Four Countries Where I Considered Incorporating

Since I live overseas, incorporating in a foreign country became a consideration as I started up my businesses. I reviewed a long list of countries before narrowing to the four countries I’m about to mention. None of the locales I mention have the financial secrecy to be called “tax havens”.

While detailing their benefits I’ll also highlight some of the considerations I made for incorporating. I also don’t have large sums in the bank which would allow incorporating or buying residency in any country. If you do, some of my criteria may be less applicable to you.

Labuan

Yes, I know Labuan isn’t a country. It’s a tiny Malaysian island which makes a lot of sense for digital nomads if, like me, you like living in Southeast Asia. Major banking entities such as Citibank, Deutsche Bank, Goldman Sachs, HSBC and JP Morgan Chase all have branches there. To establish Labuan as a financial hub, the Malaysian government allowed it financial regulations not found in other areas of the country.

What’s really attractive is the 2-year renewable multi-entry work visa, which extends to spouses, children and parents. The visa covers Labuan and West Malaysia. Meaning if you were interested in living in cities like Penang, Ipoh and Kuala Lumpur, the Labuan Company visa could be one of your easiest residency options.

Labuan has no residency requirement for directors of your company. Incorporating there requires no obligation to stay in the country. The corporate tax on foreign-earned income in any currency besides Malaysian Ringgit is 3%. An annual audit is required, but it can be waived if you choose to pay the $20K (MYR) fee. If you’re only creating a holding company, the tax is 0% with no audit required. You’re also spared the massive filings typical in Hong Kong or Singapore.

Unlike those more popular Asian banking sectors, Malaysia is very affordable – comparable to neighboring Thailand. The average internet speed is pretty low but if you sign up with one of their top carriers, you should do much better. I ended up opting for citizenship elsewhere. But if Malaysia fits your needs, incorporating in Labuan is worth checking out.

Estonia

I don’t plan on living in Europe, but I do like to visit. For that reason, I looked at incorporating there and came across a number of candidates. Bulgaria, Cyprus and Malta are near the bottom for corporate taxes. While not an EU member yet, Georgia is moving in that direction and has received rave reviews for ease of doing business. Baltic countries like Latvia and Lithuania are vying to attract foreign investment with new corporate-friendly programs. So why Estonia?

Through its E-Residency, visa and incorporation programs, the country has made available a noteworthy benefit to anyone interested in incorporating there: physical and financial access to the EU. Their country has begun startup and digital nomad visa programs which allow holders to stay a year in Estonia and 90 days in Schengen visa countries. Making it a useful visa destination for non-EU nomads looking to extend their stay in Europe.

With Cyprus or Malta, you can stay no longer than 90 days, which can be a challenge if you’re trying to establish a base of operations. Estonia also has a lower cost of living with internet speeds as good or better than most U.S. cities. Though like most Baltic countries, it’s not an ideal year-round destination. But the real benefit of living in the EU for nomads is the opportunity to experience multiple destinations in the region.

Incorporating your business in Estonia would require you to pay the corporate tax rate of 20%, which applies to distributed dividends. Zero tax for any profits re-invested into your company – great for businesses with long startup phases. Expenses such as travel per diems aren’t taxed. It’s also possible to set up a slightly lower-taxed salary for yourself. These tax benefits apply as long as you’re not an Estonian resident and not living in a country where you’re a tax resident.

The first step to incorporating is signing up for their E-Residency program. Just so there’s no confusion, this program isn’t an actual residency program. It basically only offers access to their financial system with a digital card. Therefore it won’t increase your chances of opening an Estonian corporate bank account. Only starting an Estonian company will accomplish that.

E-Residency benefits some more than others. I’d take a look if you: 1) trade in euros 2) connect with EU clients 3) prefer to operate without paperwork, stifling bureaucracy and extensive accounting measures 4) live in a country with greater financial restrictions and/or worse reputation than Estonia. No one European country ran way ahead of the pack for incorporating, so shop around for the right fit.

Panama

Like Estonia, this country was a top candidate based on a combination of factors. Quality of living. Cost of living. Tax benefits. Ease of Residency. While comparing it to other Latin American and Caribbean countries, I found that Panama wasn’t the best choice in every area. So if one factor stands out above the rest for you, then maybe another country I mention would suit you best.

While you can find a well-developed banking sector in Panama City, it isn’t all that aesthetically pleasing. It’s really more for the retiree with a pension looking to live the good life at a cheaper price. You have to experience the natural beauty of countryside areas like Boquete or islands like Bocas del Toro to get a better appreciation for the country.

It may not have the same appeal or wealth as Caribbean islands like the British Virgin Islands or the Cayman Islands. But whereas those destinations are pricey vacation spots, Panama’s cost of living is well below the U.S. You could probably live more cheaply in South American cities like Medellin or Cuenca, but you’d have to make do with slow internet speeds. With the exception of more isolated areas, good internet is available throughout the country.

Panama does offer a 0% tax rate for foreign earned income with no audits or residency requirements. Belize offers the same at lower setup and maintenance costs and without the requirement of 3 directors that Panama has. But it doesn’t have a financial sector comparable to Panama’s. Some companies may balk at doing business with yours. But you wouldn’t face that problem with the British Virgin Islands, which has costs similar to Panama’s.

What Panama does have over many countries is relaxed immigration policies. Tourist visas are good for 180 days. But the Friendly Nations Visa can lead to citizenship. The cheapest way to obtain the visa? Incorporating there and depositing $5,000 (USD) in a Panamanian bank. A one-year temporary visa will lead to a permanent residency visa and a work permit. After 5 years, you can apply for citizenship.

Uruguay and Paraguay offer citizenship at even lower cost. But – unlike Panama – you would be required to stay for extended periods of time each year. Add up a second passport, tax-free company and the viable living options for Panama and you get a unique opportunity should you commit to incorporating there.

United States

After weighing all the factors I ended up choosing the US. Some of you may be scratching your heads or flipping off the computer screen right now. This choice may seem obvious to most readers, since a large percentage are likely US-based. However one reason for my decision that applies especially for U.S. citizens is that incorporating outside your country increases your chances of a government audit.

U.S. citizens are renouncing their citizenship in droves due to onerous IRS reporting and/or the fear of conviction. This isn’t a problem exclusive to the crazy Americans. After the U.S. initiated a crackdown on tax evaders with FATCA, other Western Countries followed suit. For example, the European Union issued a blacklist of countries who refuse to share the bank account details of US citizens.

For U.S.citizens wishing to avoid the possible hassle or expense of an IRS audit, incorporating in your home state, like I did, may be your best option. US residents are required to register wherever you’re conducting business. Paying taxes from a home address qualifies as conducting business. With the latest drop in corporate taxes, incorporating in the US made more sense than paying startup and annual incorporation fees. It may make less sense for upper tax bracket earners.

One criteria for incorporating to weigh for US and non-US citizens alike: asset protection. For smaller limited liability corporations (LLCs), Wyoming is your best bet. It offers a legal corporate veil, no residency requirement and low startup/annual fees. More importantly it’s the only state providing asset protection for single member LLCs. Unless you’re a state resident, you’ll need to register as a foreign LLC. 

A key factor for choosing the US was the realization that its tax laws would prevent me from saving as much as I’d hoped. Review your tax laws and the laws of countries of interest. The cheapest way to incorporate overseas would be to find local legal representation that can navigate through country-specific requirements. However factoring cost and effort, it may be less hassle to contact a company with experience in incorporating overseas.

Thanks for reading!

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