Establishing an IT firm from the ground up

The IT market is one of the most dynamically developing and innovative sectors in international industries. Creating an IT company from scratch is a multi-stage process that requires a comprehensive approach, combining the interconnection of licit, technical, and organizational aspects, as well as adaptation to transforming market conditions.

To gain an understanding of how to start your own IT business and in which country the most favorable conditions are created for establishing an IT company from scratch, this material is recommended for reading.

Launching an IT entity from scratch: what is important to consider?

IT is a general concept that includes many different fields of operations. In general terms, IT businesses can be divided into two main forms:

  • Service-Based Companies;
  • Product-Based Enterprises.

In the first case, we are talking about companies that supply IT services and work in the interests of clients, providing them with technological solutions. Registering an IT company engaged in the development of its own products implies that the firm will focus on creating and monetizing its own products or platforms with the aim of selling them to end users or other companies.

There are numerous kinds of enterprises, each with unique characteristics based on their specialization and field of activity, for example:

  • Software development companies: specialize in creating programs and applications for various portals.
  • IT consulting companies: provide consulting services in information technology, assisting clients in developing IT strategies and implementing new technologies to optimize business processes.
  • IT integration companies: specialize in integrating various information systems and technologies into a unified functional system, contributing to the enhanced efficiency of business processes.
  • Web development companies: responsible for creating and promoting websites and web apps, specializing in web design and programming for the Internet.
  • Game development companies: engage in the creation of computer games for various platforms.
  • Cybersecurity companies: specialize in providing protection for computer systems, networks, and data from cyber threats and attacks.
  • IT support services: provide technical support and maintenance for other organizations and clients, helping to solve hardware and software issues.

Accordingly, the option of jurisdiction for registering an IT company depends significantly on its specialization. For instance, the United States is recognized as a leader in software development, while Vietnam excels in IT service outsourcing. Companies focusing on artificial intelligence may consider Singapore, while those involved in blockchain technology development might concentrate their attention on Switzerland or Malta.

Different countries and regions have their own licit norms and conditions for businesses. Although traditional legal systems may not always swiftly adapt to modern realities, many countries around the world are adopting a trend towards implementing policies that stimulate the advancement of the IT industry, stimulating technological innovation and economic growth.

It's worth noting that governments interpret "favorable conditions" for the IT business differently, leading to the creation of their own regulatory conditions for IT enterprises in each country. This is reflected in tax rules, administrative expenses, and access to human and other resources.

Many countries are making efforts to establish and support technology parks, offering office spaces, laboratories, equipment, and expert knowledge for the development of IT startups. Some states aim to attract IT organizations by eliminating the tax burden in this sector. Consequently, when launching an IT company abroad, it is advisable to consult specialized business consultants or lawyers with expertise in assisting IT startups.

Competent specialists can assist in making informed decisions on which country to register the IT business, properly structuring the business from a legal standpoint, protecting intellectual property rights, and forming relationships with banks. A lawyer can help choose where to register an IT company to operate globally, based on an analysis of determining factors in the context of a specific company.

In other words, while technological giants (such as medium and large holdings like Apple, Google, Microsoft) can afford to maintain an international network of companies and benefit from the preferences of individual countries, the primary task for freelancers and small entities is to minimize expenses.

Thus, the IT business has long been untethered to any specific location and can successfully operate online. However, to launch an IT company abroad, it is important to answer questions such as:

Is the activity, hiring local personnel, and offering services to clients planned in the jurisdiction where the firm is registered?

This is a question about the company's tactic and scaling plans. The decision to conduct business in the country of incorporation directly affects tax duties, financial reporting requirements, and documentation procedures. If you plan to operate in other jurisdictions, it is necessary to consider various legal and tax aspects of each region to ensure compliance with all applicable laws and stipulations.

What tax aspects should be considered in the process of IT activities in the chosen country's market?

It is essential to consider all tax requirements of the chosen location. Different jurisdictions have different tax structures and rules. This encompasses corporate taxes, VAT, employee income taxes, etc. It also involves understanding the availability of tax holidays, incentives for new business entities, or enterprises in specific industries, as well as tax obligations for international activities.

Tax obligations can significantly impact a company's financial results. Proper tax planning allows for the optimization of costs. Additionally, if you want to open an IT company abroad, it's important to note that when hiring non-resident employees, the firm may encounter specific visa requirements, and their employment may necessitate compliance with additional legal formalities.

