For a supposedly business-friendly country, the USA certainly seems to have a bunch of fees.
Tarsnap is incorporated in BC, Canada. I pay less than $50 to file an annual report with the government (basically just a "the company still exists and the mailing address and directors haven't changed"); there's no franchise tax; and Tarsnap's corporate income tax is easy enough for me to do by hand (it takes about 2 hours and I usually file in the first week of January).
The notion of spending $1000/year just to keep a company in existence seems crazy to me.
Wait until you hear that the marginal income tax rate is about the same BC Canada as it is in California and you don't have a +$500/month health insurance payment to make yourself or through your employer.
The bad deal that american's get for their taxes is really sad.
As a Canadian living and working in the US, I encourage all those that think Canada is somehow better than US, to go give living in Canada (and paying their taxes) a try.
US is a much more competitive and diverse market in every respect (even with it's shortcomings).
My parents (and other immediate family), would move to the US if they could.
From what I can find online[1,2], for a dual-income family earning 250k CAD/ 250k USD, tax in BC Canada[1,2] is 33% Federal + 16.80 % State = 49.8%. For California it is 24% Federal + 9.3% State = 33.3%. Is there a big difference in other taxes (like Payroll/Social Security) between California and BC that makes the overall marginal tax same?
C Corps definitely have a lot of fees, and if you have a lawyer or anyone involved, it's expensive, too. The thing is that it's kind of hard to generalize about this in the US, because business formation laws vary so widely by state.
I have an Ohio LLC from when I lived in Ohio, because I incorporated it and the requirements to keep it are basically nil, especially if you don't have revenue through it. Other states have different requirements, and C corps have pretty stringent requirements compared to LLCs anywhere.
So you can get a similar experience in the USA where you have a simple, low-cost business that's easy to form and easy to operate. But as far as I can see that's not the target for Stripe Atlas: it seems geared toward forming C corps, not toward LLCs, which means you start with a higher level of cost.
Ohio LLC’s are a powerful vehicle. Pay $99 once and never pay again.
Plus Ohio is super business friendly (red state).
I use a registered agent that files on my behalf so it’s $250 all in to get it done.
If you know your idea will take a few years to manifest into revenue and you want to shelter the IP somewhere an Ohio LLC is the place to do it IMHO (not legal advice).
In the UK the company registration fee is 12£ and then you pay another ~12£ yearly for the "confirmation statement" to keep the company on the register.
Beyond that, the taxes depend on your profits and the documentation is fairly straightforward (I can bitch all day about the amount of tax I'm paying, but at least they are very good at helping you figure out what you have to pay and why) and is very impressive for a government website.
I do have an accountant, but after a year of talking to them and using the provided accounting software (FreeAgent) I would be comfortable in doing all of it myself. The only reason I keep them is because the license for the software is included in their fees and because I'd feel bad dropping them as they are amazing, but if you are a smaller operation and have more time on your hands it's definitely possible to do everything yourself from the start and just pay for the software (or even use something free like GNUCash).
This is such FUD.
I run a company in Poland and pay flat 19% on profits.
You can also choose to pay 32% but you can then include a lot more expenses.
If somehow you feel neither option is good enough for you, you can run your business from Estonia or Czech Republic or any other EU country.
The federal government charges nothing for an EIN to establish your corporate entity. It's the individual states which have turned corporate filings into an archaic profit center.
The most frustrating part is that in theory every state expects a business to file as a foreign company if you are "doing business" in that state, which by their definition usually includes selling your product to anyone living in the state, even if the sale is done online. However, I personally don't know of any small startups that actually do this, and accounting costs of filing that many state tax returns would be absurd.
IMO one of the biggest impediments to remote work is this -- as soon as you have a remote employee, there is a good chance you need to register locally. That means time, money, and potentially fines for weird steps (tech platforms like gusto are insufficient in practice here.) 10-20 remote employees at 10-20 diff states, and more if they ever move, is such a PITA relative to small team size.
