• FreeAdvice has a new Terms of Service and Privacy Policy, effective May 25, 2018.
    By continuing to use this site, you are consenting to our Terms of Service and use of cookies.

Tax havens for online startups

Accident - Bankruptcy - Criminal Law / DUI - Business - Consumer - Employment - Family - Immigration - Real Estate - Tax - Traffic - Wills   Please click a topic or scroll down for more.

Groleo

New member
I am an amateur game developer, living in the UK. I have been advised to form a corporation in order to protect the IP of the game that I'm working on.

In the UK, corporation tax is 20%. What's to stop me from forming the company in a country with much lower tax rates, like Montenegro? If all our business is done online and we have no need for an office or anything, it seems like a no-brainer to do this. I'm not educated at all on this issue, maybe there is an obvious reason not to, but from my brief research into the matter it looks like the best course of action.

If the company grows to a point where we have several people working in an office, we can just found a new one in a real country. But until then, when it's just 2 or 3 dudes max working remotely, why not do it like this and save a lot of money?

To clarify: Most of our sales (if we make any) will be coming through online stores such as Steam and the Epic Store, which belong to companies based in America. As I understand it, their profits will get taxed in America, and ours will be taxed in whatever country the company is in. (Plus every customer pays VAT at the time of purchase depending on the country they're in)
 


FlyingRon

Senior Member
We can't talk about UK law here, nor even more esoteric "tax havens" you are envisioning like Montenegro.

I can't believe a corporation gives you any "IP Protection" benefit even in the UK. You should get competent legal advice.
 

Groleo

New member
We can't talk about UK law here, nor even more esoteric "tax havens" you are envisioning like Montenegro.
Assuming I was an American then, roughly how would it work? I don't need specific details, just an outline of why it is or isn't possible.

I can't believe a corporation gives you any "IP Protection" benefit even in the UK. You should get competent legal advice.
The idea is that, if you want more than one person to work on the game, which I'm planning on hiring someone to do now, you should form a company, the company becoming the game's IP holder, and give out proper contracts to everyone who works for you, to prevent IP disputes down the line.
 

cbg

I'm a Northern Girl
Because laws vary by country, it doesn't matter how it would work in the US. You're NOT in the US, so knowing the US law isn't going to help you.
 

quincy

Senior Member
I am an amateur game developer, living in the UK. I have been advised to form a corporation in order to protect the IP of the game that I'm working on. ...
Forming a corporation does not on its own protect intellectual property, in the UK or anywhere.

You need to consult with an IP attorney, a tax professional and a business law professional in your area to help you determine how best to structure your business and protect your game.
 

Taxing Matters

Overtaxed Member
Assuming I was an American then, roughly how would it work?
In the U.S. what you propose would not work to avoid tax. If you form a corproation in a foreign country but the company is owned at least 50% by U.S. citizens or domestic (U.S.) business entities the foreign corporation is a controlled foreign corporation (CFC). The rules then tax much of the activity of the CFC to to the U.S. owners based on their percentage of ownership of the CFC. U.S. corporations may set up wholly owned foreign subsidiaries and defer the tax on certain active business income of the foreign corporate subsidiary (interest and other more passive income still gets taxed currently) but to defer that income those earnings must remain stuck in the foreign subsidiary. Once the earnings are repatriated to the parent company they are taxed. The rules are much more complex than this, but the bottom line is that the U.S. has highly developed rules to ensure U.S. persons do not avoid tax through the use of foreign subsidiaries.

The U.K.'s rules are much different, so knowing the U.S. rules won't help you much. But the U.K. and the U.S. are among the relatively few countries that operate their tax systems using the principle of worldwide taxation, so the U.K. does not make particularly easy to avoid tax by using foreign business entities either. I strongly urge you to consult a U.K. solicitor who practices tax law regarding U.K. businesses with income from outside the U.K. One thing is very clear: you won't avoid tax on the U.K. income of the entity.
 

Groleo

New member
Thanks man, that's a very helpful and informative answer. It sounds like it will probably end up being more trouble than it's worth, but I'll talk to a UK solicitor about it as suggested in this thread. Thanks for the help.
 

Find the Right Lawyer for Your Legal Issue!

Fast, Free, and Confidential
data-ad-format="auto">
Top