generate revenue 2 months ago and I was wondering how difficult it would be to incorporate again but in a more friendly place tax wise - What are our options to that?
It is easy to form a new company in a friendlier tax jurisdiction. Singapore. Hong Kong. Etc.
You--because you are a US citizen--will have a metric shit-ton of paperwork to file every year. E.g., if you don't file Form 5471, it is an automatic $10,000 penalty, then you shovel snow uphill in Hell in the summertime to see of you can get the penalty removed.
The second--and bigger--problem is that when you transfer ownership of IP from your US corporation to the new foreign corporation, that is treated as a sale and you pay tax on it.
So. You wrote some software all by yourself. Now you're up and operating and generating revenue. What's the software worth? (Well, who the F knows, right?) Hire an appraiser to get a random person's opinion, just to keep the IRS mollified. That person's random opinion is that your software is worth $2,000,000. Guess what? You "bought" that IP at $0 and just "sold" it at $2,000,000 and have to pay tax on that profit.
Internal Revenue Code Section 367(a).
That's why in these circumstances it is better (for tax purposes) to start an IP-heavy company outside the US and license the right to use the IP in the USA to a US corporation. Don't do a startup in the USA then expand outwards.
I'm a US citizen but am absolutely tired of dealing with IRS paperwork over the course of several businesses; where would you suggest I obtain citizenship (EU preferred).
First, you have to fill out personal taxes every year for foreign income, regardless of whether you live in the US or not. All income globally is treated in the eyes of the IRS as income.
Second, you have to declare FBAR if you hold foreign accounts of over $10,000.
Third, you have to "open your books" for any foreign corporations you are the director (or have ownership) of. Check IRS forms 5471 and 5472.
Yaaa! Land of the free!
Source: American with a business in the UK, lived and worked in the UK. Not a lawyer, or an accountant.
Acquiring a second citizenship will not relieve you from the full boat of U.S. tax laws. No matter where you live, no matter how many other passports you carry, if you have the magic blue passport with the eagle on it, you are a U.S. taxpayer.
Supposing one does not want a second citizenship and is willing to renounce their US citizenship entirely, which country would you recommend switching to? How difficult is it and what are the consequences?
Yeah, while our taxes here in Aus are high, so are our standards of living. Although our new government seems intent on ruining that, in a bid to out-do the US in terms of idiotic legislation and curbing freedoms...
As jsankey says, we're really not highly taxed. Our tax load is on par with the US, and we have the benefit of a much simpler tax system, from income tax to business taxes. Cost of living is high, though.
I'm starting the work for my PR in Australia. We love it here, plus the paths are short and straightforward: 2 years as 457 => PR through employer sponsorship, 1-2(?) years as PR => citizenship.
Another traditional route to Australian citizenship is via New Zealand. Get a kiwi citizenship first, which is easier than an Aus one. With an NZ passport, it's easier to get an Australian one.
It's actually quite a serious problem for the kiwis, because they do the hard yards of bringing immigrants up-to-speed with the local culture (eg English language lessons), only to have them jump the ditch (Tasman sea) to Australia.
AFAIK, you can always change to another country. However, I can't see the US taking it very lightly that you've denounced your citizenship. In other words, I would assume they would try to make your life a living hell if you wanted anything to do again in the US. (Have no idea, just assuming based on preconceptions about the way the US already treats it's citizens who live outside of it already) Derek seems pretty open, might be worth trying to reach out to him.
Interesting, thanks for the links. Renouncing my citizenship isn't something I have immediate plans for, but I'm interesting in working abroad, so I'm curious to know how the process works.
Thanks for the response. I was interested in renouncing my citizenship once I've obtained citizenship elsewhere; I should have included that in my post.
"Still, leaving America can have a special tax cost. To exit, you generally must prove 5 years of tax compliance in the U.S. Plus, if you have a net worth greater than $2 million or have average annual net income tax for the 5 previous years of $155,000 or more (that’s tax, not income), you pay an exit tax."
"The theory of the exit tax is that is the last chance the U.S. has of taxing you. It is a capital gain tax as if you sold your property when you left. At least there’s an exemption of $668,000."
If you have €650,000 to spare, Malta will sell you an EU citizenship...
If you want to do it without a big pile of capital, the easiest route is probably to get a job offer from a company that will sponsor you as a skilled immigrant, and live/work for enough years to qualify to apply for citizenship (as well as doing whatever else might be required, such as passing a language exam). Sweden is one of the easier countries, with about a 9-year path to citizenship (4 years to permanent residency, plus 5 years to citizenship), no exams. Period can be shortened if you live with a significant other who's a Swedish citizen.
If you want to be self-employed and run your own business, this route is generally much harder, especially if you aren't moving with an already-successful business. Many countries assume by default that "self-employed immigrant" means "doesn't have a job or want to get one" and/or "probably will sell drugs for a living", and treat the category more skeptically. But you can go self-employed once you get permanent residency.
Is much of what is written in this post actually the case? Do they need to charge sales tax for a service? Is employing people remotely really that difficult?
At my work we are considering to open an office and incorporate in the US (We are based in Germany). Are there states that easier to set up an office? Delaware? Our costumers are manly in the Chicago area and the north east.
Set up your office (and form the corporation) in the location that is useful for business purposes.
There are many locations in the United States that are more business friendly than Chicago (or Los Angeles, for that matter). I would suggest that if you need to be in the Chicago area you look at other municipalities other than the City of Chicago itself.
But if you have made a decision that you need to have your business offices in Illinois, set up an Illinois corporation. Don't bother with Delaware unless there is an overwhelming business need for this.
Wow I'm really interested in this, but your reply from the get-go offers nothing. Why not actually deliver something meaningful for the HN audience off the bat instead of passing yourself off as an AMA celebrity while not really contributing to any of the points that the OP has made?
As the article states, Denmark, while having high taxes, is very business-friendly: Very little bureaucracy, almost zero corruption, English-speaking population, relatively cheap apartments ($1,850 per month for a newly constructed two-bedroom apartment in central Copenhagen) and very low expenses of health care and firing people. Also, while wages are generally very high, they're not high compared to Silicon Valley wages, which is an advantage if you want to start a business here.
So what's bad about doing business in Denmark? The cloudy weather (think UK) and the personal income taxes :) The corporate tax isn't particularly high, though (24%).
True, but note that public transportation is much better, and riding your bicycle is easier. Denmark has one of the lowest daily commute times in the OECD countries according to the graph on http://www.theatlanticcities.com/commute/2011/10/american-co...
Basicly any type of vehicle becomes twice as expensive
No, not vehicles used for business. The high taxes are on personal cars.
I've lived in Sweden for 6 years, and the danish public transport is pretty much the same, while I think Stockholm's is better.