Some countries may require the submission of monthly financial reports, while in other jurisdictions, reporting may be quarterly or annual. It's crucial to consider whether your company will be subject to audit control. This may be related to the requirements for substance and transparent business practices.

Is it possible to obtain a residence permit through entrepreneur relocation?

Not all countries offer the opportunity to obtain a residence permit through the relocation of an IT business. However, there are several countries interested in attracting entrepreneurs and professionals in the field of information technology to reinforce the competitiveness of their economies. The officials of such countries provide various incentives, particularly concerning a reduction in the tax burden and preferential immigration schemes for relocating foreign personnel.

Registration of IT entities abroad: procedures and stages

Launching your own IT company is a labor-intensive procedure, and successful direction of an IT business requires specialized knowledge in structuring, asset protection, as well as an understanding of legislation, especially when entering international markets.

Choosing where to open an IT company is a key strategic step that has far-reaching consequences for the business. The cost of making a mistake in this matter is too high. Therefore, it is necessary to consult with professionals rather than rely on information from internet articles and think that choosing the right jurisdiction and structuring an IT business will not pose any particular difficulties. Another common mistake when launching any startup, especially when it comes to creating a successful IT company, is using solutions recommended by business partners (even if their business has become successful). These approaches carry significant risks.

To create an IT business from scratch, it is crucial to understand that any business consists of organized processes and synchronization between them. Establishing an IT firm in the United States or the United Kingdom can offer numerous opportunities for both large and small enterprises. However, if the industry requires licensing, such activities are associated with high costs for licenses, capital, and other expenses. Therefore, for small businesses, it may be advisable to explore more cost-effective jurisdictions in terms of substance requirements, business management, employee hiring, and tax expenditures.

To establish your own IT company and ensure its legal structure and operation, you need to take the following steps:

  1. Seek consultation to align the business structure, define the rights and responsibilities of founders and management.
  2. Develop a detailed business plan.
  3. Choose the legal form of organization (e.g., LLC, JSC).
  4. Register a unique name with the relevant government authority in a specific country.
  5. Prepare the necessary documents and register the IT company in conformity with the legislative norms of the chosen country.
  6. Open a bank account for the IT company.
  7. Obtain licenses for software to ensure legal usage.

Structuring an IT business is the process of defining its key components and their interaction. This includes identifying the products the business will offer, the target audience it will focus on, and the sales channels it will utilize.

A business plan can assist in structuring an IT business by providing a clear and comprehensive overview of the business, its goals, marketing strategies, and financial forecasts. The following key aspects related to ownership, management, and profit distribution are defined in it:

  • Primary owners of the business and ownership rights belonging to each owner.
  • Rules for admitting new members or exiting partners from the business.
  • Management system, specifying key executive members and their responsibilities, how strategic decisions are made, and how conflicts are resolved.
  • Profit or dividend distribution system among partners.

Various business operation models should be worked out in the business plan to avoid conflicts. Therefore, legal consultation regarding the registration and structuring of IT business, related to the company's structure and management, is a guarantee of long-term business success and understanding among team members.

It is optimal to involve lawyers specializing in the regulation of IT activities in different countries at the initial stages of launching your business. They will help properly document and prevent errors that could lead to financial and legal problems later.

For all legal matters related to establishing an IT company from scratch, drafting contracts, registration, and protection of intellectual property rights for software, or comprehensive legal support for IT companies, you can turn to business consultants at YB Case.

Meanwhile, many people think that IT is associated with crypto, although this is not the case. IT is a broad field that encompasses various areas such as programming, networks, cybersecurity, and much more. Cryptocurrencies and blockchain-based crypto technologies represent just one aspect of the vast IT industry, existing to facilitate the processing, transmission, and storage of information.

Legal forms for registering international IT business

The optimal legal structure for an IT business can depend on various factors, including the size of the company, its goals, and legal requirements. Below are several of the most popular forms of organization for registering an IT business abroad.

Sole ProprietorshipRegistering as a sole proprietorship can be an attractive option for small businesses due to the ease of forming such a business structure and complete control over the business. However, this legal form is typically used by residents within a country.

For non-residents engaging in international activities, enrolling a sole proprietorship may not be an available option. Still, there are countries where registering an IT business in the form of a Limited Company (Ltd) is an accessible and advantageous option for freelancers and non-residents. In this case, Ltd serves as an equivalent to a sole proprietorship.

Limited Liability Company (LLC) Registering an IT company abroad in the form of an LLC is considered the most optimal option. One of the key advantages of an LLC is the limitation of the participants' liability to the extent of their contributions to the authorized capital. This limits the personal liability of the owners and protects their personal assets in case of financial difficulties or legal claims.

