Last update: September 16, 2017
Dateline: Tbilisi, Georgia
I had an interesting conversation with the president of the newly formed country of Liberland, Vit Jedlicka.
In our podcast, Vit explained how people are already setting up companies in the country. While the interview was fascinating, I did express my concern about one thing: Who’s going to recognize his country and the companies incorporated there?
Technically, I could start the country of Andrewstan and have people set up companies in it, but that won’t do me or anyone else much good if no one recognizes either one of them. If you’re a US citizen and you were to use your Andrewstan company to avoid tax, the US government would simply say that it doesn’t recognize my country as a legitimate government, and then ask you to cough up your taxes.
While I admire the principles behind what Vit Jedlicka is doing with Liberland, ultimately, I see the world going in a different direction. If you want to have validity and conduct your business with unquestionable legality, paying a little tax will be helpful and being in a credible jurisdiction will be more and more important.
That’s why, for most types of companies — and particularly internet companies — I don’t often advise going to the Seychelles, for instance.
As part of our new series on Georgia, we recently discussed the ins and outs of setting up an offshore company in Tbilisi, Georgia. From that article, one reader had a more specific question that I would like to address here. They asked:
”So, for someone that has an internet business, would you recommend Georgia as the primary location for setting up a corporation? Or would you still recommend someone going for a more established locale such as Hong Kong or Singapore? … If you do recommend such a move, can [Georgia] handle volume and have the ability or resources for online merchant processing?”
This is a smart question. And while the title of this post states that this article is about “the best country”, in reality, there may not be just one country that can claim the number one spot. In fact, finding “the best country” for you and your business has a lot to do with the kind of questions this reader asked.
I have talked about deciding on when to incorporate your online business, but today I’d like to present you with the formula for finding the best country for YOUR online company incorporation. It includes taking into account both the benefits and challenges of setting up shop in a smaller jurisdiction and several questions you have to ask about your business, yourself and the countries you are considering.
( If you are running an Amazon FBA or Shopify business, I have published an article this year about best places for e-commerce business incorporation to reduce taxes. You may read it here.)
The benefits of setting up in smaller jurisdictions
One of the greatest benefits to setting up in a place like Georgia is that it’s a real country. It’s not just an island nation that makes a living off offshore bank accounts and shell companies. Rather, Georgia has a more diverse economy and actually charges taxes.
Incorporating in a place like this isn’t the move of a shady tax dodger looking for no requirements and the power to do whatever they please. And that’s not what your business needs, anyway.
A few years ago, the island of Curacao, located off the coast of Venezuela, caught on to this idea and started charging a 2% tax. The government of Curacao realized that charging zero tax would attract the wrong crowd, so they threw in a small tax just to avoid adverse selection.
If you’re a real business owner, you’re not going to worry about a 2% tax. Tax dodgers might. So one of the benefits of setting up in a smaller or lesser-known jurisdiction is that there’s at least some tax, making your business more legitimate.
Another benefit is that these countries have a modern approach to international business solutions that often makes doing business very easy.
For instance, I recently helped some people set up a bank account here in the Caucasus region. They said that, once they knew where to go, it was the fastest bank account opening they’ve ever done. That ease of doing business is true of the banks in a number of the countries in Eastern Europe.
One final benefit of the lesser-known jurisdictions is that there are more services available to you. For example, it’s nearly impossible to get a merchant account in Hong Kong these days. And it’s getting more and more difficult to open a bank account in general. Hong Kong has gotten so big that it doesn’t need your money anymore; smaller jurisdictions still do.
The challenges with lesser-known jurisdictions
Georgia and countries like it are recognized as legitimate jurisdictions, but there are still challenges to running your online company from smaller or lesser-known jurisdictions.
Not every country will have the same challenges, so it is important to look at each limitation in regards to the country you are taking into consideration, as well as whether or not said limitation will affect you business.
With that in mind, these are the most important questions you should ask before determining the best country in which to incorporate your online business:
1. Will it be harder to get a bank account for your business based on the reputation of the country where it is incorporated?
This question has nothing to do with whether or not the country where you might incorporate your business is credible, but rather whether or not other places will be familiar with it.
For example, a Hong Kong company can easily get a bank account in another country because everybody knows and trusts Hong Kong. It has a good reputation.
On the other hand, if you were to incorporate in a place like Labuan, most people won’t know much about it, or even where it is on a map. Because of that, though Labuan is a legitimate jurisdiction, you’re going to have a harder time going to your bank somewhere else and asking for an account for your Labuan company.
