Best (tech-) startup hub? Preferably low/no tax but not a must. Or going fully remote?

[realdealbusiness]

Trying to find the best city / country to start & scale my company & live there the majority of the year.
Business Model has been proven with good revenue and good growth.

My main problem before was building out a reliable team that functions independantly without my constant efforts.
My aim is to get great talent for C-Level positions & having easy access to whatever the company needs to run & scale the business without too much bureucracy.

It was all digital before and I worked with lots of "cheaper" freelancers, which I think was one of my main mistakes. I lived as a digital nomad most of the year and resided in CY a few months for tax residence and really struggled to meet possible co-founders or highly talented / motivated people to onboard fully. To be clear, I blame myself for this because the business started with a "I need cash,fast" approach.

This time I am trying to re-start the business by getting a strong foundation first.

Taxes are secondary and not the biggest issue because I am convinced that doing it right brings in much more profit after taxes than let's say 0% taxes in a "banana" republic.
To save taxes later should always be possible and I would only use solid legal solutions with substance in different jurisdictions.

In other words, where would you start a proven business requiring a solid foundation today & why?

So far I see two options:

1) Living in a startup hub and not caring about taxes (or caring later if those are too high). Growth from being there should be > Potential Tax Savings
2) Living in a no-tax / low-tax country and running the business fully digital from there and using the pool of talent worldwide. Growth potential should be similar. In this case I definetely need to learn how to hire and retain the best people / team possible.

Looking for recommendations.
I am looking for experienced opinions from people who built an 8+ figure businesses or who are currently building a business for a proper exit in the future.

Thanks for your help.

 

[dlttrading]

I have similar problem like you. Also I live in CY and like it. But you are right is is not comparable with big startup cities in other parts of europe and the world.

I want to try out Portugal- Lissabon Startup scene . I heard that there are a lot of talented people waiting for foreign ideas and foreign businesmen. Portugal also have the non dom scheme like Cyprus but worse because is more complicate and not as good as in CY. In PT you have nice clima at atlantik with fresh air 15-30 degrees more or less all year.

In general you can receive dividends from Cy to PT taxfree when you could fullfill CFC rules so you need office in Cy and maybe secretary to fullfill the substance requierements

Additionally you establish a cheap subsidary company in the country where you want to do your new startup so in my example Portugal . For example cheap portuguese limited + cyprus holding should be good structure and probably cheap for you.

 

[Super Tucano]

I'm in the same boat.

My main idea is the Madeira Free Trade Zone + Holding outside PT + NHR. It is not without pitfalls as Martin Everson pointed out in the thread but I plan to get proper advisors and maybe ask for an advance ruling from the Portuguese tax office. It would result in a 5% tax rate (plus a few thousand per month in compliance expenses) while allowing me to live in Lisbon, where cheap talent is supposedly plenty.

At the same time I have an almost irrational fear of moving my business to Western Europe. Just reading a local newspaper makes me want to self-exile to Dubai or Monaco.

 

[realdealbusiness]

I'm in the same boat.

My main idea is the Madeira Free Trade Zone + Holding outside PT + NHR. It is not without pitfalls as Martin Everson pointed out in the thread but I plan to get proper advisors and maybe ask for an advance ruling from the Portuguese tax office. It would result in a 5% tax rate (plus a few thousand per month in compliance expenses) while allowing me to live in Lisbon, where cheap talent is supposedly plenty.

At the same time I have an almost irrational fear of moving my business to Western Europe. Just reading a local newspaper makes me want to self-exile to Dubai or Monaco.

This would not work. As Martin described in that thread, it is a trap...How do you want to be in the midst of startups with your setup and team (Lisbon) when all employees have to legally reside in Madeira.

 

[dlttrading]

@realdealbusiness
Do you have allready a cypriot company ? If so than you could establish headquarter of your startup in Cy ( Company A). You hire one secretary and one director in Cyprus for company A to fullfill substance requirement and decision taking in Cyprus.

Than you go for example to Portugal and establish subsidury company (company B) which is only is doing development, marketing etc for Company A.

I think this setup would be easier than any Madeira fake substance company.

 

[Sols]

I've worked on a couple of projects like this in the last few years. When talent is more important than tax, you're often left with medium/high tax jurisdictions since that's where talent tends to be, at least if we're talking about Europe or US. Malta and Cyprus can be doable if your business is related to igaming, forex, crypto, or financial services and you can afford to pay well above market rate. You could then poach people from other businesses or offer an attractive enough package to relocate someone from mainland Europe.

