Ask HN: Questions about running a company from a cheap country
Recently I was thinking about this, and realized that a lot of the money issues I worry about for doing a startup would disappear if I incorporated in Singapore and ran my business (which would be a B2C/B2B hybrid, with possibly handling deposits into customer accounts) from a country which was very cheap to live in (India, Cambodia, Thailand or Vietnam).
What physical things do I have to worry about having to handle? What sort of stuff can I not easily handle with either a telephone call or an internet connection, assuming I'm working alone?
I'm particularly worried about how to read stuff that I'm going to have sent to a PO box and stuff like that. What stupid pitfalls am I optimistically avoiding to think about?
37 comments
[ 1.9 ms ] story [ 95.6 ms ] threadYour SG corporation will be a controlled foreign corporation.
Unless you are exceptionally well-organized and advised, the income generated by your company would start to look a lot like Subpart F income. Translation: all of the profit of the SG corporation is taxable to you as a human being, every year, on your U.S. individual tax return.
Now. You might say "Meh, profit is profit and if I have to pay tax what does it matter. I will have to pay tax anyway." Well, yes, to a point. But I will gloss over that or what I talk about will look a lot (to you) as snippets of code look to me. Unintelligible.
The real problem is that the U.S. tax paperwork burden is profound. And it is beyond the power of mere mortals to do it properly. You are in the realm of paperwork designed to capture transactions and operations of companies of Google's ilk. Not ordinary small businesses.
And if you screw up the paperwork, the penalties will eat you alive. E.g., Form 5471. This is where you tell the IRS "Hi, I am an American and I own shares of a foreign corporation." File late, and it is $10,000 please as a penalty. Don't fill it in right, and they say it is an incomplete therefore failed filing. $10,000 please.
Things start there and get worse.
The cost of running a SG corporation in SG annually is nontrivial. The cost of people like me is nontrivial. (I'm de-f'ing a SG corporation right now for a guy in precisely this position).
All of that money you save living in Cambodia will go to pay the overhead of your corporation. I don't recommend living cheap just so you can give $10,000 to someone like me. :-)
If you are an American and you want to live in a cheap country, kind of under the radar, and run your business from there, set up your company in the USA. Run it from there.
The probability of making a mess of international tax filings approaches 1.0 in a very few years. The probability of making a mess with domestic corporate or LLC filings is very low.
The cost of talent to keep your international corporate structure straight is extremely high. (I'm $750/hour and I'm not taking on any new clients at the moment). The cost of talent to run a generic domestic corporation -- you can get that anywhere from any random accountant and corporate lawyer.
That's my suggestion. Running away is the best strategy. Said Brave Sir Robin.
Background - I'm an Indian citizen. I went to graduate school in USA and worked for a year. I moved back to India because I am bootstrapping my startup out of my savings and have a much longer runaway living in India.
Your HN profile is blank!
Usually I'm pretty good at googling stuff, but when it comes to this I feel like too dumb to know what I don't know. If you know a link or two that answer most of my questions below, it's cool if you just post those. I feel like I can't even tell what info is right when it comes to this stuff.
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Okay, so I'm a US citizen. If I understand you right, most of my problems stem from wanting to incorporate in Singapore. If I incorporate domestically but run it while traveling, that'll cover most bases and make life much easier, correct?
Secondly, I don't doubt your talk about the complexity added on by incorporating in Singapore. But Singapore is really banking on people starting to incorporate there, I mean there must be some sort of national effort to automate/lessen the hurdles, right? I mean your random comment literally saved me from thinking that incorporating in SG/HK would be a good option.
I don't know, just after reading sivers.org I just assumed that the complexity was much more manageable. Maybe I'm just gullible/easily misled? Or does this option only make sense when you have a certain number of people working with you/certain profit? Could you guess as to what those numbers might be?
If I did want to incorporate, is there a big difference between incorporating in HK/SG/better place I don't know of?
http://sivers.org/mistake
Keep in mind that for sivers it would make sense to do something like pay someone $750/hour to make sure his paperwork gets done right.
Whenever someone talks to me about saving money on taxes I remind them of a man named Al Capone and what he actually went to jail for. It wasn't killing people, it wasn't running guns, booze, gambling or many of the things that people think of him as doing illegally...
It was filing his taxes incorrectly.
Singapore often wins the “ease of doing business” awards, but those are grading things like imports/exports, foreign employees, and such.
When it comes to doing an internet-based business, U.S. wins hands-down. All those lovely online things like Stripe, easy online banking, online statements, PayPal integration and such are much harder to set up outside the U.S. So set it all up first. Online-only statements for your bank, etc.
Oh and yes, EarthClassMail is awesome. Set it up first before you incorporate, and make your EarthClassMail address the sole address for your LLC/corporation from the start. It's a little expensive but so worth it.
