Dateline: Le Morne, Mauritius
My parents never gave me an inheritance. They weren’t in the habit of handing out money simply because they had it. Instead, they gave me two invaluable principles for both life and business that have helped me make more money than they ever could have given me on their own:
- Be cautious of popular advice; and
- Be humble enough to recognize and accept what you don’t know and pay to get the proper, quality advice that you need.
Unfortunately, the people who have signed up for Stripe Atlas were probably never taught these lessons. When Stripe Atlas came out in early 2016, it was the cool kid on the block.
Everyone wanted to try it out. N26
It was the newest shiny object on the never-ending list of popular offshore solutions that are habitually paraded about as the panacea for your every need, joining the ranks of programs like Estonian e-residency and e-companies, as well as banking with FinTechs like Revolut and N26.
As Stripe Atlas rolled out its services, I could already hear the folks waiting in line to sign up, eagerly singing along with Echosmith:
I wish that I could be like the cool kids
‘Cause all the cool kids, they seem to fit in
I wish that I could be like the cool kids
Like the cool kids
Having been raised by a financially literate father who taught me the power of humility and paying for good advice, it has taken me a long time to realize just how rare his advice truly was and how few people follow it.
As a result, I was never very popular. I was not one of the cool kids.
I have not followed the trends. What have I done instead? I’ve run five profitable companies and built a pretty substantial seven-figure net worth.
So, here’s my advice to you: If you have been considering Stripe Atlas for your business, reconsider.
In my years of personally helping hundreds of people with their offshore businesses, taxes, and investments (and wading through applications from over 100,000 folks seeking to work with me), I have found that there are certain types of people who just can’t be helped.
The ones who think they’re smarter (i.e., cooler) than everyone else will always suffer because they “don’t need your help.”
They’re the cool kids with their trendy blanket solutions… like Stripe Atlas.
Like all things that the cool kids jump into, people have been throwing caution to the wind when it comes to Stripe Atlas. “This is what we should do!” they say. But they don’t know why. And they don’t factor in the consequences of such a decision. That’s when I start singing the words of Echosmith’s song:
He sees them talking with a big smile
But they haven’t got a clue
Yeah, they’re living the good life
Can’t see what he is going through
They’re driving fast cars
But they don’t know where they’re going
In the fast lane, living life without knowing
I don’t want to be like the cool kids. I want to know where I’m going. I imagine you do too. That’s why I’ve written this article to shed some light on why Stripe Atlas is a bad idea for online businesses.
What is Stripe Atlas?
In typical Silicon Valley fashion, Stripe Atlas is nothing new. Instead, the folks in Silicon Valley have taken something that everyone else has been doing for years and they’ve hyped it up as something revolutionary.
Apple is the perfect example of this practice. Apple did not invent the tablet; Apple did not invent streaming music to your phone. Even Steve Jobs admitted in the documentary “Triumph of the Nerds” that Apple “has always been shameless about stealing great ideas.” Apple has never really invented anything; they have simply improved what already exists.
Stripe Atlas has done the same thing for merchant accounts and remote company formation.
It’s nothing revolutionary. They have simply made it possible for anyone to set up a Delaware C Corporation and get a bank account and merchant account. Every Tom, Dick and Harry has a service to do that for mere hundreds of dollars!
What makes Stripe Atlas different is that they have made it possible for anyone to do this remotely.
Here at Nomad Capitalist, we help people do this all the time. We help US citizens remotely set up US bank accounts for personal and business use. We can even help nonresident aliens do the same. It is a bit more involved, but it is possible. And we help people set up merchant accounts around the world, too.
We do this every day.
So, no, Stripe Atlas is not a revolutionary new service. They have taken their payment processing capabilities, tagged on a bank account at Silicon Valley Bank where you don’t have to show up to get the account, and then thrown in a Delaware C Corporation to round out the deal.
In their original press release announcing their services on February 24, 2016, Stripe claimed that Atlas would grant entrepreneurs worldwide access to all the essential services they needed to start a global internet business in just a few clicks.
