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

Why you might not want to incorporate in the USA

thenitai.com

Post reply on HN
Print view View original

211–220 of 358 posts

Re: Why you might not want to incorporate in the USA

#211

Post by philiphodgen »

wiradikusuma wrote: post #188
philiphodgen wrote: post #134

I am an international tax lawyer and this stuff is my day job. Consider this comment an AMA. For smaller companies, the bureaucratic cost of international tax systems is insane. For US citizens abroad ... I will just say that my biggest area of growth is helping people shed their US citizenship and tax paperwork/penalties is the number 1 reason. Anyway. If you are in a position like The One and Only Netai -- or don't…

This is probably the most stupid question you ever heard: I'm from Indonesia, working in Malaysia. Mid of last year I incorporated a C-Corp in Delaware. The reason is so I can use Stripe to accept CC payments. Apparently to open bank account in the US, I need to be there in person, so I'm now stuck with a "sleeping" company (because I don't have time to go to US just to open a bank account, not to mention the expense…

My experience with this is yes that you need to be in the USA to open the bank account for the US corporation.

It MAY be possible to work something out if you deal with one of the multinational banks like Citi or HSBC but don't count on it.

To keep this sleeping corporation alive:

1. File the paperwork in Delaware every year and pay the fees there.

2. File a Form 1120 (the corporate income tax return) with zero income and zero expense. Technically a corporation has to file a return even if it has zero profit. Don't forget Form 5472 (foreign shareholder of US corp) if it applies to you.

Solution from this mess? Find a US partner who can co-own this thing with you. Then you have a US-based human as an officer/director who can do the footwork to open the bank account.

Meta solution to this mess: someone can start one of these things as a service for 10,000 people like you. This carries thermonuclear risk of course, which is probably why no one has done it.

Re: Why you might not want to incorporate in the USA

#212

Post by philiphodgen »

cinquemb wrote: post #210
philiphodgen wrote: post #134

I am an international tax lawyer and this stuff is my day job. Consider this comment an AMA. For smaller companies, the bureaucratic cost of international tax systems is insane. For US citizens abroad ... I will just say that my biggest area of growth is helping people shed their US citizenship and tax paperwork/penalties is the number 1 reason. Anyway. If you are in a position like The One and Only Netai -- or don't…

Thank you for taking the time to answer questions here. Reading all the information you have posted so far makes me glad to be apart of this thing we call the internet. Now my question: - Me and a friend started a company in the US two years ago (both US citizens), and we run a consumer web app and in the near future will also provide SaaS. We just started to generate revenue 2 months ago and I was wondering how diff…

It is easy to form a new company in a friendlier tax jurisdiction. Singapore. Hong Kong. Etc.

You--because you are a US citizen--will have a metric shit-ton of paperwork to file every year. E.g., if you don't file Form 5471, it is an automatic $10,000 penalty, then you shovel snow uphill in Hell in the summertime to see of you can get the penalty removed.

The second--and bigger--problem is that when you transfer ownership of IP from your US corporation to the new foreign corporation, that is treated as a sale and you pay tax on it.

So. You wrote some software all by yourself. Now you're up and operating and generating revenue. What's the software worth? (Well, who the F knows, right?) Hire an appraiser to get a random person's opinion, just to keep the IRS mollified. That person's random opinion is that your software is worth $2,000,000. Guess what? You "bought" that IP at $0 and just "sold" it at $2,000,000 and have to pay tax on that profit.

Internal Revenue Code Section 367(a).

That's why in these circumstances it is better (for tax purposes) to start an IP-heavy company outside the US and license the right to use the IP in the USA to a US corporation. Don't do a startup in the USA then expand outwards.

Re: Why you might not want to incorporate in the USA

#213

Post by philiphodgen »

apa-sl wrote: post #207
philiphodgen wrote: post #134

I am an international tax lawyer and this stuff is my day job. Consider this comment an AMA. For smaller companies, the bureaucratic cost of international tax systems is insane. For US citizens abroad ... I will just say that my biggest area of growth is helping people shed their US citizenship and tax paperwork/penalties is the number 1 reason. Anyway. If you are in a position like The One and Only Netai -- or don't…

We're running a startup incorporated in European Union and planning to incorporate c-corp in Delaware as our mother company. C-corp will simply buy-out 100% shares in our European company which will be still hiring our employees (located and working in Europe). From what we've checked we shouldn't have any hassle (event the c-corp bank account will be opened in European bank) or are we missing something?

Do not transfer IP to the US mother ship before you have thought it out.

You can transfer IP into the USA but once you have done that all of the profit generated from that IP worldwide will be subject to US tax.

And if you ever want to transfer the IP out of the USA it will be treated as a sale.

The worst I ever saw was one of those online poker sites. To move out of the USA they had to move their IP to a new foreign corporation.

The appraised value of the domain name was $6,000,000. That's a $6,000,000 income item. Pay tax on that at 34%, baby.

For day-to-day business operations you will have the normal level of business brain damage. Complexity is a mathematical constant.

Re: Why you might not want to incorporate in the USA

#214

Post by philiphodgen »

mbesto wrote: post #196
toomuchtodo wrote: post #192

Earlier quoted context omitted.