Get a CPA you trust in the U.S. first, and give them some pre-signed blank business checks before you go. There are some things that require paper checks, and it's a drag when you're across the world and need to send one. Usually they're tax-related so have your CPA send one of your pre-signed checks. And when needed, have EarthClassMail forward tax things to your CPA.
On that note, it helps if a family member can sign your name for you, so if some forms insist that they need the "signed original", you don't have to have a f'ing FedEx jet flying a piece of f'ing paper to Asia and back just to get your pen on it.
Hope that helps. I won't be monitoring this HN post for future comments, so anyone please feel free to email me with any questions.
- Derek
I think it'd be more rational to discuss more developing countries such as Vietnam, Thailand, South America, etc.
You'll face scaling issues eventually: how do you hire 10 great engineers? But hopefully, once you reach that point, your business generates enough revenue or traffic that you can pay for it.
1: http://www.nytimes.com/2012/04/16/business/global/for-americ...
Check out the guys at Tropical MBA: http://www.tropicalmba.com They're running a profitable startup from Bali.
For mail, a lot of traveling entrepreneurs recommend Earth Class Mail (http://www.earthclassmail.com).
http://lifestylebusinesspodcast.com
http://tropicalmba.com/innercircle
Pros:
* Cheap -- You can make it as cheap as you want. You can get down to $100-$200 per month if you're aggressive. But understand that you won't have the western lifestyle that you're used to. If you want a nice western kitchen, bathroom, consistent electricity, consistent bandwidth, then you're going to pay more and more. I found a sweetspot of about $1k/month total expenses.
* Quality of living -- this is related to cost. You can have a full time maid, driver, etc. It's totally normal, totally acceptable, and improves mental health significantly.
* Tropical weather, access to many travel destinations
Cons:
* Far from family and friends
* Lots of business travel -- If you have customers in the U.S. or Europe, inevitably you're going to end up traveling there frequently. This bothers some people more than others. It really wore me down.
* Difficult hiring environment -- It can be really hard to find top tier talent. Either be patient, or be willing to pay above market rates.
* Weak legal system -- As you achieve success, you will unfortunately become target of occasional shady behavior. For example, an accountant who skims petty cash, or a server admin who locks you out of your own servers. In the U.S., those risks are mitigated by a good legal system (and background checks, credit agencies, reliable postal system, etc). In developing countries, you are largely on your own. That can lead to a feeling of helplessness. Toughen up. Hire lawyers.
Non-cons:
* Taxes -- Yes, international taxes are complicated; however, you can easily afford local legal services to handle everything.
* Foreign bank accounts -- Not as scary as FACTA sounds. Hire a good U.S. accountant to do your taxes.
We had a U.S. LLC and local entity in the Philippines. Doing business as a U.S. entity is 1000x easier (think about payments, collections, legal services, etc). Have a local entinty for all local staff and your office.
The Philippines, like many developing countries, has many special government programs to encourage entrepreneurship. For example, we were in a program that granted a 5-year tax holiday and special visas for "job creators".
For example assume an above average connection, you still cant take watching videos for granted as you do in say AU or US. If you are heavy on the streaming whilst you work then it can be annoying, so there is some wait for a video to load, not long but at times the video is not loading faster then it plays so you get pauses.
However if youre just browsing or working from a terminal screen there really isnt to much issues, its fast enough.
What i found though is the 3G connection was terrible, mainly because the population is so large (specially) in indonesia that at busy times the service providers just can't keep up and the slowdown in 3g data can be felt.
In the city where I live (Donetsk) public areas are covered with free wifi service.
I'm living in Canada right now but considering starting a startup in the Caribbean (where I'm originally from) but I know from experience that the talent there is nowhere as good as it is here. I'd probably have to recruit from North America, similar to what the guys at Tropical MBA are doing.
I would recommend setting up your company offshore. It's not as complicated as people make it out to be (unless they're selling their services) and I know plenty of long-term expats who have done so without issue. Chances are if you're asking this question here you're not going to be on anyone's radar with your company.
The US does want you to: 1) File taxes regardless of residence. If you're declaring personal income you're exempt up to 95k or so but even if you make under that you're expected to file. Having said that I don't know anyone who does or anyone who has ever had an issue. I talked to the IRS once about it (I was young and wasn't making over the limit and hadn't filed taxes for years) and they suggested to get up to speed to just file back reports and ask for the exemption as normal. 2) I guess now you're supposed to declare any foreign bank account with more than 10k in it. I've never heard of this being enforced in any way.
As far as I know probably your easiest route it to move to HK. They seem to have the most lax immigration policies and it's easy to set up a company there. Rent is like central SF (same size/price ratio). If you're not selling products in HK you're not liable for taxes (standard tax haven stuff).
