IT business has always been an area with high profits, and 2020 has shown that those who are not in the online environment are not even in the market at all. In addition, if you create an application, service, or online courses, you will be able to work not only in your area, city, country but also in the international market, offering services to new potential clients.
Doing an international IT business gives you the freedom to choose the most promising and profitable jurisdiction because your business is not tied to a specific location. For example, even large joint-stock companies that operate on the domestic market prefer to move part of their capacity to countries with a preferential tax system and a favorable business environment for business development. Therefore, if you are just planning to start your own business, a doubly relevant decision would be to choose one of these countries.
In this article, we will understand and determine the best jurisdictions to open an international IT company in 2021 using the example of Cyprus, Estonia, Ireland, Armenia, and Georgia.
Table of taxes and conditions for IT companies
|Corporate tax||12,5%||0% (before dividend distribution)||6.25%||0% +5% Dividend tax||0% +5% Dividend tax|
|Reporting||Audit||Financial statements||Financial statements and Audit||Financial statements||Financial statements|
|Income tax *||10%||20%||20%||10%||20%|
* We have indicated the base rate of income tax in the jurisdictions. When calculating for your company, you should take into account the existence of agreements on the avoidance of double taxation between countries. For example, Georgia has 56 such agreements concluded, which allow optimizing income tax and tax on dividends.
When creating and planning your business model, you should also consider:
- The transparency of the economy, which most developed countries strive for. Therefore, it is better to refuse the nominee service if you have the opportunity. This will increase the likelihood that your business will work for a long time and successfully, and the banks of any country you choose will service your corporate account without any problems;
- Therefore, the history of your project should be transparent and white with clearly defined goals and detailed reporting;
- And most importantly, since 2018, almost all countries have had a multilateral agreement on the Automatic Exchange of Tax Information (except Georgia until 2023).
General questions when choosing a country for your IT company
- Financing. Find out if the country has venture financing or small business loans for non-residents. Determine the attitude of investors towards the country as a whole. Based on this information, the risks and general atmosphere for the business can be identified.
- Qualification of working personnel. To get benefits in most countries, you need to hire local employees, so determining the competence of local experts in your field will be an excellent solution.
- Taxes and application of incentives. Check in advance the list of areas to which the benefits apply, and study the special conditions prescribed in the legislation of the country.
- Loyalty of banks to non-residents. Banks very carefully check all the activities of a foreign company before opening a corporate account, so your reporting should be as detailed as possible. It will not be superfluous to find out if there is currency control in the country and whether banks work with all payment systems.
Only after collecting all this information you can start registering or transferring your IT business to a new promising jurisdiction.
Registration of an IT company in Cyprus
Cyprus has been leading the list of the most popular jurisdictions year after year due to favorable tax conditions and prestigious reputation. But besides this, it will be profitable for start-up IT companies to register in Cyprus also because:
- Cyprus can no longer be found in the lists of black offshore zones, so there is no need to worry about the company's reputation income tax - 12.5%;
- income tax - 12.5%;
- the possibility of opening a corporate account in one of the banks in the country;
- a non-resident can become a director and shareholder (but if the director is a non-resident, then the company will not receive a tax residence certificate either. Tax Resident Certificate is needed to pay dividends).
All these are undoubtedly the advantages of the jurisdiction, but naturally, the main goal for those who want to open an IT company in Cyprus is the withdrawal of dividends and receipt of royalties from Cyprus with a minimum% on taxes.
The disadvantages include:
- mandatory audit of all statements once a year. An audit is more difficult and more expensive than filing financial statements;
- the need to hire a local secretary.
Registration of an IT company in Estonia
Estonia is loved by IT specialists from all over the world for its progressiveness and adaptability to the most current global trends, and, of course, for income tax = 0%.