An LLC has a structure that allows for attracting funding by providing shares to participants. This is important when establishing international IT companies that may require significant contributions for expansion and prosperity. The management and structure of an LLC can be organized to meet the needs of the IT business. An LLC provides flexibility in distributing dividends among participants.

A popular choice for launching an IT business from scratch is registering a Ltd in Malta or Madeira. This is the only solution in these jurisdictions for non-resident freelancers to start their business. However, an LLC has more complex disclosure duties compared to a sole proprietorship and may incur higher tax rates.

Joint Stock Company (JSC)A JSC can be an optimal legitimate type, especially for medium and large companies. This legal entity typically has a more complex management structure, including a board of directors and top management, facilitating effective strategic decision-making and business management.

Like in LLC, stakeholders in a JSC have limited liability, meaning their personal assets are usually not at risk due to the company's debts. JSCs can easily attract substantial investments, for instance, through an Initial Public Offering (IPO) in the United States or the United Kingdom. This is especially important for IT companies that may require significant capital at various stages of development or scaling.

However, JSCs are usually subject to more stringent reporting conditions, and this legitimate form is associated with higher registration and management expenses.

Partnership is a form of collaboration between two or more parties (partners) to achieve specific goals or carry out particular projects. It can be an attractive solution when launching an IT startup abroad if entrepreneurs believe that joint efforts and combined skills can lead to more successful business management.

Partnerships are typically formed through a partnership agreement, where the partners define the terms and rules of collaboration. Such structures provide flexibility and allow partners to collaborate while minimizing financial risks and responsibilities for each participant.

How to determine where to launch an IT firm?

The choice of jurisdiction to register an IT company is strategically important and affects efficiency and prosperity in the long term. The concept of "best countries for IT business" usually refers to countries or regions that present certain advantages and conditions for the successful conduct of IT activities. These advantages may include various aspects:

Tax incentives
Entrepreneurs launching an IT company often seek jurisdictions with lower tax rates or various tax incentives to reduce their tax obligations and enhance competitiveness. Tax incentives for IT companies may include reduced tax rates, tax credits for R&D, tax deductions for employee training, VAT benefits, corporate tax exemptions, and encouragement of venture investments.
Favorable entrepreneurial environment
The best jurisdictions provide entrepreneurs with ease of conducting business, implying minimal bureaucracy, efficient entity registration and management processes, as well as transparency and predictability in the legal system.
Access to financing
Some countries offer access to a significant range of monetary instruments, comprising venture capital, investments, and banking services, which is crucial for the growth of international IT startups.
Innovative infrastructure
Jurisdictions with developed infrastructure, scientific and research centers, and technological hubs attract the attention of many companies, including technology and IT organizations. These factors can contribute to attracting talented professionals and stimulating innovation.
Stability and security
Business thrives in a stable economy where transparency and stability foster innovation. Additionally, entrepreneurs and investors typically prefer states with a stable political situation, reliable laws and regulations, and an effective and transparent legal system.
Access to global markets
Location and access to key markets can be decisive factors. Some jurisdictions provide easy access to target regional or global markets, simplifying logistics.
Presence of industrial clusters
Jurisdictions with concentrated industrial clusters can provide unique opportunities for collaboration and development. These regions become hubs of innovation where companies can interact, exchange ideas, attract talented professionals, and form new partnerships.

The choice of the best jurisdiction for registering an IT company depends on the specific needs of the business, its direction, development strategy, and other factors. Entrepreneurs should seek advice from lawyers specializing in legal support for IT businesses to make an informed decision.

Top countries for registering an IT company abroad

When choosing a jurisdiction to create an IT company from scratch, the main points to consider include:

Ease of doing business

Conducting business is based on the concept that intercontinental commercial activities require clear rules. To ensure effective business operations, it is pivotal to know that contracts are mandatory, that the company's property and intellectual property rights are properly protected, and that there is a fair dispute resolution system. The rules should be clear but straightforward to comply with, allowing aspects such as licenses and permits to be acquired efficiently.

Tax optimization

Tax optimization is generally understood as finding a solution to pay taxes at the minimum rate or finding a jurisdiction where tax obligations can be minimized or exempted for a certain period. While such attractive jurisdictions exist, there are other aspects to consider when choosing a country to launch an IT startup. Specifically, the Base Erosion and Profit Shifting (BEPS) initiative formulated by the Organization for Economic Co-operation and Development (OECD) mitigates the benefits of tax-free or low-tax domains.