Or just setup your company there and live somewhere else. If you do that though you're going to have to deal with immigration somehow because you'll permanently be a tourist. If you're a tourist in most of these destinations you're looking at moving in and out of the country 3 - 4 times a year or more. Between my first and second company I was living here and fell into a sort of immigration limbo, having to live as a tourist for quite a while. I assure you that going in and out of the country to keep your paperwork current gets old really fast.
This was assuming you're a US citizen. If not ignore the US-specific info.
This is only if you live in Bangkok or maybe Hua Hin. Most other places will have you live exceedingly well for 1000 USD pr. Month all included. Cars though are indeed extremely expensive, better to get a motor bike / scooter or a motor cycle.
I like living here because although my condo costs a significant percentage of what I paid in SF, it's also 3x bigger. Cars are a lot more expensive but they also hold their resale value much better than in the US. I also never have to cook a meal, wash my car or clean my place. That means I can spend 100% of my time working if I choose to. The value of that can't be stressed enough if you're an obsessive workaholic (like I would imagine a lot of people here are).
Compared to the US, having access to good, low cost health and dental is also great. My wife needed major surgery a while ago and even with her generic coverage-as-a-perk corporate health plan I think we paid 500$ out of pocket for the procedure. This was for a minimally invasive procedure at a private hospital. I can't imagine what it would have cost in the US without additional coverage.
The cost of incorporation in both HK and BVI is around 2 to 4 thousand USD, if you pay a company to sort out all the paperwork, bank accounts etc. You also have to pay every year (roughly the same amount though a little less), to maintain the company. This again if you pay an agent company to take care of all the paperwork, which I'd highly recommend.
As for internet, both in Thailand and Russia it was absolutely fine for most purposes. You do have the occasional outage, but it's seldom. We did however have a backup 3G mobile internet line we used in these cases.
Whether or not you have to worry about handle physical mail, depends entirely on your business. We didn't have any use for it, but we were doing software so your mileage may vary. In most cases I'd think you'd be fine with a physical mail address in the US (or whereever your customers are), that can forward any mail to you.
As for tax, I wouldn't really know US rules - I formally emigrated from my home country, thereby making me tax exempt (but also non eligible to receive any services). Whether or not you need to pay personal income tax in your new country of residence, depends on the individual tax laws of the country. If you live like most expats do (on some form of a tourist visa), you usually don't pay tax there either. But you really should consult a local lawyer for details on this, as you generally do not want to risk breaking any laws in a country like Thailand or Cambodia.
As for corporate tax, this is zero percent if your company is incorporated in either HK or BVI. Heck, in BVI you don't even have to file annual accounting papers!
If you are curious we used www.ocra.com to incorporate in BVI and www.willsonn.com for incorporation in HK. Both of those companies can get the job done, but neither of them are very good at customer service. If I had to do it again, I'd probably look for a different agent.
Apart from that, there is really not much to it. Again depending on your situation, almost everything can be handled on telephone, email or fax (!).
Main issues are as others have mentioned:
You are far from family and friends.
You may have to do lots of expensive business travel.
It can be really hard to scale the business, unless you are able to work within a distributed team.
I'm asking because I'm considering starting a startup on a Caribbean island that I'm originally from. If you have any advice you'd like to offer, I'd be glad to read it.
The reason I setup in BVI, was because it was reasonably easy, and because no annual reporting of accounts is neccessary (no more "accounting preparation panic" every year).
So our customers were not in the BVI, rather they were spread out over Europe.
If you have the option of living and starting a startup on a Carribean island, what's holding you back? :-)
My biggest worry is recruiting. Paraphrasing Valve, I want hires who are not only talented or collaborative but also capable of literally running the company, because they will be. I don't want to lower the hiring bar because of my location.
I would probably have a recruiting strategy similar to TropicalMBA.com. Recruit via internships and offer them the chance to solve challenging problems in paradise.
Here there are moments of uninterrupted efficiency but so many things are unreliable
- internet: slow during peak hours, not unlimited, western prices
- electricity: cuts out for about 2 hours a day randomly...HUGE productivity killer and makes it really hard to plan, stay cool, etc
- weather: extreme heat and humidity, always fighting elements, dust, drying clothes outside in moments between rain downpours etc
- transportation: getting across town can take an hour in choking smog
- politics: shut down the city's commerce once a month
Now you can get around most of the challenges above by paying enough, hiring service, living where you work, etc, but then you're spending almost as much as you would in the states.
Then you need to consider how there are fewer opportunities to sell, share, network here... but that depends. If you're selling something for developing countries then it's a different story. I'm using my time to do something unique to this market while I'm here.
Having lived in both cities for periods of time, I was amazingly productive because I didn't have to worry about mundane chores and could get healthy and inexpensive food at any hour of the day or night. And it was cheap.