Main candidates usually London (keep an eye on Brexit), Berlin, Amsterdam, Stockholm, New York, San Francisco, Frankfurt, Munich, and Vienna. Lesser known but interesting locations are Portugal (growing pool of local tech talent), Prague (bureaucracy is hell but costs of living are low), and Estonia (good but small talent pool).

If you have money to burn, Switzerland can work.

Lithuania is so-so. They are trying hard to become a fintech hub but in reality, while the talent pool is growing it's small and unable to meet demands. Many fintechs just place the bare minimum in Lithuania with the rest located elsewhere.

 

[Super Tucano]

This would not work. As Martin described in that thread, it is a trap...How do you want to be in the midst of startups with your setup and team (Lisbon) when all employees have to legally reside in Madeira.

As I was told, you can have employees outside Madeira, you just need to have enough there to fulfil the tax benefit obligations.

I actually know someone with a company in Madeira that grosses 9 figures (fairly well known sports e-commerce company), but he does it a bit differently. The Madeira company receives the payments (has the minimum employees required) but the work is done by other companies in mainland Portugal, all under the same Portuguese holding company (he's not NHR). Works very well but way too complicated for me.

I think this setup would be easier than any Madeira fake substance company.

Then create real substance...

 

[realdealbusiness]

I've worked on a couple of projects like this in the last few years. When talent is more important than tax, you're often left with medium/high tax jurisdictions since that's where talent tends to be, at least if we're talking about Europe or US. Malta and Cyprus can be doable if your business is related to igaming, forex, crypto, or financial services and you can afford to pay well above market rate. You could then poach people from other businesses or offer an attractive enough package to relocate someone from mainland Europe.

Main candidates usually London (keep an eye on Brexit), Berlin, Amsterdam, Stockholm, New York, San Francisco, Frankfurt, Munich, and Vienna. Lesser known but interesting locations are Portugal (growing pool of local tech talent), Prague (bureaucracy is hell but costs of living are low), and Estonia (good but small talent pool).

If you have money to burn, Switzerland can work.

Lithuania is so-so. They are trying hard to become a fintech hub but in reality, while the talent pool is growing it's small and unable to meet demands. Many fintechs just place the bare minimum in Lithuania with the rest located elsewhere.

Thanks, this is a very valuable comment because you already worked in such projects.

1) Which jurisdictions would you choose from your personal experience?

2) Do you have experience in working in such an environment fully remotely (from one of the usual low-tax jurisdictions like Cyprus, Georgia, UAE etc.), meaning everyone you hire lives & works wherever they want and 90% of the time?

If yes, would you now rather do it like this or would you rather re-locate for the ease (& fun) of having everyone together.

3) What do you think about my inital thought "Growth from being at a great startup hub > Potential Tax Savings in low-tax country" ?

Some info about me:

Since I love sun & good vibes I tend to the warmer locations you mentioned, such as SF, Lisbon, Austin, Singapore, or similar ... I could do most of the others too, like VIenna, Berlin, Munich (which I all like) but only for 5-8 months a year from April to October, because I usually freak out in the cold - maybe because my parents are from a sunny country. Vitamin D alone does not help me lol..

In a fantasy world what would be optimal for me would be something like Lisbon (Vibes, lots to do, fun city, great weather year-round, great talent, easy to attract smart people from around the globe) with the tax system of Estonia (which I believe to be the fairest low-tax system we have so far on earth) or easy no- or low-tax.....

4) What about combining jurisdictions? If I set up in a higher tax region (let's say Lisbon) and do everything there and later once things start going off we set up a subsidiary company in Cyprus (or Georgia, UAE etc.) and re-locate some real people there to make some key decisions and process the payments through there, would that be acceptable by law?

 

[realdealbusiness]

As I was told, you can have employees outside Madeira, you just need to have enough there to fulfil the tax benefit obligations.

I actually know someone with a company in Madeira that grosses 9 figures (fairly well known sports e-commerce company), but he does it a bit differently. The Madeira company receives the payments (has the minimum employees required) but the work is done by other companies in mainland Portugal, all under the same Portuguese holding company (he's not NHR). Works very well but way too complicated for me.

Then create real substance...

I do not want to sound negative to you but if I were a taxman, I would be highly suspicous if the company on the small island with only a handful of people there making 90% of the revenue, while propably 100s of employees on the mainland do the real work & decision-making. I feel like this works more on paper than in the real world where it gets obvious using common sense can smell the fishyness if audited.

I wished I'm wrong but people commenting in the thread you sent seem to think the same. You do not want to get into a big shitstorm once you started a successful company that you want to exit one day.

With that said, I would be happy if you prove me wrong...

 

[Sols]

1) Which jurisdictions would you choose from your personal experience?

Impossible to say without looking at every aspect of the business. You have to consider type of talent available in each location based on either who you can attract to move there and/or able to take from competing or similar enough businesses locally.

