How to form an IT company overseas in 2023, key points to consider upon incorporation, comparative chart of most rated countries
When it comes to incorporating an IT company overseas, choosing the right jurisdiction is a crucial decision for any business owner. Different countries offer unique benefits and drawbacks for IT companies. In this article, we will discuss the top 10 jurisdictions for incorporating IT companies, including Cyprus, Romania, Georgia, Hong Kong, Estonia, the UAE, Singapore, Gibraltar, Poland and Turkey.
Forming an IT company in Cyprus
Cyprus is an attractive destination for IT companies due to its strategic location, business-friendly environment, and well-developed legal system. The country offers a favorable tax regime, with a corporate tax rate of only 12.5%. Additionally, Cyprus has a highly skilled workforce and a growing tech sector.
Pros of Cyprus:
- EU country;
- Effective legal system;
- IP Box Regime – a favorable tax incentive for companies developing IP in Cyprus which leads to even greater reduction of the effective corporate tax rate up to 3-4%;
- Low corporate tax rate 12.5% and no withholding tax on dividends in most cases;
- Can open a local bank account in Cyprus if the substance requirements are met.
Cons of Cyprus:
- Despite the fact that Cyprus is not a classic offshore since the moment of joining the European Union, it still has an aftertaste of an offshore jurisdiction;
- The banking system lacks swiftness and the account opening procedure may last up to several months;
- Mandatory audit requirements for all companies regardless of the yearly turnover, balance cost of assets or number of employees;
- Substance is mandatory for account opening in a bank in Cyprus.
Forming an IT company in Romania
Romania is a growing IT hub in Europe, with a rapidly developing tech industry. The country has a large pool of highly skilled IT professionals and offers a favorable tax system for micro companies. Additionally, Romania has a low cost of living, making it an attractive destination for entrepreneurs looking to establish a business on a budget.
Pros of Romania:
- EU country;
- Competitive corporate tax rate for microcompanies (1% from the turnover);
- Can open a local bank account in Romania under most circumstances;
- Does not require a local director or substance;
- Cost-effective in terms of company administration if compared to most EU countries.
Cons of Romania:
- In order to administer the company properly for VAT purposes, a physical office is usually required (merely a legal address in insufficient);
- The Director should travel to Romania in person to open the bank account, even though the company may be incorporated remotely;
- To benefit from the microcompanies tax regime (1% from the turnover) the company should officially employ at least one employee (e.g., the director) and pay salary to such employee.
Forming an IT company in Georgia
Georgia is a small country located at the intersection of Europe and Asia. The country offers a favorable tax regime, with a flat corporate tax rate on distributed dividends of only 15% + 5% tax for individuals. In many ways, Georgia has copied some of the best tax practices of Estonia. Additionally, Georgia has a business-friendly environment and a simple and efficient incorporation process. The country is also known for its low bureaucracy, making it easy for entrepreneurs to start and run a business.
Georgia has several favorable tax incentives designed specifically for international IT companies, reducing significantly the tax burden associated with hiring local employees.
Pros of Georgia:
- Not an EU country if VAT matters are of essence;
- One of the top-rated jurisdictions in terms of ease of doing business;
- Can open a local bank account in Georgia if substance requirements are met;
- Extremely attractive tax system with special incentives if you work in the IT industry;
- Cost-effective in terms of company administration if compared to most jurisdictions worldwide;
- One of the most hospitable nations in the world with exceptional cuisine and wine and if you’re into travelling;
- English is spoken fluently, especially among the young generation;
- Does not require a local director.
Cons of Georgia:
- Slightly unstable political system;
- Banks require substance to open a business account. Best to have a local office and a local director;
- Difficult to find a proper merchant account provider in case you are selling goods or services via a website and you need to debit funds from your client’s debit cards.
