Setting up a company in USA Delaware vs in Singapore?

I'm thinking of setting up a company in USA or Singapore for all my online business.

The reason is that taxes are crazy high over here and I had enough of paying so much for almost 14 years, I think could save me some money.

I'm doing my research but there is so much information that is overwhelming and confusing and you end up on websites that have affiliate links all over, others look like scams except Stripe Atlas and a few others.

So I ended up asking over here as there are a lot of indie hackers here with companies in any of these countries and I'm looking for real experiences from you. If actually makes sense as an EU resident.

So please if you could share some knowledge, websites to get proper and valuable info, legal tricks to avoid paying too much taxes, USA or Singapore, actually anything helpful I (and I think many others of us) would be very grateful.

Thanks in advance and happy weekend, Rod :)

One thing you need to research is what "tax residency" rules there are in the country where you live. Basically these rules mean you can't just register a company in another country and pay taxes there.

Usually you need to pay taxes in the country where you live the majority of the year. The best thing you can do is talk to people from your country that have experiences with this. Experiences from indiehackers from other countries might not apply to your country

Thanks Paul, I know is possible as a Spanish resident but so many diverse information out there.

The "tax residency" is for your personal income. That means, the US/Singapore corporation can make $1M, but if it only pays you $50k, you will be taxes on $50k in your country. The other $950k will be taxes in the US or Singapore.

This is not true. Depends on the country where your tax residence is. The Netherlands makes you follow alot of different rules if your tax residence is there. The rules are not only about taxes
You really need to do research based on the country you are in

I think both of you are right but are talking about different things. As far as I know Marc is right with regards to the $50k being taxed for income tax in The Netherlands (assuming you are a tax residence in NL) it you get that as income. The remaining $950k will not be taxed by The Netherlands because it simply isn't income. However, you can't use this $950k because it simply isn't yours, if you want to use it (privately) you will have to pay income tax (or dividend tax) on that $950k. If you keep it inside the company in the US or Singapore NL won't tax it until you make it income.

Of course, in your example you shouldn't forget corporate tax. That is the tax that is being paid in the land where your company is. For The Netherlands it depends on how much you earn, but Singapore has a flat 17% rare.

This is not really how it works unfortunately. It is very complicated and this is why I am saying you need to do research based on what country you are in. Hiring a tax expert would be best.

If you run a Singapore-registered business(or any other country) while living in the Netherlands there is a very high chance that the Dutch Tax authorities will say your business is "operating" from here and make you pay taxes, and social payments, here.

They do this by looking at your business and will decide where your "Fiscale vestigingsplaats" is. This decision is made based on where the owners of the business live, where the business is operated, and where the customers are located.

If this wasn't the case, every business owner in The Netherlands would simply register their business in other countries and pay less corporate tax.

I didn't know about 'fiscale vestigingsplaats', food for thought. Thank you!

If true, that would be crazy! You're telling me, if I'm Dutch and live in The Netherlands but am the sole shareholder of a Singapore corporation that does most of its business with non-Dutch customers, it would still be considered a Dutch business?

Yeah its kinda crazy.

You don't need to be Dutch, just living here. The government will look at it on a case by case basis to determine if you are operating in.
Ofc if you are owning a cafe in Singapore its very easy to say its operated there. But if you have an online business and do all the work from the Netherlands it gets difficult.

They're both correct because these are actually two different topics: Tax residency is the one and "ultimate beneficial owner" - or alternatively "controlled foreign company" - is the other.

They relate to each other, but they're not the same thing. Helps a lot more with research with using the terminology.

THEN, you still get into Double Taxation Agreements between the countries you're dealing with, and how corporate income tax works between them.

You should talk to a tax lawyer or CPA instead of asking here - this can get very complex fast.

Not legal advice, just what I've observed: in general, once you establish tax residency in a certain place (i.e. usually where you live) you will pay taxes there -- so it really matters more about where you choose to live vs. where you establish the business.

In many ways, having a business established outside of your tax residency makes your life more difficult because now you might have to file taxes in 2 different places.

Here's what I'm doing:
- I have a LLC in my current place of residence (New York, USA)
- My revenue is $55/year right now so taxes are the least of my worries (I will pay $0 in tax given the small revenue and the fact that I have some tax credits to apply)
- Even though I plan on moving out of the country to lower my personal living expenses, I'm still going to keep the LLC open in NY state. I'll just look at my earnings every year and make a call on when it makes sense to move the business somewhere else. The country I'm planning on moving to doesn't tax online businesses HQ'd in the US so it's really quite easy to work this way.