2) Do you have experience in working in such an environment fully remotely (from one of the usual low-tax jurisdictions like Cyprus, Georgia, UAE etc.), meaning everyone you hire lives & works wherever they want and 90% of the time?

Have been in companies with low, mostly, or entirely remote. What works depends on the business and the people. Fully remote is great if everyone is on board with it and you find people who don't need an office environment to work.

One thing to consider is you probably can't offer the same security as a local employer. You have to pay people extra so they can afford private pension saving, private healthcare, and so on. If you don't, it's only a matter of time until you start bleeding top talent to local employers.

3) What do you think about my inital thought "Growth from being at a great startup hub > Potential Tax Savings in low-tax country" ?

Sounds like common sense to me.

Very few tax havens or low-tax jurisdictions have any kind of meaningful talent pool and real businesses operating there. Hong Kong, Singapore, Malta, and Cyprus are probably the only ones and the last two are very small in terms of population size and dominated by specific industries (gambling and financial services).

4) What about combining jurisdictions? If I set up in a higher tax region (let's say Lisbon) and do everything there and later once things start going off we set up a subsidiary company in Cyprus (or Georgia, UAE etc.) and re-locate some real people there to make some key decisions and process the payments through there, would that be acceptable by law?

Speak with tax advisers. This is extremely complicated.

In short, if you live in any of those jurisdictions, any company that you and you alone have control over become tax resident there. But if you have a team and actual physical presence for the company, the company may not be tax resident where you live.

 

[dlttrading]

I would recommend to incorporate a cypriot company before you start to do the subsidary company for example in Lisboa. This is much more logic. You start your business in Cy and later you open subsidary company in Portugal because of cheap labour and big talent pool. As you live in Cy allready you can easily rent office and hire local guy for the first months together with you as a director. So you start allready to establish your headquarter with substance and infrastructure ( bank, emi account, paypal, office, landline, pay wages and social insurances for staff and director )

As a headquarter Cyprus is very good location. I think it is better location than a headquarter in Madeira because it is easier to build up a headquarter with talented people than Madeira. I am sure you find more brains and IT worker in Cyprus than in Madeira. Also corporate tax rate of 12.5% in Cy can be lowered with some moves later when you would have to much income and to much profit.

 

[hungarist]

I was in a very similar situation, so let me recommend this:

Best place for living and talents: Budapest (Hungary)
Startup hub, every young speaks English, cheap and large workforce, Software developers in Berlin, London, Paris costs 5x -10x more than in Budapest.
Very cheap cost of living (food, entertainment) almost like SE Asia, yet feels like being in Western Europe.
Budapest is one of the safest capital city in EU, I felt more safe than in London or Paris.
But real estate became very expensive because of investors from China and Middle East.

For tax: I would still recommend Hungary, maybe Malta
https://en.wikipedia.org/wiki/List_of_countries_by_tax_rates
9% Corp tax lowest in EU, (Malta is lower but if you plan to hire local people skip Malta) less than Cyprus (12.5%), Lithuania (15%), Estonia (20%)
17.5% max social contribution, much better than Cyprus (max 35%) Lithuania (max 42%) Estonia (max 53%)

A Hungarian company is always tax resident in Hungary so no CFC problems, 9% is fine for startups, once you have revenue you can optimize it further with holding companies.

I recommend Hungary because if you plan to hire people you will pay after them only 17.5% for social contributions, healthcare, while in Estonia it can be as high as 53%.

 

[ih8socialism]

I just wanna share my experience on this. I didn't build any 8+ figure business but two businesses making 7 figures on a yearly base. One made it for couple of years and the other one is in its first year of operation and both follow a different approach.

First business was fully digital, we created a digital product (software / game) and sold it. We were a total of 3 people who worked on this project. All fully remote. The advantage was, we knew each other for quite some time (3-5 years) before we started doing business together so we knew what the other people were capable of.. After the first year of being in business we already made almost 7 figures, that was when we made the decision to relocate to UAE which was a good choice since we didn't need any additional staff, except some guys for the support which do not need to be any high educated people. However, after 2 years one of us three became very lazy and decided to quit the project, no problem since we could still manage to keep it alive with 2 coders, after another 2 years the 2nd one become very inactive, missed deadlines and so on. Hence I started looking for other devs, but since we were operating in a very small niche it was hard to find talented people, who wanted to work remotely. Most of them didn't want to take care about the business aspect, they just wanted to be employed and do the work. In the end i didn't manage to find someone, so I sold the project and left it.