My point is that good public transport is not an argument for having ludicruos taxes. Sweden does exceptionally well and doesn't require a 180% reg. tax.
Vehicles used for business is cheaper, still significantly more expensive than vehicles in Sweden.
Let's check with the Volkswagen Golf, a very ordinary car
We'll choose Golf Comfortline (5d.) 1,4 TSI BMT - 122 HP with Automatic incl. VAT:
Huh. While the US market goes cheap. http://www.golfmk6.com/forums/showthread.php?t=2045 In Canada this translates to under CA$19,000 (or 10% off USD) and the electric's $35k or so, last I googled. I didn't know I had it that good. Still waiting for self-driving cars, personally.
Denmark has high taxes for the poor and middle class
Ironically, there's virtually no place better to be "poor" than in Denmark, because while poor people pay taxes, too, wages (and welfare) are so high that they end up living a better life than in other countries.
Taxes on the rich are a different story, though, because while the tax rates on the rich may compare to those in the US, it seems to me (and I might be wrong here) that, through tax deductions and various other things, rich Americans often end up paying relatively low taxes. And that would be hard to accomplish in Denmark.
Taxes on the rich are a different story, though, because while the tax rates on the rich may compare to those in the US, it seems to me (and I might be wrong here) that, through tax deductions and various other things, rich Americans often end up paying relatively low taxes.
This is a common misconception and is completely incorrect. The "tax loopholes" have been gone for decades.
It is actually far easier for wealthy Danes to avoid high taxes - they can simply move to Monaco or Switzerland or Estonia or Poland, whilst Americans must first gain citizenship of a separate nation then renounce their citizenship and pay an exit tax.
Capital gains taxes tend to be slightly lower in the US, but corporate taxes far higher. Consumption taxes are of course far higher in Denmark, and this will annoy some rich people there but will typically have little impact on the bottom line.
Overall you're likely taxed higher as a rich American than a rich Dane - though individual circumstances will play a huge role.
Very good point. We are in a country that's No.33 on business friendliness list and it shows. More hoops to jump through than there are in Northern Europe or the US. So incorporation in the US was an improvement.
Skype started in Denmark, as did Bitbucket, Zendesk, Podio, Unity, SteelSeries, AppHarbor, Tradeshift, Endomondo, Iconfinder, Momondo, TrustPilot and many others (http://starrt.dk/startups).
European software startups that need a huge infusion of capital tend to move some of their business to Silicon Valley while sometimes maintaining a development department back home (e.g., Unity is now headquartered in San Francisco while having its chief development department in Copenhagen, AFAIK).
I'd be very cautious about running a software startup in Denmark. If you succeed great, but Denmark doesn't have the sort of easy bankruptcy laws the US has and you have to pay your employees 6 months wages if you go under. So if your startup fails you might be in debt for the rest of your life.
Denmark doesn't have the sort of easy bankruptcy laws the US has
Lots of Danish companies go bankrupt without it affecting the personal finances of the owners. It all depends on the kind of company you form.
you have to pay your employees 6 months wages if you go under.
Source? AFAIK, as long as your business is alive and well you pay a small amount of money each month to an organization which will make sure that if you go bankrupt, your employees will get paid anyway. This means you don't have to pay anything if you go bankrupt. https://lifeindenmark.borger.dk/Pages/Compensation-if-employ...
I really don't understand this fetishization of the US for business. If you want to be sued into utter oblivion and live on the streets with a nonexistent social safety net I guess it's all right. I'm in Ireland and if you want to start a real business (not some rinkydink app that mysteriously needs €30 million in funding so you can fail more spectacularly) the climate seems quite good.
As someone who has been in business here since 2007, i would stop you right there!
We have our share of a bureaucracy (example: took 6 months to get reply from Revenue as to what VAT to pay or not on sales of hosting packages, 23% sales tax (VAT) on customers from EU-28 was the answer eventually)
and you quickly realise there are 3 types of companies here:
1. Large corporations setting up shops to launder money onto somewhere warmer in Caribbean, these often dont hire many people or pay much in any tax despite moving billions (example Apple in Cork)
2. Small indigenous companies who dont receive much support, run by small families who never really grow to become large companies EU or worldwide, ask anyone outside of Ireland to name an Irish company beside Ryanair! And no Guinness are UK company
3. Zombie companies still clinging on from the haydays of the last boom, supported by taxpayers bailing out the banks, surviving thanks to the inbred gombeenism that is still prevailent despite the largest recession in any of the developed countries since 2007, see this great lecture
https://www.youtube.com/watch?v=8LCofepdUzE
Sorry, I have to disagree. I have run a small software consulting business in Dublin for nearly ten years. The one thing we get right in this country is our pro business climate. It is easy to set up a company, there is a lot of support and advice available. I think we do this well...
Two caveats though:
- You DO need to get a good accountant to get advice on international VAT charges as they are complex (I suggest bypassing them by using a company like FastSpring that manages them on your behalf).
- Small business owners should have the same social welfare security net as everyone else (I think this might be changing).
I agree with you on the inbred gombeens and cute hoors, but thankfully there seems to be less of them in the tech sector :)
"You have the option to pay either 8.9% flat or 5.9% plus $.95 per transaction. "
Wowza, thats steep!
edit: Sorry but experience has been different here in west, in another lifetime I worked on an "innovation partnership" with EI, it was nothing more than a way to funnel state money to politically connected "friends", the business idea was crippled from day 1 but that didnt matter the objective was transfer money, which as as a taxpayer was sickening.
Sorry for being cynical but I have many years of experience in business here, and seen it all in my interactions with state bodies. Maybe in Dublin they manage to put on a better show or things changed in last few years.
> "You have the option to pay either 8.9% flat or 5.9% plus $.95 per transaction. "
> Wowza, thats steep!
FastSpring customer here.
First, they handle lots of boring and complicated stuff for you, not just taxes. How much would it cost you to accept all major credit cards, PayPal, checks and (international) wire transfers, and provide customer service for all of those transaction types?
Second, if you sell the more expensive B2B stuff like we do, and/or sell lots of your stuff through them, you can ask for a custom rate.
> I see, still thats quite a bit especially when need to hand over a large chunk on any sale from Irish/EU28 customers in tax!
I am not sure I understand what you are talking about. If we set the price at $1K, we get from FastSpring $1K minus their commission, whether the customer has paid the EU VAT or some sales tax on top of that $1K or not. And it is FastSpring that does EU VAT remittance.
Yes sorry VAT (i called it sales tax for US readers to relate)
We have a lowish corporation tax of 12.5% yes paid on company profits, but everything else is very high!
