Are you an IT specialist? Congrats, not only because you provide one of the most desired services in the world…. Your business can be set up anywhere in the world and you, personally can be working (and maybe living) anywhere you want, as long as there is a good Internet connection. Programmers, web developers are just perfect remote professions.
If you are running your own IT-related business and considering a change of its legal form or location, or maybe just thinking about establishing something on your own, this guidance is for you.
In the below breakdown, we took into consideration the most important factors for start-ups and any new entrepreneurs.
We focus on rates of CIT (Corporate Income Tax), social insurance costs, VAT constructions and the crucial: cost of running the company, as well as general impression over the jurisdiction. You will see that in some cases, you can be issuing invoices without VAT, which practically means a lower cost of the service for you clients.
GEORGIA
CIT for the IT industry: no CIT.
Yes, that’s right, in Georgia, there is a special ‘Virtual Zone Company’ regime where, after registering limited liability company and applying for a special Certificate, companies have total exemption from CIT if they provide IT services to entities outside Georgia.
CIT for all other industries – in case your business in not strictly IT related is: 15%, but payable only when the dividend is paid. This means that if you own a company in Georgia and run a business, you don’t have to pay CIT advances every month. The tax is payable only when the dividend is paid.
Social Insurance: it does not apply if you do not have employees (this can be resolved, e.g. by ’employing’ contractors).
VAT: not applicable for services provided outside Georgia.
Share capital: only declared, no payment required.
Accounting expenses: from EUR 40/month (CIT declaration are submitted each month)
Additional benefits of the jurisdiction:
- 7th place in the world in the ranking of ease of doing business;
- Low employment costs;
- Low operating costs;
- Fast incorporation: one day;
- Lack of perception of jurisdiction as a ‘tax haven’ despite no / low taxes;
- Opportunity to enter Asian markets more easily thank to location;
- Access to Russian-speaking personnel;
- Not in EU, which can be a beneficial in some cases (no CRS, Common Reporting Standard when it comes to banking).
NOTE For the Georgian company to be resident in Georgia, its management and control must be performed from Georgia and we suggest on appointing a local (Georgian-resident) as one of directors. However, you can be the 2nd director in the company since it is even suggested if the director has IT background.
CYPRUS
CIT: 12.5%, being one of the lowest in Europe.
Social Insurance: it does not apply if you do not employ additional employees (this can be also resolved, e.g. by ’employing’ contractors). Not applicable in Cyprus in case of employees from outside Cyprus.
VAT: obligation to register for the revenue exceeding EUR 15 600 per year. After exceeding the threshold: the rate is 19% in the case of services rendered to entities in Cyprus or B2C. No VAT for the provision of services to entities located outside the EU. No VAT according to EU directives when selling B2B services between companies registered for VAT in the EU.
Share capital: only declared, no payment required.
Accounting costs: from EUR 30/month.
Additional benefits of jurisdiction:
- No tax on capital gains (e.g., sales of securities)
- No withholding tax on dividends paid and received
- IP BOX regime allowing for an 80% CIT exemption for activities related to intangible assets
- Very stable and flexible legal and tax system, even though ranked as 54th for ease of doing business, the country is business friendly and non-bureaucratic
▶ NOTE It is a great jurisdiction to run a business when combining with a personal tax residency in Cyprus (60-day rule of tax residency). When becoming a tax resident of Cyprus, you can benefit from no taxation of dividends and interest for non-domiciled tax residents – for 17 years of the residency (exemption from Special Defence Contribution which is a local withholding tax on passive income for domiciled tax residents).
GREAT BRITAIN
CIT: 19%.
Social Insurance: it does not apply if you do not have employees (this can be resolved, e.g. by ’employing’ contractors).
VAT: no obligation to register if for the revenue below GBP 85,000/year. After exceeding the threshold: 20% when providing services to entities in the United Kingdom or B2C. No VAT for the provision of services to entities located outside the EU. No VAT according to EU directives when selling B2B services between companies registered for VAT in the EU.
Share capital: only declared, no payment required.
Accounting costs: from EUR 30/ month (CIT declaration are submitted once per year)
Additional benefits of the jurisdiction:
• 8th place in the world in the ranking of ease of doing business
• Excellent reputation
• Low operating costs
• The possibility of entering global markets more easily
▶ NOTE The incorporation process is very fast and easy. It takes only 24 hours to have the company registered and everything is done through the electronic system. There is even no need to sign any corporate documents.
Company advantages over self-employment
As you see, all the proposed countries have good reputation, stable legal system, no bureaucracy, and low taxation and at the same time are not considered as tax heavens.
Many freelancers are afraid of establishing their first business as a company. We see it as the most convenient way of running a business, for couple of reasons, depending of course how beneficial a simple self-employment/sole trader in your country is for you.
It is a myth that company formation is a solution only for those who already have an impressive portfolio of clients and hire employees. But you can easily be the only person working under your own brand and a company is a safe form of doing a business, even from the very beginning. What is important, you can separate company’s operations from your personal wealth and protect yourself, since all the liability is on the name of the company.
What are further benefits of establishing a company in a new location? Of course, great international exposure and possibilities to expand on new markets. On another note, it offers risk diversification by placing some funds abroad and limiting your personal liability. As self-employed you would take a full responsibility for your business as a physical person and would be held responsible yourself personally for any (financial) liabilities.
How can we help you?
We are here to answer your questions regarding forms of running a business or its (re)location combined with your personal tax residency. We can assist with all the stages of your business set-up and its daily operations, like accounting or banking services.