Many developed countries have incorporated most of the BEPS provisions into their national legislation to prevent the erosion of the tax base and eliminate tax evasion. Therefore, when choosing a foreign jurisdiction from a taxation perspective, it is essential to carefully study its current law and analyze the laws of the country where the business owner is a resident, along with any conventions between these countries.

Protection of Intellectual Property (IP)

Protecting the intellectual property (IP) of a company is a critical aspect for the successful and profitable operation of IT projects. IP assets can be valued in the millions or even billions of dollars, making their protection crucial. If the rights to IP assets are violated, it can lead to significant financial losses and reputational damage.

Each country has its own laws and rules regarding IP, complicating the task of protecting IP assets on a global scale. There are many different types of IP assets, each requiring its own approach to protection. Therefore, the risk of making a mistake when choosing an approach to protect IP assets independently is quite high. The right decision is to find a reliable company that can provide competent assistance in choosing the country and strategy for protecting the company's IP assets.

Access to Banking Services

When choosing a bank to open an account for an IT company, it is important to pay attention to the next aspects:

  • Reliability of the bank.
  • Fees for basic banking services. For IT businesses, which often involve export operations, it's essential to consider the bank's exchange rate policies.
  • Data security and the bank's digital system.
  • Additional services. For the opening of an IT company, you can analyze deposit programs tailored for IT businesses.
Residence permit via business

Obtaining a residence permit through business may vary from country to country. However, for IT companies, there are typically two options: either you are a freelancer applying for a Digital Nomad Visa, or you are relocating the entire IT company to another country with the entire IT team moving. In the latter case, it is important to properly prepare the necessary documentation for the relocation of IT company employees.

Consult with specialized lawyers who can provide assistance at all stages, starting from enrolling the IT enterprise abroad to obtaining visas for employees and organizing the relocation of production facilities.

Several countries that are often considered advantageous for registering IT companies include:

  • England;
  • Ireland;
  • Malta;
  • Portugal (Madeira);
  • Georgia;
  • Armenia;
  • Estonia;
  • Cyprus;
  • Singapore;
  • Hong Kong;
  • Vietnam;
  • UAE;
  • Kazakhstan (IFCA);
  • Uzbekistan (IT park);
  • USA (especially Delaware).

Registering an IT business in England

The United Kingdom is recognized as one of the largest IT markets (1st in Europe and 3rd globally). Its IT sector attracts more venture investments than any other European country, hosting offices of many of the world's largest technology companies such as Microsoft, IBM, Amazon, and Google. Additionally, there is a thriving startup ecosystem actively developing new technologies.

Establishing an IT company in England can be advantageous as government agencies make concerted efforts to decrease administrative burdens for businesses. As a result, the UK ranks 2nd in Europe and 8th worldwide in the Ease of Doing Business Index.

However, England might be a costly option for launching an IT firm, especially for small entrepreneurs. The costs of company enrollment, tax payments (detailed below), and other expenses are relatively high. The primary advantage that has an essential role in choosing England for creating an IT company is its prestige. The status of a British business can garner respect and trust from clients, partners, and investors.

Licenses issued in England are recognized worldwide, providing IT enterprises incorporated in this jurisdiction with a competitive edge. England has developed logistical and technological infrastructures, a high level of qualified workforce, and a long history of global trade connections, facilitating international business expansion. This opens up prospects for forming partnerships, securing contracts, and attracting clients worldwide.

Creating an IT firm in England supplies access to one of the most liquid global capital markets also expert knowledge in entrepreneurship and digitalization. The country ranks 4th in the Global Innovation Index, confirming the overall effectiveness of its innovation system. These are crucial components for starting a successful technology startup.

Access to investment funds for monetizing viable ideas has become another decisive point in choosing England to launch an IT startup. State organizations like UK Research and Innovation (UKRI), Innovate UK, and other governmental initiatives offer substantial funding for IT startups. In the Startupblink ranking, evaluating cities with the best conditions for startups, London secured the 3rd position.

Note that corporate tax (CIT) rates range from 19% to 25% for the fiscal year starting on April 1, 2024. The 19% rate applies to companies with profits not exceeding £50,000, while the CIT rate for entities with profits exceeding £250,000 is 25%. If taxable dividends are attributed to the use of patents, a reduced rate of 10% applies.

Reporting requirements for companies are not burdensome either. Companies are obligated to maintain accounting records and provide audited financial statements in accordance with the Companies Act 2006. However, reporting requirements for small and micro-enterprises (with an annual turnover of no more than £632,000 or a balance sheet total not exceeding £316,000) are simplified.