The timeline to set up a US business entity and gain access to the robust banking infrastructure of the United States would be reduced from months to days, and all for a fraction of the cost.
They would even offer up other basic services, including educational material and tax advice from PwC, legal guidance from Orrick, Herrington & Sutcliffe, and tools from Amazon Web Services.
And to top it all off, incorporating in Delaware would allow companies to issue stock to employees and raise capital from global investors.
This all sounds amazing, which is why so many people are jumping on the Stripe Atlas bandwagon. And, if truth be told, it does seem to solve some legitimate problems for people outside of the United States.
Opening a merchant account for an offshore company can be hard. Online or offline, if you run a business that requires you to process your customers’ credit cards, you need a merchant account. They help with paying taxes and can streamline much of your business operations.
But merchant accounts for offshore companies are difficult to come by.
The United States, on the other hand, is the easiest place on earth to open a merchant account. Before becoming an international entrepreneur and investor, I started several businesses in the US and, like most people, I got spoiled with merchant accounts.
When I started an in-person home services business, we set up Square, put it on the employees’ phones, and they collected money. It was easy because amounts were low, swiping was in-person and low risk, and we were in the US and paying taxes.
While it has its shortcomings, the US does make it easy to get a merchant account and set up a company. It also makes it easy to get an account with a bank, or a company like Stripe, Square, etc.
But it has never been very easy for non-US persons to do either, whether they wanted a merchant account in the US or somewhere else.
Offshore Merchant Account Alternatives
For a long time, the easiest merchant account option for approval was PayPal. However, PayPal is different offshore; it’s more of a pain. Plus, fees are a bit higher (although I usually don’t care about that since I’m saving tax).
Hong Kong PayPal, for example, charges high fees to transfer HKD to USD and vice versa. It also functions like a watered-down version of a wire transfer in that funding to your bank isn’t as immediate as in the US.
As my friend Corey Coates told me years ago, PayPal in countries like Costa Rica severely limits your monthly withdrawals, sometimes to as little as $1K a month.
Unfortunately, you don’t have many other banking options. One option is to pursue high-risk merchant accounts that require a great deal of paperwork and higher fees. Your other option is to incorporate in a “first world” jurisdiction, though it’s likely you will be subject to higher taxes.
That is why, when Stripe came along, it seemed to be the great equalizer.
When Stripe first came out, I wrote about how I was not a huge fan but that it might work alright for you if you sold e-books or maybe if you did consulting.
Once Stripe is supported in your country, you can accept payments from customers anywhere in the world. As of this writing, Stripe is available in 34 countries, including international business centers like Hong Kong and Singapore and most English speaking countries like Australia, Canada, New Zealand, Ireland, the UK and the United States.
Atlas is also available in the majority of European countries, including Austria, Belgium, Denmark, Estonia, Finland, France, Germany, Greece, Italy, Latvia, Lithuania, Luxembourg, Netherlands, Norway, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, and Switzerland.
Japan and Malaysia are also included on the list. Additionally, you can request an invite if you are incorporated in Brazil, India, or Mexico.
The bad news is that most of the countries on this list have rather high taxes. If you have an office and an employee in Ireland, then you’ll only be taxed at 12.5%; otherwise it’s 25%. Beyond Ireland, the UK’s 20% tax is the lowest.
Overall, what Stripe has done with Stripe Atlas isn’t exactly revolutionary. Forming a Delaware corporation isn’t that hard to begin with if you are there physically, Stripe just makes it easier to do it remotely and brings everything under one roof.
This isn’t that big of a bonus seeing as I could do the accounting for my Delaware corporation in less than an hour each year. In my opinion, the real value proposition of Stripe Atlas is for non-US citizens who want to start US companies.
However, having a US company may be the worst thing a non-US citizen could do for their business. In some cases, it might be an OK thing to do, but let’s look at why most people will want to avoid setting up a US business and, subsequently, avoid Stripe Atlas’s services.