What else is Estonia good for for IT business:
- despite the fact that income tax = 0%, you still need to pay 20% when distributing dividends;
- but there is no capital gains tax, because it is considered part of the company's income;
- simplified filing of financial statements (audit only for companies whose net sales are 2 million euros or more, or whose balance sheet is from 1 million euros, or employees more than 30 people);
- there is no obligation to pay the director's salary;
- the authorized capital does not need to be contributed, it can be indicated (minimum - 2500 euros);
It is also possible to open an account in EU banks, but not in an Estonian bank, there will be difficulties with this, we wrote in more detail why in this article.
Due to the low prices compared to other European countries, renting an office in Estonia is also a good idea.
Registration of an IT company in Ireland
Earlier we wrote about large companies that are transferring capacities to countries with a preferential tax system, and such countries include Ireland, where such IT giants as Google, Microsoft, and even Apple are based.
Let's see why:
- Ireland has a positive image and a favorable business environment, but not such high rental prices as in Silicon Valley;
- Income tax - 6.25%. This applies to IT companies with an annual income of less than 7 and a half million euros, which was obtained from patented intellectual property.
- A company such as an LLC is perceived positively by payment institutions from other countries.
The disadvantages include:
- a bank account can only be opened if the director of the company is a resident of Ireland;
- small businesses are exempted from auditing and the Irish tax authorities are content with accounting, but the rest of the companies must be audited every year;
- if we take into account and compare, it is more expensive to maintain a company in Ireland than in Estonia and Cyprus.
Registration of an IT company in Armenia
Armenia is an unexpected direction for an IT company until you learn more about special tax regimes. After obtaining a certificate for IT activities, you can count on 0% income tax and only 5% dividend tax, which can also be returned. But if the shareholder of the company is not a resident of Armenia, then the rate of non-refundable tax on dividends is 10%.
Other benefits include:
- no requirements for the presence of an office in the country and the hiring of local employees;
- loyal requirements for the authorized capital, which can be equal to 1 euro;
- non-residents can be a director and founder;
- government assistance is provided in the form of special financial conditions and attracting foreign investment for some IT areas.
Registration of an IT company in Georgia
Georgia has been leading the list of the most profitable jurisdictions for developing and doing business for several years. In addition, the Georgian government has a special attitude to the IT sphere, therefore, in order to attract IT companies to the country, special tax regimes and statuses have been developed: Virtual Zone and International Company (we disclose all the nuances in more detail in this article).
Having decided to open a company in Georgia in the field of IT, it is worth considering that this is an ideal platform for international business, since it has the following undeniable advantages:
- the possibility of quick registration, since it will take no more than 10 working days until all the necessary documents are received;
- the most profitable way to run your own business, which has a preferential tax system;
- the same requirements for both residents and non-residents of the country;
- the ability to open a company and an individual bank account remotely;
- the confidentiality of your banking operations, if you open an account in Georgia, will be absolute, the banks of Georgia do not transfer data on their clients to tax authorities from other jurisdictions under the CRS protocol;
- maximum convenience associated with the possibility of opening a multicurrency account, which allows you to carry out activities not only with euros and dollars;
- lack of full financial control by the government;
- there is no need to obtain a license and permits;
- full mobility in terms of doing business, since this process can be carried out from anywhere in the world;
- such activity is legal, legal and transparent.
In 2021 Tax Administration of Georgia has made adjustments to the interpretation of the Article on activities in the Virtual zone and among the mandatory requirements for compliance with the status of the Virtual Zone ‒ the subsistence (presence) on the territory of the country namely: administrative expenses, for example, renting an office in which employees of the company work, or the presence of specialists from among the citizens of Georgia on the staff.
Registration of an IT company in a preferential jurisdiction gives you the opportunity to increase your income, not to spend it on taxes, but to invest profitably in the development of your business. The location where your company will be located is of key importance. Therefore, the most important task for you is the right choice of jurisdiction. If you still have questions about what are the best jurisdictions for opening an international IT company in 2021, you can leave an application and get a free consultation from our specialists.