I would really suggest optimizing for simplicity of operations when you're getting started, not "how can I save the most in taxes"

Thanks for your reply!

I did some research into this but depending on the scale of your company I may or may not be worth it. Assuming you keep on being a tax residence in Spain you will pay income tax there regardless (possibly dividend tax). The thing that might be cheaper is the corporate tax rate. I don't know what the rate in Spain is but for my situation it just simply wasn't worth it to save a few % of tax but going through the hassle of setting up a company in a remote foreign country.

Of course, for me a few % was a few thousand euros which would be lost again by the additional costs, but if you scale up it might be interesting.

Thanks for your reply!

Researching Estonia's e-residency and eventually moving my company there is in my mental todo list. Any experiences here?

Regarding corporate tax in Europe, lowest seems to be Hungary (9%), then Ireland (12.5%), then Lithuania (15%). Unsurprisingly, this is why loads of corporations are based in Ireland, and others like Revolut Bank, in Lithuania.

Singapore seems singular because it has a territorial tax system so that only income sourced in Singapore is subject to tax, but I ignore the fine print. And usually there is.

I can tell about Spain, which is where I live and have my company incorporated. Simplifying: general corporate tax is 25%, but for small companies and revenues less than 1 M€/year a 23% is applied. And new companies are taxed 15% during its first two years.

I founded and have run for many years a consulting business which I have recently sold. At its peak we were a team of 12 and I was the CEO and only founder. For me the corporate tax was never an issue, because it applies to the money you leave in the company. If you are small as we were, you take most of the benefits as salary or dividends, which are not subject to corporate tax, but to income tax.

So my experience is: if you are making lots of money as a solopreneur or tiny team, then consider moving the business to where it's optimal. (AFAIK Pieter Levels' is based in Singapore). if you are just earning a living, even if it's a good one, it doesn't pay off the troubles.

Thanks a lot, Jaime.

I'm based in Spain too and is crazy the amount of taxes I paid over the years plus the "autonomo" fee that is 380 Euros right now, crazy!

My wife does all the bookkeeping for me, she has the time to put into it if needed but as said I don't know if it's worth it.

I came across this (Sorry for non Spanish speakers), looks like you could be saving a lot of money legally but you know it's hard to trust this stuff as they are trying to sell you the service, and is much better to hear it from a guy like you.

I will keep researching and please if you have anything else to share would be of a lot of help :)

It's crazy depending on who do you compare it to. Taxes in Spain and Europe are certainly higher than in the US, but these are different systems. I can only tell about Spain:

  • The autonomous (Social Security) montly tax provides you free healthcare system and a (modest) retirement pension. The higher you pay, the higher your pension. It also covers a disability pension. I pay a fixed 385 €/month which doesn't vary with my income.

  • VAT is generally 21%, in the European average.

  • Corporate tax is generally 25%, less than the European standard. And 23% for small business.

  • Income tax is proportional and usually misunderstood. You pay 19% for your first 12 k€. Then it increases to 24% for every euro above 12 k€ but under 20 k€. Then it's 30% between 20 and 35 k€, and so on. Every euro you earn above 300 k€ is currently taxed at 47%.

In Spain the average salary is ~25 k€/year. As I see it, an average young couple can live confortably in most parts of the country with their combined 50 k€/year per household, including a decent flat via a mortgage or rental. (However, many young people struggle to make 25 k€).

So say you make 100 k€/year from your business — that would be a pretty good gross income in Spain, catapulting you to the top 1% best-paid of the population.

Say yo decide to leave 25 k€ in your company for reinvestment, and take 75 k€ home for your expenses.

In taxes:

  • You would pay 4,6 k€ to the Social Security, and have free health insurance and a modest pension when you retire or in case of disability.

  • In corporate tax you would pay 5,65 k€ more (23% of the 25 k€ you decided to reinvest).

  • In personal income you would be taxed 20,1 k€.

So you would pay, in total ~30 k€, leaving you ~70 k€ from your total 100 k€ gross income. Your combined average tax rate is around 30% for that high income.

Of course you would then pay VAT when spending that money: ranging from 4% for basic goods to 21% for most of regular consumer goods.

On the other hand, public education is also free in Spain. Even university tuitions. As an example, my own education, from high school to my college graduation, was completely free. I even received public grants to pay for books and other expenses.

As far as I know, it's pretty similar across Europe. As said in my prior answer, corporate tax varies greatly among countries. But that is of little impact to indie makers, solopreneurs and even small business owners.

To me, the issue is when you are starting up and you don't make much money. Then the Social Security fixed tax is particularly painful.

How is that in your countries?