Shortly after it, I got involved in a new startup in the logistics area. The new startup required some specific software solution, there were few other solutions but they couldn't live up to their standards. For that purpose a new company was created to develop, maintain and distribute the software which was needed. I am holding shares in both companies (located in germany) right now, more in the IT company since I do the development and the "CTO" part (God I hate these titles). However the biggest question we had when starting developing the software were

1) Use freelancers for the beginning, which was and still would be the cheaper option
2) Actually employee staff in germany

We evaluated both options and since we had limited amount of funding we had to plan this very carefully. On top I am living in the UAE so this didn't make things more easy.

After some research we found a programm from the german government to support startups with a maximum up to 150k EUR, only requirement is to commit yourself to the location the company was created for 5 years. You won't find any of those in tax haven countries, except maybe the GCC like Bahrain fintech hub or Qatars financial district, but then again you need to a specific product for the region.

Due the government support we were able to employee 2 high qualified developers and someone for the back office of the company. I am quite sure this would have not been possible if we would have tried to setup the company in GCC or anywhere else in those tax haven destinations.The talentpool in middle european countries or the states is way bigger and better (no offense). Also don't forget market access if its needed. Due our location, we could build up ties to one of the biggest companies in germany in our sector and get them as a customer.

I manage our team right now most of the time remotely since I am living in GCC, but visit them in person like every 4-6 weeks when I am in germany, plus I have 2 business partners which are in germany so my presence is not required 24/7 to keep an eye on them lol.

Due to the money I made from the first company, I don't need a monthly salary, so getting money out of the company without getting it taxed is not an issue.

However, long story short:

In my opinion depends on the project / business model itself. If you require a good talent pool and easy market access I would recommend with sticking to EU / US. If you can maintain the project by urself or with only a few people and don't need high talented people offshore can be an option to maximize the profit.

Just my two cents about this topic and good luck with your project mate!

Best Regards

 

[stefpdt]

European countries with Germanic influence means you get disciplined workers with a good work ethic for reasonable rates. Like the posters above said, Hungary and Germany would be good options. And like you said, talent is more important than tax in the early days. Your talent produces revenue. Once you're doing 6/7 figures you'll have access to quality accountants and lawyers anyway.

 

[realdealbusiness]

Thanks everyone.

So as per all of your contributions, let me get this down to what we learned here.

Conclusion:

The chosen location depends on multiple factors such as taxes, talent, approach, the business model itself, where to get investments, strategy, your own preferences (weather!, lifestyle,..), etc.

Companies can or can't be run fully remote depending on the enormous amount of factors and only you as a founder can decide how you tackle this.

If you start fully remote, there is nothing holding you back to still re-locate full-time to a fitting location.

I would therefore say, if you are unsure, start fully-remote with certain restrictions (not too much travel to be productive, exploring the entrepreneur-culture on your travels rather than beautiful beaches only) and try to work it out this way. If it does not work out or if you find a great location that you feel is perfect for your endevours, just stay there.

If you're sure about where you want to go, just go for it and work it out from there.

You could also start from a low-tax country to build some substance and build it out first before relocating.

In general we can say Growth from being at a great startup hub > Potential Tax Savings in low-tax country. Therefore stay flexible to make the decision to move again in case it is needed.

For extremly well educated & hard-working talent watch out for Eastern Europe or other countries with a hard-working spirit in general.
Talent need to be treated as good as possible, give them all the benefits needed to hold them long-term.

If you start remote in a low-tax country: Cyprus (Larnaca, Nikosia, Limassol), UAE (Dubai, Abu Dhabi), Georgia (Tbilisi, Kutaisi) and any other area where you can find lots of nomads maybe lie Thailand (chiang mai), Vietnam (Seoul), etc...

best high-tax startup-hubs: Portugal (Lisbon), Hungary (Budapest - cheap corporate tax), Estonia (Tallinn - lower & easy taxation), Singapore, USA (San Francisco, Austin), etc.

There is no one-size fits all.

 

[realdealbusiness]

If you start remote in a low-tax country: Cyprus (Larnaca, Nikosia, Limassol), UAE (Dubai, Abu Dhabi), Georgia (Tbilisi, Kutaisi) and any other area where you can find lots of nomads maybe lie Thailand (chiang mai), Vietnam (Saigon*), etc...

I meant Saigon instead of Seoul* ... lol

TLDR: The choice is up to you. Just decide whether you go all in from the start or not. The location only matters once it you need local talent or serious VC funding. Always be ready & stay flexible to adjust if needed. Base your decision on the success of your business & your personal life preferences.

 

[JimBeam]

Trying to find the best city / country to start & scale my company & live there the majority of the year.
Business Model has been proven with good revenue and good growth.

I might have something for you...
Please email me at jimbeam1795 {at} protonmail {.} com