Forming an IT company in Hong Kong
Hong Kong is a thriving business hub that attracts companies from all over the world. This jurisdiction offers a strategic location, advanced IT infrastructure, and a business-friendly environment. Additionally, Hong Kong has a simple and efficient incorporation process, making it easy for entrepreneurs to start and run a business.
Pros of Hong Kong:
- Can be considered as a no tax jurisdictions under certain circumstances as the companies may opt for an offshore profits tax exemption;
- There is no VAT in Hong Kong;
- Strong and effective legal system based on English Law;
- On of the top-rated jurisdiction in terms of doing business;
- Cost-effective if compared to Singapore or the UAE;
- No requirements for substance or local director.
Cons of Hong Kong:
- Companies should prepare and submit audited financial accounts;
- Process of going through the audit of financial statements may not be easy, especially if the tax office has some additional questions;
- The tax office may reject in granting the offshore profits tax exemption which leads to paying corporate tax at a normal rate (8,25% for the first 2 million HKD profits and 16% for profits exceeding 2 million HKD);
- Rather difficult to open a local bank account.
Forming an IT company in Estonia
Estonia is known for its advanced digital infrastructure and e-government initiatives. The country offers a business-friendly environment and a simple and straightforward incorporation process. Estonia is also the only country in the world that offers e-Residency, which allows entrepreneurs to start and run a company remotely.
Pros of Estonia:
- The best country in the EU in our opinion in terms of ease of doing business;
- The most cost-efficient solution in the EU;
- Special tax system, when the corporate tax is charged at 20% only upon distribution of profits. No profits distribution, no tax. Easy as that;
- Easy to register for VAT;
- E-residency program, making the incorporation and further administration much easier;
- No local director requirements;
- The government officials, including the tax office are business friendly and actually serve the needs of the businessmen.
Cons of Estonia:
- Opening a local bank account is close to impossible if there is no substance in place;
- Getting an E-residency card with subsequent company formation will last at least 4-5 weeks, which can be considered slow.
Forming an IT company in the United Arab Emirates (UAE)
The UAE is a thriving business hub that attracts entrepreneurs from all over the world. The country has a strategic location, a highly skilled workforce, and a well-developed IT infrastructure. Additionally, the UAE offers a favorable tax regime, with no corporate or personal income tax. Although, the UAE has introduced corporate income tax in 2023, in some cases it does not apply for Free Zone Companies. The country has a business-friendly environment and a streamlined incorporation process, making it easy for entrepreneurs to start and operate a business.
Pros of the UAE:
- No tax or low tax jurisdiction depending on the circumstances;
- One of the top-rated jurisdictions;
- Can open a local bank account if certain conditions are met;
- A great business hub for doing business in the Middle East and worldwide.
Cons of the UAE:
- A blacklisted jurisdiction in 2023 according to the EU AML & CFT Blacklist. Making transactions with European banks and payment institutions will be strictly monitored by the compliance departments;
- One of the most expensive jurisdictions in the world. If you need a full package with a local bank account, your direct expenses may be as high as 20k-30k USD just for the initial company setup;
- Opening a local bank account might be painful… for your wallet. In any case, we use our friendly relations with the bank managers to get the best result for the client in the shortest terms possible;
- Audit of financial statements is mandatory since 2023 because of the recent developments and introduction of the corporate tax.
Forming an IT company in Singapore
Singapore is a thriving business hub that attracts entrepreneurs from all over the world. The country has a stable political environment, a highly skilled workforce, and an advanced IT infrastructure. Additionally, Singapore offers a favorable tax regime, making it an ideal location for IT companies looking to minimize their tax liabilities.
