Setting up a company abroad - the most important things to know, why, where and how.
Setting up a company abroad has been on the minds of many entrepreneurs. There can be many reasons for this, and we will deal with each of them separately. In many cases, setting up a company abroad immediately brings to mind setting up a company offshore, but the two are not at all the same thing. In this article, we will look at the types of company formation in another country, the reasons why you might want to set up in another country, and the advantages and difficulties of setting up abroad. We will also show you the biggest centres where most people want to set up a company. We will also discuss tax issues.
When setting up a company abroad, the first thing to look at is always the motivation.
At the beginning of every enquiry or request to set up a company abroad, I like to clarify why. This is a very important question, it sets the basis for the rest of the consultation. We would like to have less corporate tax on our business, or as individuals we would like to reduce our tax liabilities legally, or we may want to outsource some part of our business to another country, or the company we have built may want to expand abroad. These are very important issues. Simply "I don't want to pay tax or VAT" is not enough. From tax optimisation but it is an important part of the business world.
It is also important to consider where the company provides business services, whether in Hungary, another EU Member State or further afield. Who are the customers and where is the service produced. Whether we operate locally or internationally, online or offline and whether this can be modified.
The next very important issue is usually the fate of the profits generated. We may have plans for the future, so we would leave it in the company, but preferably tax it out. We may imagine our retirement on a tropical beach after a few decades of work. That's why we always try to get a full picture of the transaction and plan together the next steps in setting up a company abroad. It is then possible to plan the necessary legal steps along the lines of the rules.
Types of foreign company formation and what you need to know about them.
In this profession, there is a general classification that we use for both companies and countries:
There are many countries in the world whose laws allow the registration of International Business Companies (IBCs). These companies are may not perform in the country of registration activity and thus are exempt from corporation tax, instead you pay a low, fixed fee. These companies are easy to set up and sustainable at a low cost, but it is important to note that their use is already quite limited. Generally holding structure more than once, and also in cases where the owner wishes to remain incognito. Often island states offer such opportunities, such as Seychelles, Mauritius, British Virgin Islands, Marshall Islands or even Panama, where, under local law foreign income is exempt from taxation. There is a low level of administrative obligations and a high level of confidentiality, with no public records of companies available.
These are companies registered in countries where the business can also do business locally. Such a foreign company needs the keep financial recordshere, pays taxesand more specific no discount is granted. In practice, you need a strong reason to think about setting up such a foreign company. These may be cheaper or more skilled labour, or activity in the local market. In general, company details are public, often available online.
These companies are somewhere in the between offshore and onshore companies are located in. These jurisdictions provide more favourable tax conditions or other benefits for a foreign company. The average corporate tax rate in these jurisdictions ranges from 5-15%. Examples in the European Union are Cyprus and Malta. In the Middle East United Arab Emirates, and further afield Singapore or HongKong.
Where to start a company?
It is worth noting that a significant number of foreign company formation agencies in Hungary have changed their business model and are helping foreigners to set up a company in Hungary, as Hungary's 9% corporate tax is an attractive option for many companies. But who will decide where it is worthwhile to set up a company will largely be determined by the range of questions above. Without a doubt, the most inquiries will come from Starting a company in Dubai is obtained in relation to where no need to worry about double taxation, since the international treaty on the avoidance of double taxation between Hungary and the United Arab Emirates entered into force in 2015. This means that the types of income are described in detail, when and under what rules tax is payable, and when and under what circumstances. you can read here.
Costs of setting up a company abroad
When setting up a company abroad, the location and type of company will determine the cost of a company. For an offshore company, this will start from €1000-1500, even if other extra services are used. In general, these are fixed amounts, which is part of the fixed tax, the local address, the mandatory local representative. Each country has different legal rules. In Hungary you need a lawyer to set up a company, in Germany or Spain a notary, and in England, the United Arab Emirates or the Seychelles a local representative or agent. This is a licensed activity with serious regulations to comply with, and you need qualified legal staff. The registered agent is the contact person between the foreign owner of the company and the authorities. It is also mandatory in other countries if the entrepreneur does not live in that country. In Hungary, this is called a delivery agent.
The cost of setting up an offshore company exceeds the cost of a midshore company, which can run into thousands of euros, but is still cheaper than an onshore company. Our practical experience is that it is cheaper to we commission an expert, who has day-to-day experience of setting up and planning companies in different countries.
How to get started if you are thinking of setting up a company abroad?
As a first step, you should think it through in detail on the business planedet. It is then a good idea to see what service providers can help you and choose the one that seems the most reliable. Trust is important, because you want to create a company structure that is stable. Language skills are an important part, but in most cases I would still look for an experienced partner at home. Put your cards on the table, because that's how you'll get real help. If the business plan comes to fruition, what is your plan for the profits generated? It could be a dividend, a salary, further investment or other payments. You will need to plan for this too and you may need to change your tax status for it. Setting up a company abroad is a really complex process, and I would definitely recommend finding a mentor who can help you.
Let me give you a personal example. We have a client. We first met more than 10 years ago. He was very young at the time. We helped him with a opening a bank account abroadban. After many years, he called us to help him open another bank account. This was also successful and a more direct relationship was established. One day he called me from Dubai to say he had set up a company out there with a local service provider.
The company was set up as it should have been. That's not the hard part. Getting the necessary permanent residence or business visa afterwards can take 1-2 months on your own or a few days with us. This is definitely necessary to be able to open a bank account, and as he is travelling anyway and not living in Hungary, he wanted to move his tax residence to another country with more favourable tax rules. In practice, our office can do this within 4-5 days, but it is possible to find a quicker solution. This old client called me after a month and a half and I had to help him remotely. As the passport has to be submitted at the start of the immigration process and is only returned at the end, it is relatively easy to forint what extra costs the client has incurred because he wanted to save €1000.
My other favourite is when someone says "ooh, they said they'd do x €". I don't usually see detailed quotes on the market, so it's hard to do an apples to apples comparison. We do our best to provide the best possible service at the best possible price. This is one of the foundations of long-term cooperation.
Every foreign company formation is different. There are different rules and laws in different countries. The culture is different. Setting up a company abroad is not just about setting up a company, opening a bank account may require a residence or even a permanent residence permit. You need to know the tax rules and administrative obligations of the country. If you are thinking of setting up a company abroad and need help, we are at your disposal.