Incorporating? Anyone done the Estonia thing? What about a UK ltd?
Hi everyone!
Not sure if this has been discussed before, but I’m at the point in my business where I think I should be incorporating.
Any advice? I hear the Estonia e-citizenship thing is quite good, but I don really know what I’m supposed to be looking out for.
Or should I just register a Ltd. in the UK?
Any guidance appreciated!
— Cenk
I am currently in the process of getting my Estonion company setup. Waiting for my e-residency card to arrive before completing the process. I am using a company named LeapIN (http://leapin.eu/) and I can highly recommend them. They've got excellent customer support and offer solid products. For a small fee of $100 a month, they will handle all your administrative work, bookkeeping, accounting, VAT compliance, reporting, etc.
I have about six months considering the option to incorporate my new business. As a EU national but living in Thailand, I have had Thai Ltd's and Delaware c-corps. Both turned out to be freaking disasters. Unless you're planning on playing the Silicon Valley game (raising money, praying for a big exit, etc) I would recommend against using a Delaware c-corp.
Even though not perfect, the Estonian option came out on top for me. No onshore income tax (except for your board seat salary, which is typically very small) and most importantly, no corporate income tax if you're keeping the profits within your business. This is ideal for early stage startups. Downside is you still have to pay an in-person visit to the bank to get your corporate account setup. I'd be happy to share more details if you're interested.
Every time I've registered a corporation outside the one I'm currently living in I've come to regret it. Between agent fees, trying to juggle taxes/filing requirements across multiple countries, and banking issues I've just never found it worth it in the end. If you're just starting out I'd suggest registering where you live. You can always reform later when you have lots of money to pay others to worry about it for you.
I have had multiple UK Ltd companies, as a UK Resident these have been relative easy to set up and to keep my address private I have used virtual offices (Small fee about £5 per month) but the problems for a small start up is that corporation tax can take a large hit on the small profits you may be generating (around 20%).
Does that 20% end up being more than having to pay as income tax on the money if you are a sole trader?
The 20% is just corporation tax on profits so if you then pay yourself a Salary, Bonus or Dividends payment then you will also need to pay tax on that, so if you are a higher rate tax payer that can be 40% or 50% however as a Sole Trader you will be paying this rate on all earnings prior to any costs.
Every year the company must also complete the Confirmation Statement (Used to be Annual Return) which costs £13 (Regardless of compay trading status and Profit) and updates the registrar with the Legal Directors and Secretaries (No longer required for new companies) and Annual Accounts (which is used for Corporation Tax - https://www.gov.uk/prepare-file-annual-accounts-for-limited-company)
Also if you are paying any persons (Even yourself) from a company then the company must also be registered with HMRC (For taxation purposes) rather than just registered with Companies House.
(I realise this sounds doom and gloom so some happy news )
The benefit is Corporation tax is only paid on profits, so if you set up and don't trade or trade at a loss for years then these can be carried forward (https://www.gov.uk/guidance/corporation-tax-calculating-and-claiming-a-loss).
Note: I am not an accountant or lawyer so I would recommend seeking legal advice but this is based on my experience.
Awesome, thanks for clarifying that
Are you a UK resident (do you have an address and NI number)? I'm also interested about the topic.
The best way to get a real answer is to talk to a lawyer about this. Sounds expensive, but many great lawyers will actually advise you for free on this, hoping to get you as a client once you incorporate. Just email a few from your area and schedule phone calls with them.
In general, it will most likely be easiest in terms of incorporation, taxes and bank accounts to incorporate in the country you live in.
Those e-stonia and stripe atlas programs might sounds very attractive because they have nice websites and take you by the hand, but in many modern countries it is very simple to incorporate directly with the governement.