Pros of Singapore:
- Favourable tax regime: Singapore offers a competitive and attractive tax regime for businesses. The corporate tax rate is low, and the country has a territorial tax system, which means that only income generated in Singapore is taxed;
- Stable political and economic environment: Singapore is known for its political stability and strong economy. The country has a transparent legal system and a corruption-free business environment, providing a secure foundation for businesses to thrive;
- Strategic location: situated in Southeast Asia, Singapore offers a strategic location for companies looking to access the fast-growing markets of Asia. The country serves as a gateway to the region, providing businesses with opportunities for expansion and market diversification;
- Excellent infrastructure and banking system: Singapore boasts world-class infrastructure, including advanced telecommunications networks, reliable transportation systems, and state-of-the-art business facilities. This infrastructure supports the growth and development of IT companies;
- Skilled workforce: Singapore has a highly educated and skilled workforce. The country invests heavily in education and training, producing a talent pool proficient in IT and related fields. Access to a skilled workforce is advantageous for IT companies seeking qualified professionals.
Cons of Singapore:
- High Cost of Living if you actually plan to move there;
- Strict regulations: While Singapore provides a business-friendly environment, it also maintains strict regulations in various areas. Companies must adhere to legal and regulatory requirements, which can involve additional administrative burdens and compliance costs;
- Local director is mandatory;
- Audit is mandatory;
- Opening a bank account at a local bank might be a difficult task and sometimes impossible for nationals of certain countries which are considered as “high risk”.
Forming an IT company in Gibraltar
Gibraltar is a British Overseas Territory located at the southern tip of Spain. It offers a low-tax regime and a business-friendly environment, making it an attractive jurisdiction for IT entrepreneurs. In addition, Gibraltar has a highly skilled workforce and a well-developed IT infrastructure. The jurisdiction is an ideal gateway to Europe.
Pros of Gibraltar:
- Territorial tax system – no bank account in Gibraltar, not tax;
- Easy, quick and efficient company set up;
- Regardless of its offshore essence, Gibraltar is considered as a highly reputable jurisdiction. Banks and payment systems are open for cooperation with companies formed in Gibraltar;
- DLT license for companies engaged into crypto exchange activity is top rated amongst other jurisdictions;
- No local director or substance requirements.
Cons of Gibraltar:
- Strict compliance procedures with the Registered Agent and local banks;
- Lack of double tax agreements with certain countries;
- Same as the UAE, Gibraltar is a blacklisted jurisdiction in 2023 according to the EU AML & CFT Blacklist.
Forming an IT company in Poland
Poland is a rapidly growing economy in Central Europe and an ideal location for IT companies. The country offers a highly skilled workforce, low labour costs, and a business-friendly environment. Poland is also part of the European Union, making it an excellent location for companies looking to expand into the European market. Additionally, the Polish government has implemented favourable tax incentives for IT companies, including a reduced corporate income tax rate of 9% for micro companies with the annual turnover not exceeding 2 million EUR.
Pros of Poland:
- Can open a local bank account;
- No local director or substance requirements;
- Adequate corporate tax rate;
- Quick and easy company setup procedure: can be done either remotely or by personal visit.
Cons of Poland:
- The company should have some sort of economic presence in Poland, e.g., local counterparties in order to open a bank account in Poland;
- Not so easy to administer accounting if compared to Estonia.
Forming an IT company in Turkey
Turkey should be considered predominantly in case your target market is Turkey itself or the region of Middle East. Turkey is a rather difficult and specific jurisdiction. Still, the country is strongly business oriented despite certain obvious drawbacks.
Thanks to its strategic location, growing economy, and supportive government initiatives, Turkey is worth considering for IT.
Pros of Turkey:
- Strategic location: situated at the crossroads of Europe, Asia, and the Middle East, Turkey offers a strategic location that facilitates business connections and access to various markets. This geographical advantage can open doors to new clients and opportunities for expansion;
- Growing economy: Turkey boasts a dynamic and rapidly growing economy, providing a fertile ground for IT companies. The country has a large and young population, increasing demand for digital services and technological solutions;
- Supportive government Initiatives: the Turkish government has implemented various initiatives to promote and support the growth of the IT sector. These initiatives include tax incentives, research and development grants, and programs to foster entrepreneurship. Such support can provide a competitive advantage and attract foreign investment;
- Lower operational costs: compared to many European countries and the United States, Turkey offers lower operational costs, including office rentals, salaries, and production expenses. This cost advantage can enhance the profitability and competitiveness of IT companies.