When I did startup M&A (for a larger corp) we found out the hard way that many profitable startups would not be if they actually paid the right taxes. They didn’t know and were too small (sub $10m in revenue) for the tax authorities to care but we walked away from deals because the cost of bringing them to compliance would kill the deal returns and we were too big to get away with it
> The most frustrating part is that in theory every state expects a business to file as a foreign company if you are "doing business" in that state, which by their definition usually includes selling your product to anyone living in the state, even if the sale is done online. However, I personally don't know of any small startups that actually do this, and accounting costs of filing that many state tax returns would be absurd.
That’s not how it works at all.
You pay taxes based on where you have a nexus, such as an office. Having customers in other States does not mandate you pay corporate tax for their States. That would violate the interstate commerce clause.
It’s even more of a stretch than trying to claim sales tax from out of State merchants.
I wish there was a service like Atlas, but for Canada.
I wasn't gung ho about incorporating a business abroad, as it introduces unnecessary complexity and costs money in the early stages. But as someone who didn't have access to the modern financial infrastructure (to accept cards on the Internets), there weren't that many options available (and most of them involved traveling to foreign countries).
Yeah, the same. We have a SAAS product in Colombia and considering if is better to incorporate abroad, but wish to be in better than USA (mostly because the litigious nature of USA system).
US is a business-friendly country because it a large population, which for many products operate as one demographic, with comparably high spending power.
It is NOT tax/fee friendly by any means especially for non-US based owners as the author notes. If you go the LLC route is quite cheap to own/operate an empty business for citizens.
The tax code alone is beyond any one person's understanding. Even for the individual, it is far from straight forward.
It's per state. For example, Texas has zero taxes due until you exceed approximately $1.1M in gross receipts, and then it maxes out at 1%, and no annual fees of any kind (unless you forget to file your usually one-page tax return and information reports, in which case it's $50 each.) Combined with an S-Corp and relatively low U.S. federal taxes, your combined tax bite can be very low indeed.
I think we need more details, because the same can be applied to the Delaware C-Corp.
1- Registered agent: I'm assuming you live in BC, Canada. If that was the case in Delaware, you shouldn't need a registered agent.
2- Franchise Tax: Can be minimized to $225 according to OP blog post. But you are not specifying whether you incorporated an LLC-equivalent or a C-Corp-equivalent.
3- Filing Taxes: This is a tricky one. You are comfortable with taxes in Canada, and probably also making a balance sheet. US taxes might seem complicated (and scary!) but you probably can get comfortable with them. The additional form that the OP is submitting is related to him being non-resident. I assume Canada has also its rules about non-residents.
So in total: $50 vs. $225. Seems negligible to me to care about.
By the language they are using, it's roughly equivalent to a C corp, the thing closest to an LLC is what they call a "sole proprietorship" in BC, unless I've missed something. Typically there you would register in the province you are doing business in, or multiply in the case you are doing business across the country.
FWIW Canadian and US taxes are roughly equivalently complicated in my experience.
I incorporated through Stripe Atlas for 2019 hoping to start and begin to develop the business, but dissolved the company after the first year because of these fees. Will try again when idea/product is more mature.
But if you are an online company with even just customers in California or a single employee, the CA tax board will chase you to the ends of the earth to get their $800 minimum franchise tax. That is whether you make a single dollar or not. Doesn't matter if you live there, are registered there, or have offices there. If you have an employee or a minimum level of sales or even contractors in CA, they want the greater of $800 annually or a tax on the proportion of profit made from California customers.
In India, it's around $150 + some other charges and requirements annually for popular options afaik.
Although, there are cheaper and more friendly option to individuals such as OPC (one person company) limited to single ownership. The turnover limit is decent and much less paper work. It costs around $99 + some other charges annually.
Depends on the state. Some are more business friendly than others. Michigan's LLC annual fee is $25. Arizona has a one-time LLC formation fee of $50 and no annual fees or filings. Each state is different.
How do you file the income tax, do you use a program for that? I have a BC company and it cost me $450 last year to file a non operating tax of $0. I'd love to know how to do it myself.
You can do corporate taxes with the usual programs like ufile or turbotax, there may be other options.
These are different versions than the personal one, so you have to pick the right option based on your business type. If you are incorporated it might force you into the more expensive option, but last time I did that I think it was about $99.
On the other hand you can always do it by hand for free. If you are just keeping an entity alive, it's probably pretty simple; more complicated if you are using it for deductions etc. I imagine once you have done 1 year, the next are almost cut and paste.