Registration of an IT company in Ireland

If you are deciding where to open an IT company from scratch, you may consider the opportunities offered in Ireland. According to Enterprise Ireland, Ireland is recognized as the world's second-largest exporter of computer and IT services (after China). This status has been achieved through the active participation of many international technology enterprises that have established regional headquarters in Ireland.

Technological giants such as Alphabet, Amazon, Apple, Oracle, Tencent have chosen this country for considerable European functionalities. Ireland is home to 16 out of the world's top 20 technology enterprises and three of the largest corporate software providers.

Ireland's IT market is rich in experience, innovation, and development, and Dublin is known as one of the European capitals for technology startups. Highly skilled technical talents are easily accessible in the country, partly due to strong partnerships established between the government, the business community, and educational institutions.

Other reasons to start an IT business in Ireland comprise:

  • Geographic domain: Ireland's geographical advantage makes it an attractive choice for technology companies.
  • State aid: the government presents full backing to businesses, offering one of the lowest corporate tax rates in Europe – 12.5%.
  • R&D tax credits: technology companies can claim a 30% tax incentive (from January 1, 2024) on research and development (R&D) expenses.
  • Support ecosystem: Ireland has a diverse network of accelerators and incubators offering pre-investment, office spaces, and various mentoring support.
  • Startup visa: Ireland's startup visa program is a popular initiative designed for ambitious entrepreneurs aiming to start an innovative business.

All these factors, combined with government support and infrastructure advantages, have made Ireland an attractive destination for launching IT startups. Additionally, when creating an IT company in Ireland, there are minimal requirements for the initial capital (starting from EUR 100), and the reporting burden is not significant. Reports can be filed online, and tax declarations are submitted within 9 months after the end of the reporting period.

In Ireland, the Knowledge Development Box (KDB) regime is in place, under which preferential taxation is available for establishments engaged in Research and Development (R&D). Within the framework of KDB, entities involved in R&D can avail a tax credit of 50% on profits derived from intellectual property resulting from their R&D activities. This means that the profit will be subject to Corporate Income Tax (CIT) at a rate of 6.25%.

Opening an IT business in Malta

Malta is noted as a technologically savvy country, with its IT industry on the rise. In 2022, Malta ranked 7th out of 27 EU member states in the Digital Economy and Society Index (DESI).

Most foreign entrepreneurs come to Malta with the aim of establishing an IT company primarily due to the developed infrastructure, English-speaking and highly skilled workforce, as well as the country's proximity to Central and Western Europe. Non-resident freelancers can operate as self-employed individuals (in the context of registering an LTD) in the IT sphere in Malta.

Many entrepreneurs consider registering an IT company in Malta, as the basic corporate tax rate of 35% can be diminished to 5% if the company is engaged in active IT activities. The initial rate is paid at 35%, but it is possible to apply for a refund of 30% tax, reducing the overall tax burden.

However, Malta is usually a viable option for medium and large companies looking to expand their network of subsidiaries. This is because Malta has a reputation as one of the leading global centers for international business and banking, so the country's authorities strive to ensure a high level of transparency and reliability in the financial structure, making banking compliance in Malta strict.

During the process of opening an account for an IT company in Malta, an impressive list of documents must be provided, comprising proof of financial stability and documents identifying each beneficiary.

Registering an IT business in Madeira (Portugal)

Portugal's IT industry has been demonstrating stable advancement for some time, making the country one of the leading centers for registering IT companies in Europe. According to IBISWorld, by 2023, the software development market in this jurisdiction is expected to reach EUR 905.7 million, indicating that many software development companies prefer Portugal.

Based on the Technology and Innovation Report for 2023, Portugal ranks 33rd among world states in terms of innovation development. Although the IT sector faces challenges such as the need for qualified specialists and improved coordination between business and authorities, this nation offers growth opportunities for IT companies of all sizes and specializations.

Establishing an IT company in Madeira can be a lucrative choice for aspiring entrepreneurs seeking tax optimization (without violating the law, as Madeira has a special tax regime). Well-known international companies, such as Connecting Software, have opened their offices in Madeira.

Launching an IT startup in Madeira has advantages in terms of tax burden. Here, Corporate Income Tax (CIT) is paid at a rate of 14.7%, instead of the base rate of 21% applicable in the rest of the territory. The preferential regime has been extended until the end of 2024. Therefore, Madeira remains a sought-after destination for small companies considering relocating their IT business.