7 Reasons You Should Avoid Using Stripe Atlas
The overarching issue with setting up a US business and getting a Stripe Atlas account is that you are getting yourself into one of the most complicated tax systems in the world. Here are the main problems with Stripe Atlas, most of which stem from complications rooted in the US tax system:
1. You Must Pay US Corporate Taxes
The number one thing I see wrong with Stripe Atlas and forming a US business entity is that you must pay US corporate taxes. From a tax perspective, if you are setting up a C Corporation, you are setting up a company that is tax resident in the US no matter what it does.
Since Stripe Atlas came out, the Tax Cuts and Jobs Act (TCJA) of 2017 that was passed under the Trump administration lowered the corporate tax rate from 35% to 21%. While that was a huge cut, corporate taxes are still 21%.
Now, there are different ways you can finagle that rate, but let’s take a hypothetical situation to see how this would pan out for your business. Let’s play it relatively safe and assume you are a small entrepreneur who will not have a complicated tax return. You are incorporating income that runs through your US company at the tax rate of 21%.
If you are nonresident alien, you can take your dividends out of that company free of tax, but dividends can only be taken out after you pay corporate tax.
You must pay corporate tax. There’s no way around it.
And, if you live in a country that does not have a tax treaty with the US, you could face double taxation and a 30% withholding tax on all payments you send outside of the US unless you send it to a US person.
People tend to forget about the tax burdens when they get into this stuff. They just assume that there is no tax and that they can frolic through the US legal and banking world without having to pay for the privilege.
But this simply isn’t the case.
You will pay.
2. Filing and Reporting Burden:
Even if you find a way around paying the full 21% corporate tax, the other issue you must consider when you decide to enter the US tax system is the filing and reporting burden.
You may not think that this is a very big downside but go ask any US person or former US citizen who has renounced citizenship, like myself, and you will begin to understand the weight of this particular burden.
Imagine, I had one of the best passports in the world as a travel document and I gave it up. I had wanted to renounce for a long time for more reasons than taxes, but one of the nicest perks of no longer being a US citizen is that I don’t have to deal with the US tax system anymore, or at least I do on a very peripheral basis.
So, why would someone who is a nonresident voluntarily choose to be sucked into this system?
Usually, it is because they don’t understand what they’re getting into. They see the cool kids signing up for Stripe Atlas and see that the service might meet their merchant account needs, and then they lose 21% of their business profits to a country that they’ve never set foot in!
People don’t understand C corp vs LLC, they don’t understand the filing burdens, they don’t realize that they will have to determine their ETBUS status and file form 1120 for their corporation.
They have no idea that they will need to collect W-8 and W-8BENs for every person and company that they pay outside of the US and a different form for every person they pay within the US.
And they are blissfully unaware that the US applies staggering penalties for non-compliance with all these filing regulations.
3. Your Business Must be Stripe Friendly
Another important question to ask yourself before you mindlessly run after the Stripe Atlas bandwagon is, can your business be accepted?
Stripe Atlas does not accept all types of businesses. Your business must be Stripe friendly. My business is not. The minimum order around here is $10,000 and we provide services that are highly controversial.
I know, helping people reduce their tax bill is really controversial.
But can your business be accepted? Quite frankly, if you are just trying to set up a company to do some business, you probably qualify. But why would you want to go through a whole approval process just to get into such a complicated tax system?
I get why there is an approval process, we vet people who we work with because we only want to work with people we can really help and that we are a value to. I am not here to criticize that, but seeing that there is nothing revolutionary here, I don’t really see the point.
4. KYC for Silicon Valley Bank
There have been concerns in the past about the Know-Your-Customer (KYC) requirements for Silicon Valley Bank. In the US, an individual must physically appear before a banker in a branch office to set up many banking services, including accounts and international transfers.
Not only is this difficult to do with remote account opening, but many clients from emerging market countries who are attracted by what Stripe Atlas offers do not have access to the type of information US banks need in order to do a credit check.
