Technology has bridged nations, with processes becoming transparent and competitive the world over. Countries, in a bid to attract investments, are trying to push up the ranking scale in ease of doing business. In this global backdrop, Start-ups have new opportunities to move beyond their own home country to set up place of establishments or plan their operational expansions.
In this edition, we will discuss how Start-ups can review and choose their place of business or international expansion, based on the economic and political environment in different areas/countries that align with their own strategy.Key Factors
There are myriad factors to be taken into account before zeroing on the place of incorporation or expansion. Further, the decision should also provide for allowances to the changing laws and treaties. For instance, the new Mauritius – India DTAA has put new things into perspective while structuring the company. And there are other factors like the political stability and cultural preferences that come into play. Some key decisive factors include:
- Company Structure
- Available funding opportunities
- Costs of setting up and maintaining the company
- Resources – including Labour
- DTAA/other country specific treaties and pacts
- Access to markets
- Political stability
- Quality of life
Dubai, UAE has emerged as a leading commercial hub with state of art Infrastructure. Dubai is strategically located midway between the east and west, providing excellent base for commercial operations. The place offers a promising market for overseas companies in a wide range of sectors. One of the key factors that make Dubai attractive is the absence of corporate income tax. There are no barriers for movement of foreign exchange. The energy costs are competitive and there is plenty availability of skilled force. However, the lack of democratic set up, judiciary and law enforcement is a major drawback that keeps investors away.
Singapore has been touted as the no. 1 place in the world in ease of doing business. With its fascinating lifestyle and comfortable diverse culture, Singapore has a lot to offer to the international business community. Singapore is rated #1 as the most politically stable country in Asia. Its strategic location too, makes it the perfect hub to gain access to the South East Asian markets. Without a setup in Singapore, it would be impossible to break into markets such as Indonesia, Vietnam, Malaysia, and the Philippines, as language barriers are crossed. A key factor that makes Singapore a very popular start up hub is the absence of dividend tax and capital gains tax. Corporate tax rates are about 8.5% up to $300K profits and a flat 17% above that. Personal tax rates start out at 0% and max out at 20% above $320 K. Singapore maintains one of the lowest GST rates (currently 7%). Further the Singapore Government has announced a slew of grants & schemes to help businesses set up and expand with Singapore as the headquarter base. Even resolving a commercial dispute in Singapore takes around 150 days, the shortest time in the world. Post the new amendment in Mauritius-India DTAA, entrepreneurs are looking at Singapore. However, the impact is yet not certain as similar DTAA amendments are expected between Singapore & India as well. In any case, country has a robust economic landscape and offers many opportunities to raise funds. Many promising Start ups in India have registered or moved to Singapore.
Mauritius boasts of one of the best economies in Africa. Mauritius has low tax rates, which make it a formidable base to start a venture. The country acts as a vibrant business bridge between Africa, Asia and Australia. Mauritius has been an attractive investment destination, primarily due to waiver of capital gains tax on investments as per a provision in the double taxation avoidance treaty between India & Mauritius. Thereby many investments into India came through Mauritius route. The new treaty amendment however, has changed this. The capital gains exemption has been withdrawn in a phased manner. And this is expected to have a significant impact on the inflows through Mauritius.
British Virgin Islands (BVI) and Cyprus are popular investment destinations that serve as tax havens in world. BVI benefits include freedom from capital gains and corporate taxes, as well as inheritance and sales taxes, and incorporation can be complete in as little as two days. Furthermore, BVI offers maximum asset security with the ability to transfer domicile. Directors can protect an International Business Company’s (IBC) assets by transferring them to another company, merge or consolidate them with a foreign company or corporation in another jurisdiction. BVI companies have business dealings in the famous tax haven Cyprus, as well. BVI companies with Cyprus bank accounts enjoy secrecy, privacy and assets protection. Whilst anonymity can be a benefit of offshore companies, when it becomes in the owner’s interests to declare themselves as the beneficial shareholder, this might be a difficult and time consuming exercise. Also, BVI suffers from poor international reputation due to a number of high profile cases of controversial tax evasions
Delaware , in the United States, has been a particularly start up friendly state. Incorporating in Delaware is a popular choice for early stage, accelerated growth tech start-ups. It helps to get a US presence and access to US resources, including US venture capital. However there are downsides that include extra filing fees, the annual Delaware Franchise Tax, registered agent fees, and the additional costs of retaining a Delaware corporate lawyer in the event of a complex legal issue.
The above locations give a glimpse but would need to be researched thoroughly, from a futuristic perspective. Entrepreneurs may believe that their start up should be located in India as the market is in India. However, fast-forward a couple of years, and they might be thinking of expanding. That is when the roadblocks crop up. You have a better chance of success if you structure the front-end of your start-up in such a manner, that though it is set up in India, its registration will be in places that are more start-up friendly.
This article is authored by A. Loganathan, representing India Business Solutions (IBS) which is a boutique advisory firm helping a lot of Start-ups in India and Singapore in fulfilling their aspirations. Loganathan is heading the Singapore operations of IBS and can be reached on firstname.lastname@example.org. Website: www.consultibs.in