For example out of a ~€39000 salary last year after all taxes i was left with €25000, things get rapidly worse from there if you want to move money from your company to yourself, people can check http://www.deloitte.ie/tc/ for ideas of what income taxes people pay here
As a director one could take a company loan (illegal above certain % but dont think anyone checks) but this would be liable to witholding tax of about 20%
Capital gains is 33% here.
And of course VAT of 23%..
tl.dr: the taxation structure here works great for large corporations who can hire expensive accountants to launder literally billions thru' Ireland to warmer climes
BUT for anyone running a normal small business, expect to hand over 20-40% of your earnings
and anything left after you pay income taxes for example, is heavily taxed with loads of stealth taxes (tv license, house tax, soon water tax etc etc) and of course 23% on anything you buy (essentials like food aside, some of these have lower VAT tax rate)
VAT only taxes the value added to goods by an entity, so if they buy parts for £10, make a widget from those parts, and sell a widget for £20, they pay VAT on £10, with the assumption that they entity that sold them £10 of parts paid VAT on the rest of it. There are also possibilities for running costs (such as purchasing a screwdriver to assemble the widget) that are not taxed, because they are not sold on to the public.
Sales tax is repeatable, so tax may be paid for a particular good each time it passes hands. Yes, there are exceptions.
Its afterwards when the fun begins especially if you are in IT where Revenue might not know how to tax you and you need get a written judgement (So they don't accuse you of not paying taxes).
For example I would love to start a bitcoin related business but afraid of what decision they might make (according to newspaper last week they are still deciding)
Overall starting business here is not too bad, its growing and expanding that is hard, and misconception that Ireland is low tax, it is not nor is it a cheap place to live. Everytime i hear americans complain about sales taxes I say you seen nothing yet :D
It would be an interesting book to read about the difficulty in growing a company in Ireland. I have not heard about the unique problems. U.K. yes. Continent of Europe yes.
>I really don't understand this fetishization of the US for business.
You don't understand because of the following idiotic strawman.
"If you want to be sued into utter oblivion and live on the streets with a nonexistent social safety net I guess it's all right."
Rather than whining about your impression of the US on HN, maybe you could do some research on your own to find out why it's such a strongly preferred place to start a business.
>(not some rinkydink app that mysteriously needs €30 million in funding so you can fail more spectacularly)
This further illustrates your lack of understanding of investing. To get that kind of capital, you need to have a good business plan or a really good app to start with. Investors don't intentionally lose money.
If you just meant that Ireland doesn't have any money to invest in software, then you should already see why nobody is interested in starting a business there. The capital pool is not as deep so your borrowing costs will be hire and it will take significantly more effort to get investments.
His post is filled with hyperbole, yes, but as someone who has spent 18 months looking to move to the US from Australia, I've personally come to the conclusion that for me it's simply not worth it. The risks are too high, and those risks come from things like your legal environment, the health care situation, and the Byzantine labyrinth that is your tax code.
Moving would have opportunity, yeah! And a lot of it. But I'm not willing to trade my standard of living to go somewhere that I'll pay just as much tax as here, with far higher chance of penalties due to mistakes, and with a far worse social safety net (health wise) to cover me (as I won't be poor, Medicaid, etc) than I have here.
Now, you can deal with all those things. There are ways to manage, mitigate or avoid them. I'm well aware of that. But frankly, I shouldn't have to...
>Now, you can deal with all those things. There are ways to manage, mitigate or avoid them. I'm well aware of that. But frankly, I shouldn't have to...
This is very common with a mismatch in entitlements. People don't know how to handle the things they are used to getting for free.
Realistically though, you can just pay to have someone do your taxes and you will never have to worry about penalties and you will likely get extra deductions that you didn't know were available. Yes, it would be nice if the government provided this service already, but they don't and even including this in a reason not to move to the US is sad because the cost of having a professional do it is so negligible.
The legal environment depends on what you would be doing here. If you are just working for a company, you will effectively never have to deal with it. If you are starting your own company, then yes, it's a pain but I haven't gone down that path so I can't elaborate on that further.
Finally, for health care it depends again your situation. If you are working for a good company, you will get good health care and it won't be a concern. You might have to pay small fees on visits to the doctor, but these are usually <$50. When looking from your perspective, keep in mind that the US health care debate is always going to bring up worst possible case scenarios that aren't representative of the norm, especially if you are a skilled migrant worker good enough for a company to get you an H1B.
There's some truth to it. Patent trolls are doing alot of the former (you don't hear from most of their victims, by design), and the latter is undisputably true unless you're over the age when social security payments and medicare coverage kick in.
> the latter is undisputably true unless you're over the age
Medicaid and unemployment do not depend on age. ACA provides healthcare insurance subsidies based on income, not age. SNAP and other programs exist as well.
The US safety net is perhaps inadequate, but not "undisputably" "nonexistent".
I see nothing in that link about lack of care or social benefits leading to this. The most gold-plated safety net in the world cannot save someone from stage IV metastasized melanoma.
My father died of a brain aneurism when I was 2 years old (he was 26). If not for the safety net of SS insurance and VA benefits, I would have had a much harder childhood.
I would love there to be more. I also think that discounting what we have makes it easier for those that would like to remove them.
If you read the articles on HN frequently, I would have to imagine you believe the US to be a place where everyone is starving in the streets or living in high rise luxury condos in the bay area.
Non-government solutions to Europeans is unfathomable.
Maybe. Although there are some (very good) VCs and investors in Europe, especially in London. But it's often overlooked that actually, maybe you don't need a VC/Angel to run/setup your company. It mostly increases your risk, and I concur with Swombat's views on this: http://swombat.com/2013/12/27/investment-increases-risk
So given that you can (and people do) get serious cash outside the US, and everything you've said, Nitai, I'd be pushed to even think about the US as a venue for my next project, even if that was where the market was.
Labor also moves relatively freely in the US. Here in Germany, I get the impression that an employee is incredibly "safe" compared to the US -- is it the same elsewhere in the EU?
This has the double effect of probably making any one community more resilient to small market movements, but I have a hunch it also suppresses the volume of desirable candidates in the unemployment pool.
I'd wager that a robust, high-turnover unemployment pool (i.e. one where desirable folks end up for short periods of time that is always churning) is a boon for a new company that needs highly desirable employees in its mix.
In Poland when you want to hire someone "as it should be" with a proper work contract it is quite a pain in the ass for the employer. 1) Many rights for the empolyee, not so many for the employer, 2) VERY high real costs of employment (only ~40% of total employment costs lands in the hands of the employee to his/her disposal).
That's why many companies are using some "alternative" ways to hire someone still legally with much lower costs (10-25% employer costs including the salary) and more balanced rights for both sides of the contract.