I download fillable PDFs. As long as your income (or was it revenues?) is under $1M/year you're allowed to file on paper.
Corporate tax forms change very little from one year to the next, so you can complete 99% of next year's tax return by "look at last year's return and put numbers in the same places". When all the numbers are zeroes, it's even easier.
The notion of spending $1000/year just to keep a company in existence seems crazy to me.
According to my accountant, if you can't spend $1,000 a year to keep a company in existence, then it's not a business. It's a hobby.
She says there's some minimum level of commercial engagement required in my jurisdiction before the tax authorities get antsy and start wondering if your company is just a way to dodge personal taxes by shifting money around. I never looked into it, so I'm not entirely sure what she's talking about. That's what I have her for.
That said, the total of the yearly government burden on my small company is less than the $1,000 you quote. "The USA" is a big place with lots of different taxes. It's part of the philosophy of competition that keeps the place moving.
Of course an accountant would give a condescending non-answer like that. The clients who give her the most money for the least trouble are the ones for whom that's true. We shouldn't let them or her speak for new businesses, though. People trying to get into business have the clearest view of the problems they face.
For an organically grown start-at-the-bottom business, $1000/year to declare a company is bad (it's much less outside of California, but still). The constant threat of the IRS deciding you aren't serious-business enough and sending you a bill for 30% of your revenue in the last 5 years is bad. Not profit, revenue. The fact that "serious business" is defined about as well as my memetic language would imply is doubly bad. We should fix this.
The advantage of Stripe Atlas was that they would open a bank account for you which was a big plus for foreigners because of the KYC rules. But now that Mercury bank is a thing and everyone can open a bank account online, there is no advantage to Stripe Atlas. Especcially now that Atlas does not allow foreigners to open a LLC. Everybody can form Wyoming LLC online for 100 bucks and pay 25$/year for an agent/mail address, or if you want someone else to do it there are reliable services to do that for around 350$.
I know for the fact that Mercury was closing accounts for the residents of Belarus because it was too costly for their partner bank to figure out who's on the sanctioned list. In that case, you will have to travel to the US to open a bank account, which kinda defeats the whole point of remote incorporation.
Yes. You can open a Mercury account only if your company is registered in the US, so for Stripe's purposes you are just a US company like all the others.
I considered the Stripe Atlas route because I wanted someone to handle things for me & make it easy.
I ended up finding a friend recommended accountant who could handle my taxes & help me setup everything.
An option I didn't know about that seems to work out really well for tiny 1 or 2 person startups not looking to raise money is a LLC taxed as an S-Corp.
I would recommend both finding a good accountant (or 2) and having them help you set it all up with you. This way you have a person you can bounce questions off of throughout the year.
Another item I learned. Pick your bank wisely. A lot of people were left high & dry for a long time when looking to get the PPP loan this year. You need a bank that's actually going to care about you and doesn't think you're not worth their time. I heard a lot of people who couldn't get a hold of their bank & the bank didn't return their calls.
Also don't expect anyone to loan you money for a mortgage or personal reason until after running the business for 2 years. Your income won't be counted, no matter what to most banks.
The USA has a lot of hurdles & pains if you want to run a business but once you cross the moat, it can be much better than being a W-2 employee for someone else.
1. On taxes, a C Corp might be the right choice, but he didn't say enough to reject an LLC that elects to be taxed under Subchapter S. A C Corp taxed under Subchapter C creates the classic "double taxation" problem, where any profit distributions are taxed twice before hitting the founder's pocket.
2. A CMRA (virtual mailbox) is not a good registered agent. The "registered agent" is the place the sheriff or process server delivers a lawsuit to a real person. If your mailbox address doesn't accept hand-delivery, they'll reject service.
And if that happens, you may not hear about any lawsuit until the court has already ruled against you and entered a judgment. Most states say that if you don't have a place for hand-delivery, the person suing you can mail it to the Secretary of State, who then mails it to your last known address. You rarely get the suit in time to answer.
You can find registered agents cheaper than $100. But don't assume your virtual mailbox is a good solution.
The calculus of c Corp double taxation has actually shifted in the last few years due to the lower corporate tax rate of 21%.