While there is a chance that Stripe is in violation of Know-Your-Customer laws, Stripe does not seem to care, and no one has given them any issue over it since they’ve been in operation.
While this issue seems to be fine, everything we do here at Nomad Capitalist has to be clearly and 100% legal and it is is not clear whether Stripe Atlas is in compliance with KYC.
5. Litigation Risk
Most foreigners do not understand just how litigious people are in the United States. If you are in the US, you are basically screwed. Lawsuits are widespread and you can be sued for anything and everything.
Even if you are not a US citizen, you can be sued in the US court system if you own a US legal entity.
Getting sued is the fastest way to kill a startup and you are opening your business up to that risk the moment you sign up for Stripe Atlas.
This is especially true with a Delaware C Corporation because, unlike other business-friendly states that will protect the actors of a company (except when negligence and fraud are involved), Delaware does not protect the founders, officers, directors, and employees of a company from being sued by investors for any number of grievances.
6. Stripe’s Risky Advice
The challenge of Stripe is that their $500 service provides basic connection to “tax advisors”, but that price would never cover even an hour of personal time with the Big Four accounting firm they partnered with, PwC.
That means that it’s possible that entrepreneurs will set up companies that are poorly structured and may end up incurring US tax obligations.
I’m sure Stripe has taken some of this into account, but taxes aren’t something that you can give blanket advice on. Every business is different, and when thousands or even millions of dollars are on the line, the latest piece of software isn’t good enough for me.
This is especially true when you consider the bad advice Stripe is openly handing out on its website. At one point, they were even suggesting you could connect your Stripe account to your personal account if you wanted to. I am not a lawyer, but I have run enough businesses and have hired enough lawyers to know what piercing the corporate vail potentially looks like and this is it.
This is terrible advice.
I’m not ready to sign up for, or even recommend, a company that does not give proper advice at all times on all things legal, both in regards to taxes as well as how to structure your company and your various bank accounts.
When it comes to business and anything related to offshore, freedom is found in following the law 100% of the time. You need good advice and professional support and that is not something you are going to get for a $500 all-in-one deal you bought off the internet.
7. Transfer Pricing Rules
Transfer pricing is a complex tax law, even before you involve offshore business entities and banking accounts. It encompasses all methods for pricing transactions between and within companies under common control and ownership.
When you set up an account with Stripe Atlas and then use your Delaware C Corporation to send money to your company in the country of Georgia, for instance, you must be extremely careful with how you send that money.
You need a quality, certified accountant who fully understands both international business and transfer pricing who can create a set of transfer protocols that you will follow each and every time you trade “within arm’s length” or you can get yourself in a lot of trouble.
This is the kind of advice that you need to invest in.
Unfortunately, the kind of people who hop on the Stripe Atlas bandwagon are usually unaware of the fact that they need this level of intricate, expensive advice in order to successfully (and legally) do what they hope to do.
Most early-stage companies who want to protect their bottom line won’t want to spend that kind of money on such precautions. The best way to prevent expenses like this is to avoid the complicated situations that create them (like Stripe Atlas and the US tax system) in the first place.
Is Stripe Atlas Ever the Answer?
With all these downsides, you may be wondering why Stripe Atlas even exists. Does it benefit anyone? In reality, some tax advisers would say that you should set up a US LLC.
It all depends on who you are.
If you are a nonresident alien, that may be decent advice, but that advice does not apply to every nonresident alien.
I recently discussed my opinion that remote bank account opening is largely dead. So, if you are a nonresident alien, the biggest (and perhaps only) perk to Stripe Atlas is that you can open a US bank account without going there.
If you are a US citizen, you can remotely open a US bank account without much of a problem. For US citizens, US banks are not really the issue.
But if you are a nonresident alien, it becomes more difficult. Being able to open an account with Stripe Atlas means you don’t have to be stuck with an offshore bank in some flyspeck island.
But if you’re willing to get on a plane and travel to the US, you can set up any number of accounts without needing to incorporate your business in the US and incur all of the tax obligations we discussed above that come with owning a US business entity.