I highly recommend comparing these numbers for Poland with numbers for other European countries. You'll find that Poland is on the cheaper end of the employment cost spectrum - that 40% figure (which is actually 38%) only refers to the cost of employing a minimum-wage worker, and it's not 38% that's taken home, it's 38% that's taken by government, and it's still lower than EU average.
As personal and corporate income taxes in Poland are quite low (again, compared to other European countries), combined with the fact that labor in Poland is extremely cheap (in EU, if I remember correctly, the labor is cheaper only in very poor countries like Latvia, Lithuania or Bulgaria), employing Poles and doing business in Poland is very cheap. It's very illuminating to compare the percentage of corporate income spent on worker wages in various countries -- companies spend very little on employees in Poland in general.
That alternative way is verboten in Germany. If the Finanzamt finds out you will have to repay social taxes on your "contractor" and he will have the right to sue you to employ him properly.
AFAIK in Poland social security payments are mandatory for self employed people so it's no real difference if you are employed or a subcontractor - you still have health insurance, pay into pension funds, etc.
In Germany on the other hand only health insurance is mandatory for self employed people. So being a "subcontractor" with only one customer is treated like cheating the social net out of money. (Because even people who won't pay into the social net are protected by it if stuff gets serious).
Oh, btw. a question about the Polish tax system: I read that Poland has the option to opt into a 19% flat personal income tax. Is this of any practical use? My Polish is not up to reading legal texts so I couldn't find out what the drawbacks of this option would be.
What about the geography? Obviously, it's subjective, and I wouldn't claim that the USA has the best geography in the world, but it's pretty freaking varied and awesome if you like the outdoors.
Huge, "single culture" market (e.g. speaking single language) with a mostly familiar language and culture (thanks to Hollywood, and the fact that the US and the UK are responsible for the most recent technology revolution).
Capital.
And, everyone is used to doing business with the US, so if you want to grow your business internationally, that's a better base than most.
If Europeans spent even half the time they spend complaining about America on building something useful, they wouldn't have to feel insecure in the first place.
Whilst I do not wish the hell that is American business regulation on anyone, I am at least happy to see some Europeans realizing that America does in fact have more onerous regulation, all things considered, than nice nations like Denmark.
Scott Sumner of Bentley University, in Boston, has written on this topic quite a bit. Sumner, in fact, considers Denmark the most free market oriented non-postage-stamp nation on earth. A sample:
And ... the article doesn't touch on it, but that goes triple on personal tax issues -- especially if you do not sever your ties to your previous states of residence.
The US tax code, as evidenced by FBAR and FATCA, assumes that the only purpose of any financial transaction or account outside the US, is to hide money from the IRS. You have to report each and every "account", with contact details at the institution, every year, on two independent forms (similar yet different), as well as every transaction in securities (if you can actually do them anymore - most places won't even let you if they know you are paying taxes in the US).
If you are not a US taxpayer already and planning to do anything in the US, be sure to talk to a CPA that specializes in those kinds of things (preferably, one who is also familiar with the treaties and tax code in the country you are moving from). You need to do this both on the business front and the personal front, or you are likely to be seriously and horribly surprised one day.
I moved to the UK a few years ago and I couldn't agree more that the IRS rules and regulations unfairly penalize "average" US citizens that live and operate abroad.
FBAR, FATCA and if you start a business, form 5471 and friends. I got some quotes from a few accountants and I will likely have to pay thousands of dollars for assistance just to fill out informational forms and pay (maybe) a few hundred dollars in US taxes.
I think that's the most ridiculous thing about it:
Whether you are an American who moved to a treaty country, or a treaty country resident who moved to the US, it is not likely that you'll have to pay a lot of US taxes if at all. (The treaties I am familiar with are quite reasonable). However, unless you are a tax professional yourself, you are going to be "taxed" by a professional to prepare all those papers that you must file.
I know someone who moved to the US, and whose tax filing on one year topped 150 pages of "informational data" despite not having to pay one cent.
I have never met a person who is in any way familiar with the US tax code who thinks it is makes any sense or is reasonable. Only people who never had to really deal with it think so.
Wow... I really like the US, but these draconian laws make it difficult to justify moving there. Of course, if you grow up like this and don't know better...
To be fair, the earned income tax exemption is sufficiently large enough that you will be making six figures before you have to pay a penny in U.S. tax. You still have to file though.
They refused to pay without representation. But US expats can actually vote from abroad.
(Not that the votes seem to matter - you get to choose which faction of the military-industrial faction gets a salary this year, but not anything of consequence)
It is not only an issue for US citizens, also for people who have been with the same bank for 30+ years and now leaving abroad. You can either pay tones of fees and at least have $50k in the account or you are forced to take your money elsewhere.
Luxembourg and Lichtenstein will gladly take you money, though ;-)
Actually, a little known provision of FATCA was introduced precisely to prevent financial institutions to discriminate against American taxpayers. If you read French:
* You could have saved yourself a load of headache and incorporate in Delaware.
* If you don't have a physical office in each state you don't have a presence there. You shouldn't have needed to pay sales tax. Amazon only pays taxes in states they have a physical presence (warehouse, office, callcenter).
Hiring an employee in another state may create a nexus in that state, and this may require you to file income tax in that state.
For example, if you incorporate in Delaware, and then hire someone for >$50k in Texas, you may have to file company income taxes in Texas. Not that Texas income attributed to your company (or partners) will be much, but, computing and filing is best done by hiring an accountant.
Most states requires a Foreign Corporation registration, or something to that effect. So, if you incorporate in Delaware, but live and perform services for that corporation in say Tennessee, the corporation would need to be registered in Tennessee as a foreign corporation (i.e. one not originally incorporated there) and pay a small registration fee.
Not a lawyer, but I think that's it, outside of paying the appropriate employment taxes and fees to the employee's state of residence/operation.
I'm guessing this is what the article's author is referring to, but the way he explains it sounds like someone advised him to incorporate wholly owned subsidies in the states where he had employees, which would be both unnecessary and more expensive.
You would have to file for "operating authority" for an out-of-state corporation, which typically involves similar fees and paperwork to incorporating in-state. I think that's what the article is referring to.
I'm not sure about EU law - but if you have a company in Denmark, and want to hire someone who works in Portugal as a permanent employee, and not a contractor, what do you need to do?
You must hire that employee according to the laws of the country in wich he/she lives. So if that person lives in Portugal, you should make a contract according to portuguese laws, and you must pay for social security in Portugal.
From the worker perspective, he'd have to file his taxes in Portugal. He'd be a resident, because he is in the country for more than 9 months every year. Strangely, however, nothing prevents him being a worker for an entity outside the country (free movement of people, goods and services in the EU market mandate on barriers here).
