Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Ask HN: Are there better countries to start my SaaS company for tax reasons?

news.ycombinator.com

Post reply on HN
Print view View original

31–40 of 77 posts

Re: Ask HN: Are there better countries to start my SaaS company for tax reasons?

#31

Post by codehotter »

golergka wrote: post #28
codehotter wrote: post #21

Many countries, and I think most countries in Europe, have language related to "place of effective management" in their tax code. Even a corporation incorporated in Cyprus (say), it could be considered resident in Germany (say), if the tax authorities feel the place of effective management is in Germany. Interestingly, this link says that in the US: "Generally a corporation is treated as a domestic corporation if it…

What if the team is made of digital nomads working remotely from different areas?

Good question. I'm not a lawyer; I assume edge cases will be decided by the relevant tax authorities. Speculating here, but if there's a single place where management decisions are made, say where the CEO lives, the corporation might be tax resident there. Otherwise, they might decide to tax you in place of incorporation.

For such a company, what address would it have? Maybe where you place its headquarters has some significance too.

Re: Ask HN: Are there better countries to start my SaaS company for tax reasons?

#32

Post by kxyvr »

zerr wrote: post #14
kxyvr wrote: post #8

Note, I am not an accountant, but these are my experiences running a business in the U.S. If you are a passthrough entity like a sole-propietorship, partnership, or S-corp, probably not. Note, this doesn't matter if you're an LLC or not because the IRS doesn't care. Basically, passthrough entities calculate all business income minus deductible expenses as personal income. Therefore, the amount is subject to federal a…

Wow 45%? What is this, the socialist state without any benefits of it? In Germany you pay less taxes (30%-42%) but you get free healthcare, education, 1 year maternity and paternity leave and tons of other similar benefits...

It's actually worse. The numbers above do not include the cost of healthcare nor retirement past what FICA pays for in social security. Say we're working with the magical $100k number above. In my state, my healthcare premiums were $500/month, which are not tax deductible. That means, I lose another $6k in premiums, or 6% of the $100k. My out of pocket max was $3300. I never want to be in a position to not go to the doctor because of money, so I always budget for it. Though, the payments for qualified medical expenses in that $3300 are tax deductible. So, let's pretend that 3.3% is really 2% after tax savings. That means that I spend 8% of $100k income on healthcare. If I add that to the 45%, then we're at about 53% of the money gone. Again, the number is slightly lower because of graduated tax brackets, but, candidly, it's not that much lower.

I lived a few years in Norway and have my company registered out there as well. I paid less in taxes there and got more in services. Other than culture, it's literally easier to start and run a company is many socialist countries. Simply, the taxes are lower; the services are higher; and the risk is lower because there's a safety net to fall back onto. That said, cultural does count for a lot and American culture is supportive of taking a risk as a small business. The U.S. is also the home to some of the world's largest companies, so opportunities to make contacts and contracts here can be higher.

Re: Ask HN: Are there better countries to start my SaaS company for tax reasons?

#33

Post by nodamage »

kxyvr wrote: post #8

Note, I am not an accountant, but these are my experiences running a business in the U.S. If you are a passthrough entity like a sole-propietorship, partnership, or S-corp, probably not. Note, this doesn't matter if you're an LLC or not because the IRS doesn't care. Basically, passthrough entities calculate all business income minus deductible expenses as personal income. Therefore, the amount is subject to federal a…

> This mostly puts you in the 25% tax bracket. We'll assume that there's also 5% of state income tax. For FICA, since you're both the employee and the employer, you pay 15.3%. All together, that means you're losing about 45% to tax off the bat.

Because tax brackets are progressive, it really does not make any sense to add the percentages up like that. No one making $100k/year is paying $45k/year in taxes.

> Your first $118,500 are brutal because you're paying an extra 15.3%, but after that FICA goes to 0%.

Only the Social Security tax (12.4%) tops out at $118,500, the Medicare tax (2.9%) does not have a cap, so you're still paying 2.9%, not 0%.

> However, money above that amount can be distributed to the shareholders as dividends. These are taxed at 15%.

This is grossly incorrect. S-corp profits are taxed as ordinary income (regardless of whether they are distributed to the shareholder or not).

> For example, if you can convince the IRS that the prevailing wage for your position is $120k, and you made $300k, then the first $120k gets taxed at 45% or so (see above) and the last $180k gets paid out in dividends and taxed at 15%.

No, the last $180k is taxed at ordinary income rates (which would be 33% given the example numbers). Do you actually operate an S-corp?

Re: Ask HN: Are there better countries to start my SaaS company for tax reasons?

#35

Post by matt4077 »

zerr wrote: post #14
kxyvr wrote: post #8

Note, I am not an accountant, but these are my experiences running a business in the U.S. If you are a passthrough entity like a sole-propietorship, partnership, or S-corp, probably not. Note, this doesn't matter if you're an LLC or not because the IRS doesn't care. Basically, passthrough entities calculate all business income minus deductible expenses as personal income. Therefore, the amount is subject to federal a…

Wow 45%? What is this, the socialist state without any benefits of it? In Germany you pay less taxes (30%-42%) but you get free healthcare, education, 1 year maternity and paternity leave and tons of other similar benefits...