Another advantage when choosing this jurisdiction for establishing an IT company from scratch is the less cumbersome procedure for opening an account for an IT company compared to the mentioned locations. An account can be opened in one of the Portuguese financial institutions, and banking compliance in the country is less strict.

A significant aspect when choosing Madeira for registering an IT company may be the opportunity to participate in the Startup Portugal program, within which young entrepreneurs with innovative ideas are given the chance to obtain residency in Portugal. The potential of the project will be assessed based on its degree of innovation and scalability to participate in the program.

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Registration of IT companies in Georgia

The Georgian authority believes that the level of innovation and technological advancement in the country should increase, leading to economic development. Therefore, a special zone for establishing IT companies in Georgia was launched - the Virtual IT Zone, and a special regime was introduced - the International IT Company.

In the first case, you can register an IT company in Georgia in the Virtual Zone and pay income and VAT taxes at rates of 0%, and dividends tax at a rate of 5%. In the second case, obtaining the status of an "International IT company" will allow reducing the tax burden on the business (income tax - 5%, dividends tax - 0%).

However, it is important to understand that while launching an IT startup in Georgia in the Virtual Zone is a relatively budget-friendly option, registering a legal entity without local presence (substance) does not allow opening an account in national banks. Therefore, the decision to create an IT company in Georgia is quite contradictory.

Registration of IT Business in Armenia

Armenia's technology sector emerges as a swiftly expanding domain within the economy. Tailored tax benefits targeting emerging and small-scale IT ventures offer broad avenues to entice entrepreneurs towards the nation's tech landscape.

As per the Tax Code of the Republic of Armenia, enterprises with a certificate for IT activities enjoy an income tax exemption. These enterprises have the flexibility to distribute dividends to shareholders at a favorable tariff of 5%, with the potential for shareholders to reclaim it as a tax credit. Notably, if the shareholder is a non-resident of Armenia, the dividend tax is levied at a rate of 10%, and this tax is non-refundable.

On the other hand, establishing an IT company in Armenia is characterized by certain difficulties. In particular, there are challenges in opening accounts for IT companies, and strict checks are applied when obtaining the IT Zone company status.

Launching of an IT company in Estonia

According to the "Future of IT" report, Estonia has maintained its reputation as a country with a competitive IT sector in the developing European region for two consecutive years. Almost all government services are ready for use online, and it has a transparent and straightforward tax regime, one of the most liberal in the world.

Commencing an IT startup in Estonia can garner backing from the community, given that the Estonian startup ecosystem stands out as one of the most advanced in the European tech scene. Opting to initiate an Estonian IT company provides a pathway to tap into the country's domestic market at affordable expenses.

There is no corporate income tax (0%) if reinvested in the business. The filing of accounting reports has also been simplified (audit is only required for companies with a net sales volume of 2 million EUR and above). However, if you decide to create an IT company in Estonia, you should be aware that without local activity, a local director, a physical office, and hired local employees, banks do not open corporate accounts.

Even to contribute the share capital, it is necessary to open an account for the IT entity in a local bank; contributing the share capital to an account outside Estonia is prohibited. Additionally, strict documentation requirements are imposed, and a thorough source of income check is conducted. Moreover, the regulator has reformulated its policy regarding profit distribution and corporate tax payment on an annual basis. After such legislative changes, many online companies decided to relocate to other countries.

Establishing an IT firm in Singapore

Singapore stands as a beacon for entrepreneurs venturing into IT startups, boasting a robust innovation system bolstered by diverse initiatives. With an open and progressive economic landscape, a thriving technology sector, and a skilled IT workforce, Singapore offers a plethora of advantages.

Consistently securing high ranks in global information and communication indices, especially in e-government, Singapore is a premier choice for registering international IT companies. This affirmation finds support in economic competitiveness indices like Doing Business (2nd place), Global Competitiveness Index (1st place), and Index of Economic Freedom (1st place).

The jurisdiction hosts offices of 80 of the world's top 100 technology enterprises, comprising Microsoft, LinkedIn, Google, Huawei, Nvidia, and others. Headquarters of major regional IT companies like Adventus, BUUUK, and SingSys are strategically situated in Singapore, fostering collaborations with transnational corporations, among them well-known international brands like Audi, Decathlon, and Samsung.

Facilitated by a robust legal system ensuring high transparency and efficiency, the registration of IT companies in Singapore is streamlined. The government's steadfast commitment to the information technology sector is evident through support programs such as Startup SG Equity, Startup SG Tech, and Startup SG Network.