Situations vary, of course, but if you paid yourself as a founder a base salary and then paid dividends, those dividends could be received at a 0% tax rate up to the first $77k for a married couple filing jointly.
So effectively, you would be paying only 21% tax on that 77k.
The traditional s-corp passthrough could shield some of the income from SS tax. But you are still going to pay full personal income tax on all of it because I don't think that dividends paid from an s-corp can count as "qualified dividends".
Additionally, c-corps have more leeway with fringe benefits. For example, I believe a c-corp can pay for a healthcare plan with pre-tax money where as you can't deduct that for an s-corp.
They did cover 1 quite clearly. At least to me, an American that lives outside America with some US income. You do not want pass through outside the US. Unless you just like paying taxes.
Edit:
Just to clarify why I said this. The US has a “anti-double taxation” treaty with most countries. Except that it doesn’t really apply fully to businesses. For example, I basically paid almost 50% income tax on income made from the US last year. I’m trying to figure out how to restructure to fix this.
I think you're discussing a different problem from the parent post. Depending on how you form your US company, you can end up in a situation where the company pays corporate income taxes on any profits, and then when you distribute those profits to yourself you pay personal income tax on them too -- so the same income is essentially taxed twice.
There are separate issues with how the US taxes money made overseas.
If you lived in California, and do business in California, and you incoporate in Delaware you still have to pay $800 tax per year for California. You cannot escape it.
Yup. We encountered this exactly on our initial set up for our company. This made us decide to domesticate our company from Delaware to California, with a little bit of money lost for this learning process.
As a US Citizen living in the US, I've created ~5 LLCs in the last fifteen years.. 2 with Stripe.. I didnt really see an advantage of Stripe over doing it myself. A decent CPA seemed to be cheaper and more personal.
That said, only the Stripe ones were created as Delaware corps which was probably unnecessary for both of them, but made them infinitely more complex.
Could you not just transfer income to a LLC in your home country as company-to-company sales? And then retain the 0% tax in Estonia, while paying regular income tax in your home country.
Typically you also pay franchise tax to California if you live and work there.
Some states like Massachusetts have you pay into an unemployment insurance fund.
Usually you will pay for QuickBooks and a payroll processor like Gusto, which is $960/yr together. So for not profitable entities $800 CA FTB + $450 DE FTB + ...
C Corps enjoy a 21% flat tax rate. They are a very attractive way to conduct business on that alone, if you are actually profitable. The little taxes and fees may make your effective tax rate compared unfavorably to pass through, however if you’re making that little money what was the point then?
The reason to not have a C Corp if you are small is double taxation - if you are small you would be paying payroll taxes, corporate income taxes, and personal income tax all on money that is going to you.
Readit News
Tarsnap is incorporated in BC, Canada. I pay less than $50 to file an annual report with the government (basically just a "the company still exists and the mailing address and directors haven't changed"); there's no franchise tax; and Tarsnap's corporate income tax is easy enough for me to do by hand (it takes about 2 hours and I usually file in the first week of January).
The notion of spending $1000/year just to keep a company in existence seems crazy to me.
The bad deal that american's get for their taxes is really sad.
US is a much more competitive and diverse market in every respect (even with it's shortcomings).
My parents (and other immediate family), would move to the US if they could.
[1] https://www.canada.ca/en/revenue-agency/services/tax/individ...
[2] https://www2.gov.bc.ca/gov/content/taxes/income-taxes/person...
Yes, I just arbitrarily picked $250k. No I ignored SSI+OAIS (US) because it phases out at $137,000.
CA: 35% (fed) + 9.3% (state) + 1.45% (Medicare) = 45.75%
BC: 33% (fed) + 20.5% (province) = 53.5%
I have an Ohio LLC from when I lived in Ohio, because I incorporated it and the requirements to keep it are basically nil, especially if you don't have revenue through it. Other states have different requirements, and C corps have pretty stringent requirements compared to LLCs anywhere.
So you can get a similar experience in the USA where you have a simple, low-cost business that's easy to form and easy to operate. But as far as I can see that's not the target for Stripe Atlas: it seems geared toward forming C corps, not toward LLCs, which means you start with a higher level of cost.
Plus Ohio is super business friendly (red state).
I use a registered agent that files on my behalf so it’s $250 all in to get it done.