You'd be in a strange split-brain situation, requiring legal advice. I imagine you could file income taxes in Denmark, and these would be deducted from the worker's Portuguese due taxes under the double taxation prevention agreements.
Not sure about Portugal but suspect it's not much different than other European countries. When I did a freelance job for Nokia in Berlin I effectively worked for a Swiss company, which sent me off to Berlin. I registered myself in Switzerland, got a social security number there, and paid my income tax in Germany. As far as I understand it, Nokia paid the Swiss company, who paid their tax in Switzerland. Much as you'd expect - you (be it an organization or an individual) pay tax in the country in which you're situated.
What you've described is kind of complex. I'm asking about where someone lives and works as a permanent employee (and not a contractor!) in Portugal or Germany or whatever, for a company that is in Denmark.
As far as I know/understand the company would pay its own taxes in Denmark except for employment-related tax, they'd have to abide by portugese laws for those (e.g. social security schemes and the like) when in comes to the contract of that specific employee.
If your company is incorporated in Europe, say Denmark, then you have to pay corporate taxes in Denmark. Hiring someone, e.g. in Portugal, Switzerland, etc. Does not force you to incorporate in those countries.
However, the employee will have to pay taxes where he lives, independent for whom he works for.
We got a professional CPA and lawyers on this. In the US it is such that when you hire someone (remote work) and he lives in, e.g. Philadelphia, you have to "incorporate" in that state.
This is a difference in culture between Europe and the US: Most US employers won't notice that, because if they employ people across the US and not in an office, they'd hire than as contractors rather than as employees. In Europe, this form of contracting is much less prevalent.
I'm not sure what the cause and what is the result here, but it explains why Americans don't usually see this problem.
Yeah I know. We've tried to talk to some and have them on as contractors, but some did not want that (since that would have caused issues for them). Plus being from Europe, we really like to give our employees health care, vacation and all the nice benefits of an employee ;-)
For a lot of businesses isn't it a realistic option to just ignore the state governments? If the IRS says "jump" you say "how high?" But if the state of Pennsylvania starts complaining and you don't have a presence in that state, what the heck can they really do about it?
Yup, I'm skeptical of the OP's tax advice. With the right direction this should have been a very easy transition, especially with what looks like a SaaS business.
> In the US, however, it’s like being in the 70’s in Denmark. In a country, where the NSA supposedly reads all my email, knows how much money I make, what I ate for breakfast and what color underwear I prefer, I cannot report electronically to the authorities!
Well, the plan was to keep the incredible advancements in (mass surveillance) technology secret from the citizens, in order not to be stopped.
'I cannot report electronically to the authorities!' - I am amazed. In the UK, individuals and virtually all companies and organisations must file their Company Tax Returns online.
Call me stupid, but the only reason why I incorporated an LLC in the States is because I wanted get access to the Stripe API for production (yeah, it's a huge compliment to the Stripe guys ;)
The payment gateways in my country are shit..Also, the US account is only used for the payment gateway, all the IP of my software is owned by the company in my home country. You know, just so someone doesn't sue me for rounded corners and having anchor links on my webpage, stuff like that.
So far so good, I just report EFI (Effectively connected income) to the IRS, which means only the businesses that I do with USA, all signups from other countries aren't taxed by the IRS believe.
> Is this a test of whether anyone actually reads these articles? Every 3rd paragraph has a viagra spam-link inserted in the middle of a sentence.
Eh.. What? Are you commenting on the wrong article by chance? I don't see any of that. If you're even remotely serious I'd take a good look at your machine/system.
I get this too, and only on this site. In Chrome, FF and IE. Maybe the site is infected, and the presence of the spam depends on the visitor's country.
EDIT: The spam is present also when browsing from a Linux VM.
Anyone who thinks they can't see them should set their user agent to google's crawler. Then they become immediately apparent. That might also explain why the chrome users see it. I presume that has "google" in the UA somewhere.
It's definitely the site. I have connected on my PC and see the links. Then connect via 3G on my SGS2 - no links. Connect to my LAN on the SGS2 - links appear.
This sort of malware spreading often hides itself from (a) logged in users and be (b) browser strgins that aren't Google. This can ultimately hurt your Googlerank if for no other reason than serving a different page to Googlebot than you would to outsiders. And yes, Google checks. This is why they used to have a campaign to register your mobile site with them if you were sniffing for mobile useragents.
It's not good. Change your user-agent to googlebot (User Agent Switcher is a good addon for Firefox.)
I accidentally still had it on from trying to read an article that some site was showing exclusively to the googlebot but paywalling for everyone else. If I hadn't, I wouldn't have noticed.
Mauritius: the best place to do business in all of Africa. Good connectivity, great tax rates, no corporate gains tax, awesome beaches. http://www.investmauritius.com/
There are quite a few of those here in Hong Kong - the corporate and personal tax rates are quite friendly, and capital gains/dividends are not taxed at all. There are quite a few ways to keep most of your money here, and the regulations are simple.
That said, while the technical community is growing, it is still very small. Hiring can be quite difficult and you have to prove to the government that you worked hard to find a local before they will let you hire an expat. But it can be done.
I run a france-based company specialized in online advertising and I wanted to expand our activities to the US, who does not? Obviously France is way worst than Denmark and the US for business, tax and work laws, so I can't really relate for the tax part.
I relate mostly for the visa stuff. What I am getting from the OP post, Nitai was doing L1-A. I have been doing L1-A too. (I recognized the list of documents scanned the OP has posted! :) ) Same hassle, same huge amount of documents needed, we didn't give up though after the first request for evidences but the requirements are kind of high so we finally didn't get it.
US now sucks for immigration and it seems to worsen. BUT, Europe seems harder too than before for immigration. It seems a tendency that in the world with Internet, cheap transportation and desire for better file, people immigrate more and countries make stronger bureaucratic walls.
Yeah, our tax/employment/visa system sucks, although European rumors of our impending demise are greatly exaggerated. If you're not from the USA it is understandable that you may not be aware of the nightmare that is our state legislation. Our states are like grumpy siblings in the big dysfunctional family we call our nation. They each have their own method of handling taxation and employment and each have their own irrational set of processes. As a nation we could certainly improve the way we handle such matters.
A lot of this could have been solved by (pick a few):
1. forming a 1099 relationship with your devs if they weren't working full time.
2.Using a Personal Employment Organization.
3. Doing your research before blindly incorporating in Texas. We could debate for ages the merits of the state and federal system, but if you were going down this whole road of opening a company in another country and hiring there, then it would have been useful to talk to a tax lawyer and an accountant who are familiar with the issues involved.
TLDR;Europeans whining about things they didn't research, again.
if you did then please name them so I know not to use them. Hiring employees in other states should be bread and butter for any tax accountant working with businesses.