Top tax rate is 45% + 2.5% 'solidarity surcharge' and that does not include healthcare, which is another 12%. Unemployment is another 3%, pension is around 20% (although you'll get it back eventually), "pflege" (nursing?) is 2.5%, VAT is much higher than most places in the US at 19% so that sums up to... 105.5% – the error being that most of these are only applied on the net that's left over after paying other taxes. And some of these are the marginal rates applied only to income above certain thresholds (that 'solidarity' tax get to 2.5% only on income > ´1.3 million) while others, like healthcare and unemployment, have upper limits.

The best way to measure this is probably government spending/GDP (https://en.wikipedia.org/wiki/Government_spending#As_a_perce...) which is about 46% for Germanys and 43% for the US, although you could argue that healthcare should be included in those numbers.

Re: Ask HN: Are there better countries to start my SaaS company for tax reasons?

#36

Post by yummyfajitas »

matt4077 wrote: post #30
yummyfajitas wrote: post #13

Possibly Singapore. They have very rational and simple tax laws, legal stability and are generally a good place to do business. I'd be worried about the EU, even the more corporate friendly places (Ireland, Estonia) - the recent retroactive ruling on Apple's Irish taxes make the EU seem potentially third world-like unstable. Of course, if you eventually plan to bring the money back to the US, probably incorporating i…

Yeah, well. technically all tax rulings are retroactive. And while we're disparaging other nations: I'd also be weary of doing business outside the US. There's some 3rd world president-impersonator on twitter who's talking an awful lot about punitive tariffs. (When he's not preoccupied with the size of his wall/hands/genitalia)

Punitive tariffs going forward are far less scary than going back. But for different reasons than you [1], I too am leery of tieing my future to the US. I don't plan to reside there long term.

[1] Trump is just a president signalling being a member of cultural out-group, I'm also an out-group member so I don't much car e. My reason for fearing the US is obligations exceeding ability to pay, a weak and sick culture, and also overbearing tax and regulatory authorities.

Re: Ask HN: Are there better countries to start my SaaS company for tax reasons?

#37

Post by mahyarm »

kxyvr wrote: post #32
zerr wrote: post #14

Earlier quoted context omitted.

Wow 45%? What is this, the socialist state without any benefits of it? In Germany you pay less taxes (30%-42%) but you get free healthcare, education, 1 year maternity and paternity leave and tons of other similar benefits...

It's actually worse. The numbers above do not include the cost of healthcare nor retirement past what FICA pays for in social security. Say we're working with the magical $100k number above. In my state, my healthcare premiums were $500/month, which are not tax deductible. That means, I lose another $6k in premiums, or 6% of the $100k. My out of pocket max was $3300. I never want to be in a position to not go to the…

Employment law also makes it harder to hire employees. Every employee hire in places like Germany and such are huge risks to small corps, since it's very hard to fire bad employees who are net negatives, and they know it and abuse it. That is ironically probably the biggest barrier to starting a corp in Europe for me.

Health care insurance costs although should be tax deductible, and there are things like FSAs and HSAs that help make health costs even more tax deductible. Are you talking about the costs for paying other things in health care costs, like the $XXs per doctor visit and so on?

-----

America is ironically a high tax nation, but these things usually reduce tax and COL:

1. The mortgage interest tax deduction. That is easily a +$20k/yr tax deduction right there. There are other small tax deductions that can remove a few thousands here and there.

2. States like Washington or Nevada that have no state income tax.

3. Almost everything is significantly cheaper to buy in the USA

4. Sales tax / VAT is %0-%10 vs the common ~%20 that is common in the EU. Because the US is a mismanged mess governmentally, buying something online from another state is a common sales tax dodge.

5. Pay is significantly higher in the USA for software professionals. I once read it doesn't matter how much you spend, but really how much you make and that can make up for the tax rates.

Re: Ask HN: Are there better countries to start my SaaS company for tax reasons?

#39

Post by meanduck »

matt4077 wrote: post #20

You've had all the benefits of the country you're in: roads, schools, research universities that created the software industry, a foreign service that advocated for your right to sell globally. It's time to return part of the favour. (Also what everyone else said: it's premature optimisation)

Yes Govt is solely responsible for every human achievements since 1900.

Re: Ask HN: Are there better countries to start my SaaS company for tax reasons?

#40

Post by jwr »

Consider yourself lucky and incorporate in the US.

Do not, under any circumstances, even think about running a SaaS business from Europe. EU has made invoicing hell for small businesses, especially those selling SaaS. You will spend time on things like VAT number checking, verifying customer's country using their IP (yes, I know), several kinds of invoices, prices inclusive or exclusive of VAT, calculating VAT for each EU country differently (and in different currencies), reporting VAT, and lots of other silly annoyances.

And if you think this is a "solved problem using a third-party service", you haven't tried it yet.

The only disadvantage of being US-based is that the first serious lawsuit will basicaly crater your business. Otherwise, you are way ahead of your buddies in Europe (like me).

Post reply on HN