Singapore's Start-up Visa has played a pivotal role in attracting innovative entrepreneurs. Initiating an IT company from scratch in Singapore proves promising, not only due to the location's prestige but also owing to its liberal tax policies. The corporate income tax rate, at 17%, stands among the world's lowest. Moreover, innovative startups may be eligible for tax deductions, with a 10% tax rate applied to profits derived from intellectual property (IP). The Startup Tax Exemption Scheme extends tax exemptions for the first 3 years of operation and tax exemption on the initial SGD 100,000 of income annually.

Creation of an IT company in Hong Kong

In Hong Kong, starting an IT company from scratch can be accomplished in a relatively short period. Hong Kong boasts a world-class information technology network infrastructure, progressive infrastructure support for industry players, and robust protection of intellectual property.

This location secures a prominent position, ranking third in both the Doing Business and Global Competitiveness Index ratings. Moreover, it stands out globally as one of the most liberal economies, holding the second position in the Index of Economic Freedom. Renowned IT giants like Microsoft, IBM, HP Inc., and Dell Technologies have chosen Hong Kong as their base.

Entrepreneurs eyeing the establishment of an IT venture in Hong Kong can explore promising prospects at the Hong Kong Science and Technology Park (HKSTP). This hub offers a diverse array of resources and services, fostering an environment conducive to business development. HKSTP's support network extends to partnerships with government entities, private firms, and international organizations, providing valuable assistance to startups.

Opting to enroll an IT business in Hong Kong can bring about substantial tax benefits for fledgling enterprises. The Corporate Income Tax (CIT) operates on a progressive scale, ranging from 8.25% to 16.5%. Notably, profits from foreign sources usually enjoy exemption from CIT. In essence, if a company engages in no local activities, it is spared from income tax obligations in Hong Kong. Furthermore, dividends, interest, and Value Added Tax (VAT) remain untouched by taxation, offering additional advantages for companies involved in exporting IT services, potentially qualifying for tax incentives on export income.

Creating an IT company from scratch in Vietnam

Creating an IT company from scratch in Vietnam is an attractive prospect given the country's steadily growing information technology market over the past few years. Vietnam is recognized as one of the most developed IT markets in Southeast Asia with a robust digital infrastructure. It has become a leading center for software development companies in the Asia-Pacific domain.

The authorities of Vietnam provide numerous incentives to encourage entrepreneurs interested in registering an IT business. For instance, there is a program in place allowing IT companies to be exempt from Corporate Income Tax (CIT) for up to 4 years. After the initial 4-year period, CIT is payable with a 50% reduction for up to 9 years. Subsequently, the income tax rate is paid at a reduced rate of 10% compared to the base rate of 20%. However, Vietnam is still in the early stages of its development as a progressive IT hub, so the decision to establish an IT company in Vietnam should be carefully considered.

Registration of IT business in the UAE

The UAE's IT sector aligns with the "Vision 2021" strategy, reflecting the country's commitment to economic diversification. The government envisions the integration of advanced digital infrastructure and intelligent systems across sectors like transportation, healthcare, energy, and public safety.

Dubai stands at the forefront of this IT boom, driven by a vibrant mix of startups, global tech giants (Apple, Google, Amazon, IBM, Microsoft), and proactive government initiatives. Key free zones for IT startups in Dubai include Dubai Silicon Oasis, Dubai Technopark, and Dubai Internet City.

The government's dedication to fostering a free, globally integrated business environment has significantly propelled the IT sector's growth. The UAE ranks among the top choices for registering IT companies, especially as free zone companies are not subject to taxes.

However, establishing an IT company in the UAE, particularly in Dubai, demands meticulous planning across all business facets and strict adherence to legislative requirements, varying by emirate. This encompasses rigorous accounting and auditing processes, along with compliance with tax laws. As of June 2023, mainland companies are obligated to pay a 9% corporate income tax on profits exceeding 375,000 AED.

Creation of an IT company in Kazakhstan (IFCA)

Launching an IT entity in Kazakhstan, specifically in the International Financial Center "Astana" (IFCA), involves navigating a supportive domain for the IT sector.

The process of forming IT companies in Kazakhstan offers benefits such as a comparatively low entry barrier and access to a skilled workforce. Given the emerging nature of the IT market in the country, there are possibilities for business owners to pioneer innovative products and solutions, test them, and bring to market with limited competition.