I think the frustration with the various state differences is less interesting, to be honest. That's part of what makes the US great IMO - states have to compete with each other as people and businesses can vote with their feet.
The difficulty you encountered during what I would have thought should be a routine L-1 is most concerning & perplexing. I really never understand this point - more than a million new green cards were issued in 2012 [1] but you can't even easily get a temporary work visa.
To make matters worse every year 50K new green cards are issued to completely random people, I mean it's a lottery after all [2]. Why does the US want to hand out residency en masse and then stop people who can create jobs and grow the economy? As an outsider looking in I would think you're getting the worst of both outcomes.
I don't believe there is a good answer. Regrettably decision making has become so paralyzed in the US Congress and Senate and the whole machine only exists to serve itself.
"In Europe, you can live in whichever country you like. Most countries here seem happy to receive taxes."
I think the analogy is the same for states in the US - yo can live in any of the states and they'd be happy to collect your taxes. When your business has a substantial business presence in a particular state, it expects you to start reporting there.
States in the USA are like countries in the EU, except they all have the same language and restaurant chains.
> We sent endless amounts of documents, translated documents, notarized documents and copies of this and that. ... a detailed list of all transactions from our Danish bank accounts for the past 3 years. ... our lease agreement for the office. ... pictures of the office from the outside. in Denmark and the USA. ... pictures of the inside – and we needed to make sure that the pictures had employees in them. We had to get the main lease agreement from our lessor to prove that they could actually sublease to us.
> ... We needed to explain, why we needed the space. We needed to explain, why we didn’t need more. Then why we didn’t need less. Then we had to send copies of all Nitai’s diplomas. Then we had to explain, why nobody else could run the operation in the USA for us.
I've read that we do this shit to make sure that people don't come here and take advantage of the business and benefit paradise that we've created.
I have this picture of the US as a 1970s asshole dressed in a leisure suit, wide collars and bell bottoms and a vest, who think's he's God's gift to women, where actually everyone is laughing at him for the clown that he his. And he rarely gets laid, despite bragging to the contrary.
Here in the EU the EU has a reputation for being extremely bureaucratic and hard to fathom. As the writer points out, you ain't seen nothing. Just imagine 28 members plus privileged partners agreeing on regulations for international trade through bilateral agreements.
And probably every policy that is less bureaucratic is either quite small or has bigger problems with corruption.
Solely from the taxation perspective, my home country now looks surprisingly friendly for small IT businesses.
We have a so called Simplified Taxation System for small businesses (not just IT.) Basically, as a company we can choose to pay either 6% of annual revenue, or the bigger of 15% of profit and 1% of revenue. That's it, no VAT or anything.
As far as wage taxes go, there is a 20% Unified Social Tax charged on the wage amount before income tax. Moreover, there is an annual cap on that tax, which a senior developer in a big city is likely to hit as early as mid-year. Otherwise, small IT businesses can qualify to lower that tax to 14%. All that's left after that is the income tax - 13% flat.
Which country you would ask? Russia. That's why I wrote "Solely from the taxation perspective" in the opening statement...
> All of a sudden, we were forced to figure out, how much we actually sold in each of those states, where we hired people
Not to be offensive, but differences in state rules should have been expected, given the name of the country. How hard do you think it would be to get a random sample of 50 people to decide on a movie? Now swap people with territories and movie with governance.
This blog post is just ranting and whinging that some paperwork had to be done when starting a business on foreign soil.
I worry about the quality of Razuna as a product if attention to filling out a form is a huge ask.
After having done business in many other countries you begin to realise that certain countries have a love affair with needless bureaucracy; the US and it's fragmented federation being one of them. Take Australia for example; even though it is a federation of states (and territories) like the US it has one uniform goods and sales tax that is consistent across the country. In fact states regularly come together to share best practice between legislation and administration in order to increase efficiencies within the country. Even road laws (which are a state matter in Australia) have been deliberately homogenised between states. Even countries like the UK with it's constituent nations and territories work hard at having a uniform and efficient system for businesses to do what they need to do.
Saying "Just deal with it" is a cop out that will end up consigning your country to a worsening economic future. Tourists are already turned off from coming to the US because of the TSA issues. Having a "Just deal with it" attitude will also drive away business. This will lead to a worsening trade imbalance and the joys that come forthwith.
I agree the US has this bureaucracy / uniquness fetish among states.
But also, consider that Australia with 22M people compares with New York State, and is e.g. only 60% of the population of California. And inside a state, taxation is much more uniform.
(New York State is a good example if YOUR point, as New York City, Yonkers and a couple other cities have additional weird taxes you have to be aware of)
>Even countries like the UK with it's constituent nations and territories work hard at having a uniform and efficient system for businesses to do what they need to do.
Population UK: 63mm
Population USA 310mm
and support your claim that the territories work hard at having an efficient system for businesses.
> Having a "Just deal with it" attitude will also drive away business.
The paperwork really isn't hard. What makes you think that filling out some tax forms is keeping people from opening up shop in America?
Yes, it is. Many of my friends are business owners, most of them have some international business. I've been in touch with a variety of tax professionals in different countries through the years.
In the last 10 years or so, I've seen more than one business or partnership outside the US state in its charter that "shareholder may not be a US tax payer, and may not sell his shares to one, and will sell his shares to someone who is not if he becomes one", because of how complicated it makes things.
If you think US paperwork is sane or is not hard, it is probably because you did not have enough exposure to it, or alternatively, not had exposure to a saner system.
Objectively: US Federal Tax code is >71,000 pages (as of 2009 when I checked - probably longer now). And it applies to every american. NYS tax code is some 15,000 more pages; if you are doing significant business in NYS, that's about 10 times as many details to be aware of than in any other country that I'm aware of.
Filling out "a form" is not the issue outlined. Filling in "hundred of forms', taking up to 6 months and not being able to pay employees is.
Furthermore, Razuna is successful. All we wanted is to continue on US soil and expanding by hiring US people and thus paying US taxes = bringing money to the US.
That's what the blog post is all about. It has been written to show what it takes to incorporate for a European company.
If I may, it sounds like the hurdles encountered were:
- Paperwork and fees/taxes in each state an employee works in.
- Securing a work visa to enter and work in the US.
But, it sounds like, if we were to swap places and Nitai lived in the US, trying to start a business in Europe, he'd be faced with
- Paperwork and fees/taxes paid to each country his employees worked.
- Securing a work visa to enter and work in the EU.
Depending on the country American Nitai wanted to live/work in, the visa may be easier/harder than the US visa, I'd imagine. But I'm not sure that the kinds of difficulties would be much different.
You're putting up a lot of strawmen here.