If you know your idea will take a few years to manifest into revenue and you want to shelter the IP somewhere an Ohio LLC is the place to do it IMHO (not legal advice).
Deleted Comment
Beyond that, the taxes depend on your profits and the documentation is fairly straightforward (I can bitch all day about the amount of tax I'm paying, but at least they are very good at helping you figure out what you have to pay and why) and is very impressive for a government website.
I do have an accountant, but after a year of talking to them and using the provided accounting software (FreeAgent) I would be comfortable in doing all of it myself. The only reason I keep them is because the license for the software is included in their fees and because I'd feel bad dropping them as they are amazing, but if you are a smaller operation and have more time on your hands it's definitely possible to do everything yourself from the start and just pay for the software (or even use something free like GNUCash).
It's required for literally any recurrent economic activity, even selling old things on classifieds sites.
That's just for basic sole-proprietor. Private limited company is much more complicated. I wouldn't dare to register it. So it doesn't exist.
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The most frustrating part is that in theory every state expects a business to file as a foreign company if you are "doing business" in that state, which by their definition usually includes selling your product to anyone living in the state, even if the sale is done online. However, I personally don't know of any small startups that actually do this, and accounting costs of filing that many state tax returns would be absurd.
That’s not how it works at all.
You pay taxes based on where you have a nexus, such as an office. Having customers in other States does not mandate you pay corporate tax for their States. That would violate the interstate commerce clause.
It’s even more of a stretch than trying to claim sales tax from out of State merchants.
I wasn't gung ho about incorporating a business abroad, as it introduces unnecessary complexity and costs money in the early stages. But as someone who didn't have access to the modern financial infrastructure (to accept cards on the Internets), there weren't that many options available (and most of them involved traveling to foreign countries).
I use Tarsnap daily!
(I've seen good things about them; no affiliation otherwise)
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That's good, because in the vast majority of US states it doesn't cost anywhere near $1,000 per year to keep a company in existence.
US is a business-friendly country because it a large population, which for many products operate as one demographic, with comparably high spending power.
It is NOT tax/fee friendly by any means especially for non-US based owners as the author notes. If you go the LLC route is quite cheap to own/operate an empty business for citizens.
The tax code alone is beyond any one person's understanding. Even for the individual, it is far from straight forward.
1- Registered agent: I'm assuming you live in BC, Canada. If that was the case in Delaware, you shouldn't need a registered agent.
2- Franchise Tax: Can be minimized to $225 according to OP blog post. But you are not specifying whether you incorporated an LLC-equivalent or a C-Corp-equivalent.
3- Filing Taxes: This is a tricky one. You are comfortable with taxes in Canada, and probably also making a balance sheet. US taxes might seem complicated (and scary!) but you probably can get comfortable with them. The additional form that the OP is submitting is related to him being non-resident. I assume Canada has also its rules about non-residents.
So in total: $50 vs. $225. Seems negligible to me to care about.
FWIW Canadian and US taxes are roughly equivalently complicated in my experience.
I incorporated through Stripe Atlas for 2019 hoping to start and begin to develop the business, but dissolved the company after the first year because of these fees. Will try again when idea/product is more mature.
Edit: by the way, I knew your background was good, but didn't realize it was THIS good: [0]
> Dr. Colin Percival studied mathematics at Simon Fraser University, entering at age 13
[0]: https://www.tarsnap.com/about.html
It's only if you elect your LLC be taxed as an S-corp or C-corp, or incorporate as a real corporation that taxes need to get complicated.
Although, there are cheaper and more friendly option to individuals such as OPC (one person company) limited to single ownership. The turnover limit is decent and much less paper work. It costs around $99 + some other charges annually.
These are different versions than the personal one, so you have to pick the right option based on your business type. If you are incorporated it might force you into the more expensive option, but last time I did that I think it was about $99.
On the other hand you can always do it by hand for free. If you are just keeping an entity alive, it's probably pretty simple; more complicated if you are using it for deductions etc. I imagine once you have done 1 year, the next are almost cut and paste.
Corporate tax forms change very little from one year to the next, so you can complete 99% of next year's tax return by "look at last year's return and put numbers in the same places". When all the numbers are zeroes, it's even easier.
