The text of this article is reproduced from here with the permission of Mrs. Nadine Imad.
Every business starts with an idea. With the recent rise in entrepreneurship and the modernization of bureaucratic processes through the constant introduction of technology, formally setting up a business has never been easier.
Entrepreneurs, (most of the successful ones I’ve met at least), all first start in the same position: half broke, trying to build a dream and trying not to pay too much attention to details.
This typically leads the decision to set up a business – which includes the choice of where to set it up – to be driven by googling something along the lines of “How to start a company” and landing on a few general suggestions like ‘Set up a company in the UK’ or ‘Start your own company in the BVI’.
However, what may appear as a simple task initially will, in fact, shape how your business can operate for years and years to come. So if you want to know where your business can go but still aren’t sure how to bring that dream to reality or where to start, follow this step by step guide to guide you to the right choice for your dream.
What industry are you operating in?
The answer to this question can drastically change what options you have for choice and location of the business. For example, if you are into e-commerce, you would want to look for locations that have particular advantages for your e-commerce specifically, like Jebel Ali or the new ‘CommerCity’ introduced by DAFZA in the UAE.
What will be the purpose of your new company?
The purpose sets the stage for regulations that may apply and finding the place with the most conducive regulations will aid in the success of your new venture. Will the new company serve as a cost center? Will you be running operations and hiring stage through this Company? Will the Company only serve as a parent or holding company to a group of other companies? In this last instance, you will need to pay particular attention to the taxation aspect, further detailed below.
What is the “establishment cost”?
The cost to formally establish a company varies greatly from location to location. Some locations are expensive to start but have fewer requirements to actually operate. Others are cheap to start, but become expensive with the operating requirements. For example, in the UK it can cost as little as 50$. However, you won’t be able to get a bank account if you don’t have a resident director in the UK. That resident director will come at an extra annual cost as long as the business is operating. This is only one example of the many pitfalls you’ll need to be extra diligent about while making your choice.
What is the cost of maintaining your new company?
Though some jurisdictions may appear highly advantageous and cost-efficient at first, beware of hidden costs and yearly maintenance fees. Just because an add says ‘Get your license for as little as 900$ doesn’t mean that you won’t pay more in maintaining compliance than what you saved the following year. One location that’s steadily predicatble is Delaware where the maintenance fees can be as little as 1000$ per year (typically including franchise tax and filing for an inactive tax return).
What taxes will your new company pay?
Benjamin Franklin wasn’t joking when he said that ‘in this world, nothing can be said to be certain, except death and taxes’.
How your company is taxed can have a huge impact on your decision. Though some jurisdictions are easy to set up in and don’t require exorbitant establishment or maintenance fees, your taxable income can make the most favorable of jurisdictions unfavorable. Cyprus (among others) has stepped up to become a preferred jurisdiction for many players due to the numerous tax incentives it offers.
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