You don’t need Stripe Atlas to do that.
So, what is Stripe Atlas really offering you? Remote setup. And, for some folks, this will make their taxes better, but then they will have other obligations, including things like ETBUS, filing all necessary forms, and paying corporate taxes.
If you are a US citizen living in the US, you don’t need Stripe Atlas. You can just set up a local LLC or C Corporation in the state where you live and get a local bank account.
Stripe Atlas’s services are designed for nonresidents and, more specifically, nonresident aliens. US citizens are always tax residents, so even when they are nonresident, they will not face the same issues as nonresident aliens.
I lived overseas for years as a US citizen and I was still able to do things like set up merchant accounts. It is getting harder now because they want to do a site visit, but it is still possible to do remote setup with many different banks in the US as a citizen or permanent resident.
Stripe Atlas is for everyone else who thinks they need a US business and bank.
Now, obviously I am being overly simplistic here. This is the type of tax advice you get in a blog. But therein lies the point: you are getting yourself into one of the most complicated tax systems in the world and no matter how many blogs you read about this stuff, you’re never going to know how to set up your international business and banking structures on your own.
Only for Silicon Valley Startups
When you consider every business entity option available on a global level, it is obvious that a Delaware C Corporation combined with California banking – i.e., Stripe Atlas – is made for one type of company only: Silicon Valley startups.
California banking paired with a Delaware C Corporation is only an attractive offer for founders of startups who want to raise VC funding. Through Stripe Atlas, many foreign-based and non-US founders are being sold the dream of getting US funding.
But for many, it is just a pipe dream.
Promises of being able to transfer your shares to investors through an online platform may be fulfilled, but not before you lose all the tax advantages of being offshore.
The people who struggle the most to get results in the offshore area are those who are trying to raise money from investors.
Because they cannot resist the urge to physically be in the US, so they end up spending too much time there and screwing up their tax benefits and savings.
And they can’t resist taking on too many US investors and engaging in US trade or business.
They can’t contain themselves from getting swallowed up in the startup culture in the US. They are so addicted. It’s like their cocaine.
But, listen, I help those people. If that is you, I can help you get it sorted out. Whether you are a US citizen or not, we can help you keep more of that startup money.
But if you crave that startup money and aren’t willing to work to stave the addiction, then Stripe may be good for you. There is nothing revolutionary about it and most Silicon Valley startups aren’t going to get the funding they need, but if you’re set on the idea, Stripe Atlas if for you.
But even if that is you, you don’t need it. Sure, the price tag is a mere $500, but to me, the sweetness of low prices is forgotten long after the bitterness of bad service remains.
If I am starting a company that I plan to sell for $50 million, or $100 or $200 million or a billion dollars, am I setting that up for 500 bucks? No.
There Is More Than One Angle
The bottom line is this: if you are running any kind of normal business – whether it is a call center or an e-commerce store – Stripe Atlas’s services will likely not be helpful to you.
It’s the absolute wrong structure.
You do not want what I call a naked LLC. If you are a nonresident alien who only has a US LLC and you believe that there is no tax burden, you might be unpleasantly surprised when you discover that how you are running your business makes it so that you do need to pay taxes.
Stripe Atlas isn’t enough. You need a proper legal structure.
But on top of that, what are you going to do when you are sued? Where is your asset protection? Where can you move your money?
There is more than one angle to this beyond getting a US company. Just because something works for taxes does not meant that it works for litigation, or for asset protection, or for operational reasons.
The same goes for banking. If you are doing business globally, US banks may not be your best bet.
Again, Stripe Atlas is great for Silicon Valley startups and no one else. The good news for the rest of us is that there are better solutions.
Pay for Better Choices
The challenge I have with services like Stripe Atlas is that it encourages entrepreneurs to chase the latest “shiny object” being promoted in a flashy way.
In my opinion, entrepreneurs shouldn’t be saying, “What’s the coolest way to get a US company set up?” Rather, they should be taking a step back and asking, “What is the best jurisdiction for my company?”