Entrepreneurs inclined towards innovation find the prospect of enrolling IT companies in the IFCA Kazakhstan and the Astana Hub Technopark appealing. Beyond enjoying tax incentives, they can attract substantial venture investment and raise capital.

Crucially, the IFCA Kazakhstan offers a robust framework for safeguarding the assets of companies' information systems, drawing on principles of English law. Entrepreneurs can rely on international regulation, rooted in English law, to ensure fair and reliable protection of their information systems rights. A notable trend in recent years is the shift of businesses from Cyprus to the IFCA Kazakhstan.

Registering an IT company in the Astana Hub opens doors to tax preferences, including exemptions from Corporate Income Tax (CIT) and Value Added Tax (VAT). However, participation in the program is exclusive to companies engaged in activities prioritized by the technopark. Alternatively, becoming a participant in the IFCA and securing registration in the technopark, if approved, unlocks tax incentives from both the IFCA and the technopark.

Registration of an IT company in Uzbekistan

Establishing an IT company from the ground up in Uzbekistan represents a novel decision, and the long-term success of IT activities in the country remains uncertain. Despite recent government initiatives to foster the digital economy, Uzbekistan is not yet considered a fully developed digital jurisdiction. Ongoing projects focus on creating a national e-government system and promoting e-commerce.

The establishment of IT Park, which targets entrepreneurs from CIS countries, is a notable effort in this direction. Registering an IT company in IT Park in Uzbekistan is particularly tailored for entrepreneurs from CIS countries. IT Park offers startup incubation services and actively supports the advancement of information technologies.

Registering a company in IT Park Uzbekistan and acquiring resident status provides access to various tax incentives, comprising:

  • Exemption from VAT on export/import and from CIT (until 2028 in this case).
  • Dividend tax ranging from 5% to 15%.
  • Simplified visa procedures for foreign employees of companies in IT Park.

However, it's important to note that Uzbekistan has currency controls that may add complexity to transnational financial transactions and engagement with the global market for IT startups.

Registration of an IT company in Cyprus

Previously, Cyprus was one of the sought-after jurisdictions for establishing IT enterprises. IT entrepreneurs viewed it as a domain for software development, system integration, and testing services. One of the factors attracting foreign entrepreneurs to this jurisdiction was its corporate taxation. The Corporate Income Tax (CIT) rate is 12.5%, and profits of non-resident companies are subject to corporate tax only on income generated in the Republic of Cyprus.

Despite tax advantages, the status of Cyprus as a preferred jurisdiction for foreign entrepreneurs has shifted. Once popular, it now presents more drawbacks for starting an IT company compared to alternatives like Malta or the budget-friendly Madeira.

Taking into account factors such as hidden payments, unforeseen costs, difficulties in opening accounts for IT companies in local banks, and challenges in conducting international transactions, it’s worth mentioning that Cyprus now is not the best country to start an IT firm. Thus, numerous Cypriot IT enterprises have decided to relocate their business to regions with more favorable conditions.

Creation of an IT enterprise in the USA

Approximately one-third of the world IT sphere is situated in the United States, making it the largest technology market worldwide. Silicon Valley in California stands as the epicenter of IT, hosting major technology giants like Google, Apple, and Intel.

Delaware, as a state, is actively moving towards fostering a startup and innovation-centric economy. The state government places a strong emphasis on cultivating an environment conducive to technological advancement. Tax considerations further make Delaware a great choice for startups, with a comparatively low corporate income tax rate (8.7%) compared to neighboring states like New Jersey, where the rate can reach 11.5%.

Delaware's corporate laws offer significant flexibility in structuring businesses. Notably, officers, directors, and shareholders are not obligated to be residents of the state. Delaware allows a single individual to hold the positions of the sole officer, director, and shareholder when launching an IT startup.

However, the prospect of establishing an IT company in the U.S. is particularly suitable for those targeting the domestic market. This is because the United States has a complex tax system that can pose challenges for enterprises operating internationally. Additionally, stringent data protection requirements in the U.S. may complicate the operations of companies handling customer data from other jurisdictions.

Conclusion

Starting an IT business from scratch is a burdensome and personalized process. Some aspects that the founder should consider when launching their own IT company include the specific market needs, the type of activities involved, personal experience and competencies in the IT field, and the availability of startup capital.

Navigating the diverse and complex legal landscapes across various countries and regions can be challenging without expert assistance. At YB Case, our team of business consultants offers a comprehensive suite of services.Leveraging our significant experience in providing comprehensive support for international IT companies, we aim to help safeguard your business from legal risks.

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