Cons of Turkey:
- Bureaucracy and administrative processes: Turkey's bureaucratic processes can sometimes be complex and time-consuming, particularly when it comes to company registration and obtaining necessary permits. Engaging with local experts and professionals can help navigate these processes more efficiently;
- Language barrier: although English is widely spoken, particularly in business circles, the official language of Turkey is Turkish. Language barriers may arise when dealing with local authorities or engaging with the general population. However, most business professionals in major cities are proficient in English;
- Political and geopolitical Risks: Turkey's location at the intersection of Europe and Asia brings with it geopolitical complexities. Political stability can vary, and changes in government policies or regional tensions may impact the business environment. It is crucial to stay informed and adapt to any potential risks;
- Intellectual property protection: intellectual property protection can be a concern in Turkey. Although laws exist to safeguard intellectual property rights, enforcement can sometimes be challenging. Companies should take proactive measures to protect their intellectual property through patents, trademarks, and copyrights;
- Cultural differences and market specifics: adapting to the local business culture and understanding the Turkish market's unique characteristics can pose challenges for foreign companies. Conducting thorough market research and building local partnerships can help mitigate these challenges.
How to choose the right jurisdiction to form your IT company – key principles
The IT industry has seen a significant boom in recent years, with more and more entrepreneurs venturing into this space. As the industry continues to grow, many business owners are considering forming a company abroad for their IT business.
Consider the following key princeiples^
Choose the Right Jurisdiction
The first step when forming a company abroad for an IT business is to choose the right jurisdiction. Different countries offer unique benefits and drawbacks for IT companies. Some countries have a favorable tax regime, while others have a highly skilled workforce or a business-friendly environment. It is essential to research and carefully consider the benefits and drawbacks of each jurisdiction before deciding on the most suitable one.
Understand the Legal Requirements
Once you have chosen the jurisdiction, it is essential to understand the legal requirements for forming a company. Each country has its own set of legal requirements, and it is essential to comply with them to avoid any legal issues in the future. It is recommended to seek the services of a local lawyer or a company formation agent to assist with the process.
Choose the Right Business Structure
Choosing the right business structure is also critical when forming a company abroad for an IT business. Different structures offer varying levels of liability protection, tax benefits, and flexibility. It is important to understand the options available and choose the structure that best fits the business's needs.
Establish a Local Presence
Establishing a local presence is crucial when forming a company abroad for an IT business. A local presence can help build trust with clients and partners and ensure compliance with local regulations. It is recommended to hire a local representative or partner to assist with establishing a local presence.
Consider Banking and Accounting
Banking and accounting are critical considerations when forming a company abroad for an IT business. It is important to open a local bank account and comply with local accounting regulations. It is also recommended to seek the services of a local accountant or tax advisor to assist with compliance.
Be Prepared for Cultural Differences
Forming a company abroad for an IT business also involves navigating cultural differences. It is important to understand the local culture and customs to ensure effective communication with clients, partners, and employees. It is recommended to hire local employees who are familiar with the local culture and language.
Always ask for professional legal advice
In conclusion, forming a company abroad for an IT business requires careful consideration of various factors. Choosing the right jurisdiction, understanding the legal requirements, choosing the right business structure, establishing a local presence, considering banking and accounting, and being prepared for cultural differences are key considerations. It is recommended to seek the assistance of professionals to ensure compliance and a smooth process.
Written by Pavlo Dubynskyi, May 2023
Can you help me choose the right jurisdiction for IT?
Sure, that's what we are here for
Does Taxters have experience in forming IT companies in all those countries
Yes, we do. 12 years of first hand experience