The United States is not the only jurisdiction companies like Amazon will accept. For US citizens, a US structure can make sense when set up properly, but for non-US citizens, I often recommend other jurisdictions in Europe or Asia.
For most of the global entrepreneurs I’ve spoken to over the years, it’s possible for even the most rigorous of companies like Amazon to pay them in more friendly locales.
Far too many entrepreneurs hop on the “me too” bandwagon and adopt the same corporate strategies their friends do. Or, even worse, read far too many blog posts offering conflicting information before making a decision.
If you’re a location independent entrepreneur setting up a company — whether it’s in the US or offshore — you probably need some help deciding what kind of structure to create.
Assuming that Stripe picked the best place for your company is silly; they picked a place that would have lots of demand.
Stripe Atlas is far less revolutionary for corporate setups than Stripe itself is for merchant accounts. Stripe made merchant processing stupidly easy, not to mention relatively cheap, for anyone starting up a business of any size.
Personally, I don’t like Stripe’s increasing bureaucracy, but I do respect their innovation. When it comes to setting up a company for a location independent business, however, you need professional advice, not the latest splashy software offering for incorporation.
You have better options.
But, as I learned from my parents, the kind of advice you need – quality, personalized advice – is the kind of advice that comes with a price. Not the $500 package that Stripe offers for your company formation, bank and merchant account setup, legal advice and business help all bundled together.
You need real advice.
We get people asking for free advice all the time here on the blog, on our YouTube channel, and everywhere they can find us about their specific questions.
But I don’t answer questions for free, not only because I have spent tens of thousands of dollars sorting every aspect of my own tax plan on a US and global level over the years but also because the professionals I work with to help hundreds of other people do the same do not work for free either.
If you are going to ask a complicated question, you are going to have a complicated payment.
Nobody is doing US tax for cheap. The cool kids – the young trendy bros – think that they can find a way around it and get good advice on the cheap, but the reality is that anyone who knows US tax on a global level is not working for cheap.
If you are a US citizen, US resident, or you do business in the United States or through a US company, you need US tax advice.
If anything you do is on an international level, 98% of US tax advisors will not know how to help you. I had a high-level tax adviser when I lived in the US and they sucked for international tax laws. They did not understand the most basic of concepts.
Stripe Atlas is not going to provide the right service for you for $500 when 98% of US tax advisers cannot do it for you for $275 an hour. Stripe Atlas is like a mirage that convinces you that doing business on an international level is easy and cheap.
I recently talked to a guy who is worth $50 million. We are doing some pretty complicated tax and citizenship and investment work for him and it’s costing him about $170,000 dollars.
That is far more expensive than most people I work with, but this person’s business was complicated, and they wanted to spend time in the US and keep their US bank accounts, so we had to create a plan to deal with all of that.
But, even though the plan came with a $170,000 price tag, we are going to save him millions of dollars in taxes every year. You may not need to spend as much to save on your taxes, but there is an ROI to investing in your international tax and legal structure.
And that’s the point: if you want to do business in the US or offshore in general, there is no hack where you can pay $500 and it is suddenly made remarkably easy.
Taxation is difficult and the people who I see having the biggest problems are the ones that do business in the US, break all the US tax rules and then say, “Oh, well I have been doing it for a year and I have not heard from the IRS yet.”
Yes, the IRS sometimes takes years to catch up with you. But when they do catch up, you’ll wish you had paid the high fees to set things up right instead of going for the $500 blanket solution.
There are reasons that firms like ours and the Big Four and everybody else charge high fees: there is an ROI for people who need it.
The US is a landmine and US companies like Stripe Atlas are ignoring this and pitching the dream of US banking and remote company formation so that you can sit on your butt and pay a low price.
Well, here is my pitch: get off your butt and pay a few bucks to commit yourself to the process. No doubt the cool kids will not like that message and they will keep on engaging in reckless behavior. People who are running real businesses with real revenue will appreciate this advice for what it is.