Example: "He will pay his taxes in Denmark, Germany, Switzerland or wherever he freely chooses to live. In Europe, you can live in whichever country you like. Most countries here seem happy to receive taxes."
In the US, you can freely live in whichever state you want. It's rhetorically dishonest to compare the United States to a single country in the EU.
--
I'm sorry that your experience was a poor one. Indeed, US laws are different, and if you went into the experience expecting it not to be different, that would certainly have been a shock. I make no claim our system is better than Denmark's (you shouldn't imply all of the EU is the same as Denmark, by the way). But it's a disingenuous platform to decry the US because you received inadequate counsel on setting up a US business or failed in your due diligence...
I'm sure, however, the pro-European camp of your readership will feel quite satisfied with the tone and subject matter of your post.
This is NOT about PRO-Europe or PRO-USA. It is about how difficult the current government makes it to come to the US, build business and live there (as a European).
I personally know one CEO who runs a 80 Mil./year company in the USA, has 250 employees (3/4 are US citizens) but only received a green card or allowance to stay longer then one year in the USA 10 years into the business.
That said, you can't compare the USA with the European immigration laws. As an example, there are many Americans living in Berlin. The way you can live in Berlin is by flying to Berlin and show up at the immigration within a week and tell them that you want to move here, pay taxes and work. It is even easier if you already have an employment.
Additionally, there is something like a "Language" & "Artist" visa in Germany. Under these visa's you can simply stay and live here. You can even build businesses and start employing people.
That's Germany. Want to live in Denmark? Same there. Want to open a business and live in Switzerland. Go register yourself and work. Right, you cannot vote and don't have a nice "credit" but at least you are given the chance to build something.
Now, if there would be a startup-visa in the USA, I'm sure there would be many willing to move and try to build a business in the USA. But as it is now, you can't. I'm not taking way jobs from any US citizen, quite the contrary, we are hiring people and try to contribute to the US system.
Sorry, but your assertion that an American can simply come to Europe and work is false. In Germany, like in the UK, you most definitely CANNOT just come over and declare your intention to work. "If you are coming to work in general employment (that is, a job that does not require you to be highly skilled or highly educated), you will need to apply for a residence permit for the purpose of general employment, and you will only be eligible if the position cannot be filled by a worker from the EU/EEA or Switzerland." (from http://www.expatica.com/de/essentials_moving_to/essentials/g...). It's the same in the UK.
Germany _does_ have the "Blue Card", which is similar (at least at the very highest level) to the now discontinued Highly Skilled Migrant Worker / Tier 1 visa in the UK. The Blue Card allows you to work in Germany as long as you have a college degree and make above a certain salary (usually above €45000).
Both of those scenarios are much more involved than the way you described, it however.
Again, that's simply not true. A US employee trying to work in the EU will have just as difficult of a time as vice versa. Please look at the examples I and others have posted.
I'll echo mattlutze and say that the EB visas are a great track to come here in the US.
Also, I'm a foreigner with a non-immigrant visa, but that didn't stop me from incorporating and I know that if I hire someone or did business in another state I'll have to register or incorporate in that state (I got that by my own research, if that wasn't given to you then you received bad counsel).
Not anyone can just come to Europe and just live there, In the countries you mentioned, I'll need a job offer before I can even start the process to get a work visa (I can't even visit Europe without a Schengen visa).
> I can't even visit Europe without a Schengen visa
Where are you from? US citizens can freely come to Europe without the need for any Visa. You can even freely travel within the Schengen area without showing your passport once.
Not a US citizen (yet) - I'm a long way from getting it, considering that I'm just in the process of getting a green card; But to answer your question, I'm from the Philippines..
You cannot work on a Language visa in Germany[0], and artists in Berlin are special as the country wants to promote it as an art capital of Europe[1]. In almost every case, a non-EU/Schengen citizen needs to show ability to support him/herself when moving to Germany; that person must already have a job offer, which must pay at least 37(STEM) or 47,500 (others) EUR[0].
Non-EU folks in Germany as well, for example, don't get the equivalent of a "green card" out the gate either. Looks like it's 5 years in Germany, which happens to be the same for the United States.
As a manager/executive with your company, I'm surprised there weren't EB-1 Visas available, which is exactly the tool meant to support the case you were looking at. Or EB-5 visas, because interestingly, there actually is a Visa (and Green Card track) for entrepreneurs in the US [2][3].
US immigration policies are indeed crazy sometimes. Your friend probably moved to the US around/not long after 2001, I'll bet? Everything ground to a half around then as DHS was getting set up.
But if you're listing all of these failings and I'm finding the opposite to be true with 20 minutes of Googling at a time, I'm suspect of the quality of support you got from your lawyers. Again, I feel a great deal of empathy for what sounds like you guys getting screwed by poor representation. I've had many friends enter the US to work and start businesses with little undue stress.
Thank you for your comment. As a fact I know 10+ US citizens that have had no problem coming to Germany and live and work. All self employed and sufficient to provide for themselves for some time.
It might have changed, but the last time I've checked it was way easier then getting any Visa in the USA.
Speaking off, yes, we tried to get a B* visa but the 67000 visa they issue per year was filled within 3 days. One can apply again in June/July (not exactly sure).
As a fact I know 10+ European citizens that have had no problem coming to the US to live and work... you're a techie, we both know anecdotes are not data.
No one challenges that US visas are difficult at times to get. But if it was such an issue, I've gotta ask -- how is your software company's offering and positioning so unique that only you could manage operations from the US?
Also, to note, B1/B2 visas are for "temporary" visits for work or pleasure. There were multiple EB-* visas for permanent relocation. Even so, B1 visas are granted by the millions and are valid for Europeans for 10 years...
It's not just ranting about some paperwork. It's pointing out that the paperwork is far worse than in the EU (which is far less unified than the US, but at least the labour market is pretty transparent), and actively discourages companies from incorporating in the US. The US is hurting its own bottomline here.
Now countries shouldn't make it too attractive for companies either; then you get a race to the bottom where companies get tax exemptions just for creating a handful of extra jobs. And this absolutely happens; I believe there are some European countries where taxes for foreign companies are ridiculously low. So the EU isn't doing everything right either. But shouldn't there be some sensible middle ground where it's easy to open up shop in a different country, without having to jump through insane hoops, while paying a normal, sane amount of tax?
As a nation and a culture, the USA has decided that business and business concerns aren't as important as they once were. I'd go so far as to say that there has been a great deal of hostility toward businesses lately. Financial success in the mainstream media has become something to criticize and suspect as "ill gotten".
There's a reason why the USA continues to drop in business freedom rankings. It's not just this one guy's whining.