According to my accountant, if you can't spend $1,000 a year to keep a company in existence, then it's not a business. It's a hobby.
She says there's some minimum level of commercial engagement required in my jurisdiction before the tax authorities get antsy and start wondering if your company is just a way to dodge personal taxes by shifting money around. I never looked into it, so I'm not entirely sure what she's talking about. That's what I have her for.
That said, the total of the yearly government burden on my small company is less than the $1,000 you quote. "The USA" is a big place with lots of different taxes. It's part of the philosophy of competition that keeps the place moving.
For an organically grown start-at-the-bottom business, $1000/year to declare a company is bad (it's much less outside of California, but still). The constant threat of the IRS deciding you aren't serious-business enough and sending you a bill for 30% of your revenue in the last 5 years is bad. Not profit, revenue. The fact that "serious business" is defined about as well as my memetic language would imply is doubly bad. We should fix this.
Deleted Comment
It could happen with any other bank as well.
I ended up finding a friend recommended accountant who could handle my taxes & help me setup everything.
An option I didn't know about that seems to work out really well for tiny 1 or 2 person startups not looking to raise money is a LLC taxed as an S-Corp.
I would recommend both finding a good accountant (or 2) and having them help you set it all up with you. This way you have a person you can bounce questions off of throughout the year.
Another item I learned. Pick your bank wisely. A lot of people were left high & dry for a long time when looking to get the PPP loan this year. You need a bank that's actually going to care about you and doesn't think you're not worth their time. I heard a lot of people who couldn't get a hold of their bank & the bank didn't return their calls.
Also don't expect anyone to loan you money for a mortgage or personal reason until after running the business for 2 years. Your income won't be counted, no matter what to most banks.
The USA has a lot of hurdles & pains if you want to run a business but once you cross the moat, it can be much better than being a W-2 employee for someone else.
2. A CMRA (virtual mailbox) is not a good registered agent. The "registered agent" is the place the sheriff or process server delivers a lawsuit to a real person. If your mailbox address doesn't accept hand-delivery, they'll reject service.
And if that happens, you may not hear about any lawsuit until the court has already ruled against you and entered a judgment. Most states say that if you don't have a place for hand-delivery, the person suing you can mail it to the Secretary of State, who then mails it to your last known address. You rarely get the suit in time to answer.
You can find registered agents cheaper than $100. But don't assume your virtual mailbox is a good solution.
Situations vary, of course, but if you paid yourself as a founder a base salary and then paid dividends, those dividends could be received at a 0% tax rate up to the first $77k for a married couple filing jointly.
So effectively, you would be paying only 21% tax on that 77k.
The traditional s-corp passthrough could shield some of the income from SS tax. But you are still going to pay full personal income tax on all of it because I don't think that dividends paid from an s-corp can count as "qualified dividends".
Additionally, c-corps have more leeway with fringe benefits. For example, I believe a c-corp can pay for a healthcare plan with pre-tax money where as you can't deduct that for an s-corp.
Even so, LLC-as-a-C-Corp is usually the winner, not a full-blown Delaware Corporation taxed as a C-Corp.
Edit:
Just to clarify why I said this. The US has a “anti-double taxation” treaty with most countries. Except that it doesn’t really apply fully to businesses. For example, I basically paid almost 50% income tax on income made from the US last year. I’m trying to figure out how to restructure to fix this.
There are separate issues with how the US taxes money made overseas.
Your being taxed as a US citizen, so a tax treaty wouldn't apply to your US income.
That said, only the Stripe ones were created as Delaware corps which was probably unnecessary for both of them, but made them infinitely more complex.
https://taxsummaries.pwc.com/estonia/corporate/taxes-on-corp...
That is once you want to distribute the income then you do have to pay corporate income tax of 21%.
Some states like Massachusetts have you pay into an unemployment insurance fund.
Usually you will pay for QuickBooks and a payroll processor like Gusto, which is $960/yr together. So for not profitable entities $800 CA FTB + $450 DE FTB + ...
C Corps enjoy a 21% flat tax rate. They are a very attractive way to conduct business on that alone, if you are actually profitable. The little taxes and fees may make your effective tax rate compared unfavorably to pass through, however if you’re making that little money what was the point then?