> AMA I'm a US citizen but am absolutely tired of dealing with IRS paperwork over the course of several businesses; where would you suggest I obtain citizenship (EU preferred).

US Citizen here! Unfortunately, it won't end! First, you have to fill out personal taxes every year for foreign income, regardless of whether you live in the US or not. All income globally is treated in the eyes of the IRS as income. Second, you have to declare FBAR if you hold foreign accounts of over $10,000. Third, you have to "open your books" for any foreign corporations you are the director (or have ownership)…

Yes, mbesto is right.

Acquiring a second citizenship will not relieve you from the full boat of U.S. tax laws. No matter where you live, no matter how many other passports you carry, if you have the magic blue passport with the eagle on it, you are a U.S. taxpayer.

Re: Why you might not want to incorporate in the USA

#215

Post by philiphodgen »

fizz_and_buzz wrote: post #198
philiphodgen wrote: post #134

I am an international tax lawyer and this stuff is my day job. Consider this comment an AMA. For smaller companies, the bureaucratic cost of international tax systems is insane. For US citizens abroad ... I will just say that my biggest area of growth is helping people shed their US citizenship and tax paperwork/penalties is the number 1 reason. Anyway. If you are in a position like The One and Only Netai -- or don't…

At my work we are considering to open an office and incorporate in the US (We are based in Germany). Are there states that easier to set up an office? Delaware? Our costumers are manly in the Chicago area and the north east.

Set up your office (and form the corporation) in the location that is useful for business purposes.

There are many locations in the United States that are more business friendly than Chicago (or Los Angeles, for that matter). I would suggest that if you need to be in the Chicago area you look at other municipalities other than the City of Chicago itself.

But if you have made a decision that you need to have your business offices in Illinois, set up an Illinois corporation. Don't bother with Delaware unless there is an overwhelming business need for this.

Re: Why you might not want to incorporate in the USA

#217

Post by rayiner »

philiphodgen wrote: post #134

I am an international tax lawyer and this stuff is my day job. Consider this comment an AMA. For smaller companies, the bureaucratic cost of international tax systems is insane. For US citizens abroad ... I will just say that my biggest area of growth is helping people shed their US citizenship and tax paperwork/penalties is the number 1 reason. Anyway. If you are in a position like The One and Only Netai -- or don't…

"Federalism" was the founder's way of guaranteeing employment for lawyers.

Re: Why you might not want to incorporate in the USA

#218

Post by rayiner »

STRML wrote: post #137
philiphodgen wrote: post #134

I am an international tax lawyer and this stuff is my day job. Consider this comment an AMA. For smaller companies, the bureaucratic cost of international tax systems is insane. For US citizens abroad ... I will just say that my biggest area of growth is helping people shed their US citizenship and tax paperwork/penalties is the number 1 reason. Anyway. If you are in a position like The One and Only Netai -- or don't…

It's something I've considered. As a now resident of Hong Kong, I was surprised - and delighted - with how incredibly easy it was to handle my taxes. Front-to-back, I could do the whole thing, including payment, in less than an hour and understand the whole system. Unfortunately, it is nowhere near so simple in the US, and they have no regard for expats. The US treats its expats worse than any other country in the wo…

You have to understand, the incentives and concerns of the two places are quite different between the U.S.A. (a place where expats come from), and Hong Kong (a place where expats go to). The U.S. has little incentive to facilitate Americans taking their capital and leaving. Hong Kong has a lot of incentive to facilitate that process.

Re: Why you might not want to incorporate in the USA

#219

Post by quellhorst »

philiphodgen wrote: post #134

I am an international tax lawyer and this stuff is my day job. Consider this comment an AMA. For smaller companies, the bureaucratic cost of international tax systems is insane. For US citizens abroad ... I will just say that my biggest area of growth is helping people shed their US citizenship and tax paperwork/penalties is the number 1 reason. Anyway. If you are in a position like The One and Only Netai -- or don't…

What do you think about an offshore corporation for Bitcoin startups? Considering the regulatory environment in the USA, is it better to incorporate in someplace like Panama or Switzerland?

Re: Why you might not want to incorporate in the USA

#220

Post by sgdesign »

philiphodgen wrote: post #134

I am an international tax lawyer and this stuff is my day job. Consider this comment an AMA. For smaller companies, the bureaucratic cost of international tax systems is insane. For US citizens abroad ... I will just say that my biggest area of growth is helping people shed their US citizenship and tax paperwork/penalties is the number 1 reason. Anyway. If you are in a position like The One and Only Netai -- or don't…

Thanks so much for doing this!

Here's my situation: I've been working on a pretty successful project with a friend (selling eBooks), and we're thinking about incorporating (up to now we've been taking in income separately through our own personal companies).

Given that I live in Japan, and he lives in Australia, does it make more sense to incorporate in the U.S., in one of those two countries, or somewhere else (Hong Kong)?

The main advantage I can see to incorporating in the U.S. is being able to use Stripe or other similar services. But I don't know if that alone is worth the trouble?

For a company that only sells digital products and doesn't need an office in the U.S., is there any benefit to incorporating there?

Post reply on HN