As an American, I don't want to run away from this criticism. I think we should own it and make decisions about what to do about it based upon acceptance of it, not rationalization and denial.
It was softening it so the reader would know that I'm not trying to be obtuse. Part of language is communicating meaning, not just trying to get a string of words together.
So if I'm neither american or european. Is it actually easier for me to move to europe, get a visa there and start an european company than an american one?
Probably easier in Europe, is my guess. Few first-world countries are worse than the US. Note that the EU is not a uniform place, so you need to do a bit of research on which country you want. As noted previously, the Scandinavian countries are good places to start. They all speak English as well, knowledge of the relevant Scandinavian language is not required for basically anything.
I would assume the same is true for Switzerland and The Netherlands. Think twice before going for Germany (a popular choice for many good reasons not including bureaucracy) and don't even consider the southern countries.
So seeing all these problems, how are YC companies solving them or better yet how do they handle the whole process to avoid this? PG said they are incorporating in Delaware but their offices most probably are in CA. Shouldn't this be a problem being in different states? Or it applies only to foreign related companies? Thanks.
It's pretty common to incorporate in Delaware even if you have little or no physical nexus there, for a variety of reasons: http://www.newsworks.org/index.php/local/brandywine-to-broad.... This probably applies more to large companies though. I imagine there's some overhead relative to incorporating locally if you're a small business.
What constitutes a physical nexus can be a bit hard to define at the margins. (See e.g. Amazon's fights with a number of states.) But it usually means you're selling something there as opposed to just having employees. A physical nexus usually just relates to collecting sales taxes though. I've never heard of having to incorporate in additional states although maybe that's sometimes the case.
(I know that the small NH company I used to work for certainly didn't incorporate in additional states when they hired non-NH residents. They DID have to handle state withholding on payroll but that sort of thing is handled pretty transparently by payroll processing companies like ADP.)
Riiiight. Because you can do the same in the European Union and get less paperwork, in one language? How do you comply with Spanish and Italian employment requirements, by registering and filing paperwork with Danish employment authorities, in Danish? That's hogwash.
Denmark's defense budget is really small 3.2 % of government spending vs 18.2% for the United States. Therefore, Denmark has much more cash to spend and is a richer nation relying on US for defense.
The US gets considerable economic and political advantages from that defence outlay. It's quite normal to park a fleet outside someone's capital (in international waters) as a show of political force. It's still a ridiculously high percentage, but the concept of the World Cop needs to be put to rest. It's more like World Vigilante Strongman.
> It's indubitable that the nordic countries are well-run places.
Note that the online stuff isn't limited to nordic countries, even in France (a country which nobody would say is well-run) you've been able (and encouraged) to fill taxes online for a decade.
https://www.braintreepayments.com is just as easy as Stripe to use, and can be used in Denmark and other European countries right now. Stripe is coming to Denmark soon and is already in several other European countries. I don't see the problem?
Its not incorporation itself that attracts patent trolls. They go after the scent of money. Like, after you announce a round of funding, a troll will suddenly realize you are 'infringing' on their patents.
This article is funny. Makes it sound like the USA is all complex, in the stone age, etc. I lost it at the green card part/to work in the USA was hilarious as the USA grants so many of those it isn't even funny. That's the whole point of people in this country complaining that foreigners take our jobs.
America is big and as different as Europe. Even though most Americans speak English, it's not a uniform country as us Europeans think. But don't confuse the people with the state. They're not the same. The Americans I met were generally quite nice and willing to help an (obvious) tourist out. Bureaucrats? They thrive in chaos.
How? I just have a hard time imagining how a place with dozens of languages and cultures (I think that cultures with very different languages are likely to be very different from each other) and all of that can be less varied than a place like the US.
Exactly. The difference between NYC and a rural Mississippian town may seem big, but it's nothing compared to the difference between, say, Copenhagen and a rural Spanish town.
No, it's not. America was formed by European immigrants remember? Each sought out their own place. The Bayou, NY City, Texas, North Dakota, San Fransico… All with their own culture. This struck me as I drove from New Orleans through Alabama. I couldn't even understand the Alabama-english..
They still speak English, though, just like the vast majority of Americans. Europe has a huge number of different languages, and especially in Southern Europe it's not uncommon for even young people to not speak any English at all - meaning there's not even a common language that all Europeans speak.
I'm certainly not saying that all of US is the same. I'm saying that the differences are smaller than the differences you see in Europe. And I'm saying that as someone who've lived in the US and Europe and visited a great number of European countries.
True. I was VERY surprised by the quality of mobile internet (and mobile phone connection in general) when I was in San Francisco and around Silicon Valley). Here in Poland I've got 4g connection practically everywhere in bigger cities (15-20mbits download 3-6mbits upload, ping ~50-70ms tested several times) and in SF I was sometimes struggling to get some decent signal...
Care to fill us in with details to go along with your snark? Which part of 3rd world America did you visit? Anecdotally I enjoy decently fast broadband and mobile data coverage.
To be fair, you're talking about a distant 4th place provider that most in the US understand will not work great outside of major population areas. I would understand if you had issues with one of the big two (VZ/ATT). Also to be fair, Sweden is about the size of California.
Had you seen my body language when I posted the comment, you might not have decided that it was made out of any sense of smugness.
NOTE:
Since my comments in this thread were downvoted, implying that they were not taken in the spirit they were intended, my contribution to this thread should be considered obsolete. I'll leave my original comments in place to serve as a reminder to myself to be careful about what I say around here in future.
No need to play the martyr. It's a tangential issue. If you brought it up in conversation people would say something like "ha ha yeah, you know what I mean" and continue discussing the original topic.
There it quickly dissipates because voice is quickly damped but here it is just noise that takes time to be damped out.
I absolutely am not playing the martyr. I raised an issue that I felt was of importance. The fact that others disagree is something I'm willing to live with, but it by no means sways me.
Understood as what? I'm presuming you're implying that "3rd world country" == "country in the developing world", as it's often used. Although you might consider it to be fully acceptable, there are many that disagree that that equality be taken as a norm, including the head of the World Bank [1].
Fact of the matter is that use of the "3rd world" as a descriptor is contentious at the very least and I opted to draw attention to this fact.
I think this comment on the article sums it up nicely:
"I have this feeling that Michael Booth was simply trying to respond to the highly selective, often fallacious Nordic image currently being peddled in the UK (with the Guardian as the worst offender) with an article employing the same kind of distortions. A rhetorical device, if you like."
For smaller companies, the bureaucratic cost of international tax systems is insane. For US citizens abroad ... I will just say that my biggest area of growth is helping people shed their US citizenship and tax paperwork/penalties is the number 1 reason.
Anyway. If you are in a position like The One and Only Netai -- or don't want to be -- AMA.