2. Will your clients have a problem with where you’re incorporated?
This question is basically an extension of the first but now, instead of applying it to banks, apply it your customers and potential clients. Will they think it’s suspicious that your company is registered in The Gambia? Maybe that will resonate with them. Maybe it won’t.
3. Are there enough suppliers in the region for your company?
In more established places like Hong Kong and Singapore, there are millions of qualified people you can contract for any need your business may have. It’s ridiculous how easy it is to find people to do your auditing and accounting in Hong Kong. In the country of your choice will it be harder? Does that matter for your business?
4. What services are available?
Along the same lines, not only do you have to ask if there are enough suppliers, but you have to consider whether or not you qualify for the services offered. As mentioned above, the established places like Hong Kong are so big that they’ll often treat you like garbage. People are having their bank accounts closed there because they just don’t need your business.
5. What specific talent does your business need and is it available?
If your business has to be based in one particular place and your company requires that you hire the top talent, you might have an easier time hiring talent in Singapore.
Sure, Georgia’s a great place, workers are alright and you could probably recruit people from Eastern Europe — especially if you are a tech company (and you can get them work permits.) — but if you’re looking for the best people and the most stable jurisdiction, then you should choose Singapore.
6. Do you need easy work permits?
This applies both to you and anyone you hire. Do you personally want to live in the country where you will incorporate your business? If so, if you go to Singapore and you need a work permit, you’re going to have to pay yourself a huge salary …and it’s taxable.
In one way or another, you will pay for the opportunity to incorporate. The question is which form of payment suits you and your business better?
7. Can they handle the volume?
To answer the reader’s question, first we have to know what kind of volume we are talking about. I have a lawyer here in Georgia and I asked him the other day how much money he would keep in a bank account in this region of the world if he were to win the Powerball. His answer? $10 million USD.
And I agree. With the right bank, you could feel comfortable keeping $10 million in Georgia or any of the countries in the surrounding region. Obviously, you won’t feel that comfortable with some banks, so it is important to find the right bank for that amount.
That said, if you’re running a 100 million dollar business, this region may not be for you. Yet again, if you are running a corporation of that magnitude, you could have some subsidiaries and move that money around.
So can Georgia handle the volume? It depends. But it’s a good question to ask of any country where you are considering registering your company.
Ultimately, you have to make the decision. Is paying a little bit of tax worth it for you to get faster services (like faster, more straightforward banking)? Is dealing with a smaller country worth it if it’s more nimble, even though it’s less recognized? Will your customers have a problem with Hong Kong vs. Georgia?
The reality is that it’s a bit of a balancing act. There’s always a trade-off. Choosing the best jurisdiction for your online company really boils down to knowing what you are trying to get out of it. However, I increasingly think that the up and coming places for offshore business formation are these smaller jurisdictions that are low-tax over no tax.
The best countries for online company incorporation
If you’re looking for a recommendation, I will point to a few countries that I find favorable for incorporating your online business.
To be honest, Georgia is one of my favorite countries. It is very pro-business and very pro-labor; there is no social security tax on wages here, so whatever the wage is, the wage is. In that regard, Georgia is much better than other low tax Eastern European countries like Romania, Serbia, Albania, Montenegro, etc.
If you’re comparing Georgia to Singapore, where the tax rate is basically the same, I prefer Georgia. Singapore has different tax brackets, but once you get past all the exemptions, the tax rate is ultimately 17%. In Georgia, it’s 15%. Plus, Georgia is much easier for doing business because you can hire more people and it’s a lot cheaper to operate. It’s also easier to live there and the government is more immigration and visitor friendly.
However, I hesitate to say that Georgia is the best place to incorporate you internet business. I certainly think that having an office here and hiring people to do back office work would be good. But is it the best place for an internet business? Maybe not. There are probably better places. For example, if you’re looking to hire brilliant financial talent, they’re probably not going to come out of Georgia.
Though Hong Kong is losing its appeal for many businesses, it could still be a good place for some people. It is especially good for certain types of online businesses like e-commerce.
BUT, a Hong Kong company has to be managed very well. If you just follow the typical digital nomad blog advice that tells you that you should have a Hong Kong company with an HSBC bank account, you’re going to wind up upset.
You have to take special care to do things right to be successful in Hong Kong, but it may be worth it.
As a fly-by review, Hong Kong is good; Eastern Europe (including Georgia )is good; Panama is less attractive these days, Singapore has just become too expensive.
As with anything, personalized recommendations and solutions trump general recommendations handed out on a blog — even mine. So, before you convince yourself that one country holds all the answers to your online company incorporation demands, review these questions and analyze what your business needs most. Then apply for a Strategy Call and we can work out your personalized blueprint.
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