Q: I'm an entrepreneur from Park Rapids, Minn., and the founder of a language-learning app currently in production for release later in 2016. I'm curious about where to incorporate my business, since my target audience is worldwide. Do you recommend incorporating in the U.S. or in another country?
Elizabeth Becker, Founder/CEO, TK Interactive
A: Selecting a home for your business is a complex decision and depends on a variety of factors. In the United States, for instance, entrepreneurs often form new entities in Delaware. Delaware features business-friendly laws and imposes no personal income tax on business owners who live elsewhere. If you intend to continue living in Park Rapids, however, Minnesota (and, of course, federal) personal income tax would apply to your Delaware-based earnings. In addition, you would need to hire a registered agent in Delaware to accept official correspondence and legal documents there.
The same basic analysis applies to choosing an overseas home for your business. Like Delaware, many countries actively work to attract businesses with low taxes and corporate-friendly policies. Keep in mind, however, that the United States taxes citizen income worldwide, making it difficult for individuals to avoid federal taxes, regardless of the local tax laws. Some countries have tax treaties with the United States to offset foreign tax payments on a limited amount of foreign income, but federal tax returns are still required, which reduce the advantages of setting up shop abroad.
Other obstacles might stand in the way. Some countries may not allow incorporation by a foreign national without co-ownership by a company or individual in that country, or may require a minimum investment level or local hires. Each possible host country should be carefully researched.
But it's not all bad news! If you are interested in relocating, many countries welcome foreign investors, and some offer a fast track to legal residency to those who bring a business to their shores.
Keep in mind that even if you incorporate in Minnesota now, you can move your operations at a later date.
Stacey Supina is an adjunct professor in the Department of Ethics and Business Law at the St. Thomas Opus College of Business.
