Which country is best for your business? Maybe it’s time to move somewhere better.
Learn why America is not a tax haven and which countries are better locations to move your business to – an interview with business migration expert Indra Priede.
Indra Priede, founder and director of IBC Company Formations Limited (IBCC), international expert, speaks about contemporary migration of businesses, the benefits gained by developing your business in certain jurisdictions, as well as the main advantages of moving your business headquarters elsewhere.
Olga Novikova: How does business migration affect business development – can it give the entrepreneur a much-needed boost to reach new levels?
Indra Priede: Let me begin by saying that our company has worked with businesspeople in various countries and our more than 20 years of experience shows that business migration is often one of the primary catalysts for developing a business.
If you have a prosperous business that brings revenue today and you want to continue so in the future, you need to think long term. This means you should not only account for what you will be doing tomorrow but also in five to ten years from now.
It is my understanding that many residents of former Soviet republics prefer to do things as they come, living in the moment. This is easy to explain. In a very brief span of time, these people have had to face many challenges, enough for several lifespans of the average American or European: multiple political and economic crises, currency devaluations, the sudden slump of the rouble exchange rate. What good is a long-term strategy when political and economic realities inspire no confidence in what tomorrow might bring? As a result, many tend to think short-term and often are caught spending what they earn straightaway.
The greater stability of life in the West has shaped a different mentality: people are accustomed to living for tomorrow and the day after tomorrow and look towards the future to implement their plans successfully. There are fertile conditions for enterprise development. Only stable legislation and economic conditions will allow you to grow a business that can last for decades and centuries. People who are willing to consider new, Western jurisdictions for their business are those who think ahead, are willing to develop new goals and who ultimately expect to leave a successful enterprise for their children.
ON: What country, in your opinion, is the most advantageous now for potential business migrants? Is it true that the United States is an entrepreneur’s paradise?
IP: I’d like to dispel this myth that the U.S. as the ultimate place to locate your company’s headquarters. Operating across various states is like operating in a minefield – every state has its own tax rates and policies. In addition, combined state and federal taxes can reach as high as 50% or even 60%. Nevertheless, with the right choice of location, America is the land of opportunities. The United States is a great environment for start-ups and ease of doing business (see http://www.doingbusiness.org/rankings). It is generally understood that a new company will not turn a profit in the first five years, which is considered to be the norm. Business development takes time. In addition, you can be sure that your profitable company will eventually be passed on to your children, regardless of who the President is or which party gets more votes in Congress.
There are a number of solutions on the market for setting up US businesses, but what do we usually see? We often hear most about investing in the US via the green card approach, which requires a minimum investment of US$ 500,000 and up. How many of our small and medium sized business clients are able and willing to pay that? I can say there are very few of them.
Another example involves US bank account introduction services for non-US residents. I do not recommend opening a US bank account just to leave your funds in a secure place. While it is possible to open a US bank account and transfer one’s funds there, a non-US resident who does not have a US related business may face difficulties if they decide to transfer the funds outside of the US. Depositing money to a U.S. account should be done in a smart way – preferably after consulting an expert.
If the US is on your radar, you should clearly understand your goals, analyse your business and its development potential in the US marketplace.
We help our clients find the correct strategy to enter the US market, based on their specific needs. We have a solution for those who need an online business in the US, or for those who need a US company to be able to sign contracts with their US customers. Nevertheless, if your plan is to move together with your family to the US and enjoy the lifestyle there, we will bring a different proposal to the table.
ON: Where exactly in the U.S. would you recommend moving? Would that be Delaware, New York, California or somewhere else?
IP: Clients often ask me where (in which state) it is easiest to establish a US company. There are no clear-cut answers. It depends on the type of your business, whether you intend to open an office and take on employees, or whether you plan to only have an online-based business working nationwide.
Let’s say we have an IT software developer from Belarus. The first thing that comes to mind when we have IT is California, but did you know that California has very high tax rates? Taxing businesses is what allows the state to stay afloat in spite of a few natural resources.
On the other hand, Texas is a state that produces oil and gas. It makes enough money not to burden local state businesses, making its tax regime much more attractive for entrepreneurs.
Ultimately, the choice of state depends on the type of business and client’s personal needs. We had a fashion designer from the Ukraine, with partners in Los Angeles and New York. Her Ukrainian company was still performing most of the back-office functions, but the owner wanted to be able to freely travel and work in the U.S. but not live there permanently. Our solution for this client was to establish a New York company with a US bank account, rent a small, inexpensive office, and employ a part-time staff member. This relatively simple and inexpensive framework enabled her to receive an appropriate visa / work permit combination that was flexible enough for both travel and work.
For a local US business, I would consider Massachusetts as an interesting alternative to the better known state of California. This state has lots of potential for establishing any business. The entire East Coast, I believe, is a very undervalued region for doing business, especially when working with Europe. Historically, the Eastern region of the US is closely more involved with Europe while the West Coast is closer with Asia. Therefore, if your business is connected to Japan or China and you want to operate in the United States – the West Coast is your best bet. If your partners are mostly in Europe, you should take a closer look at options on the East Coast.
As a service provider, we are not just helping you set up a company and bank account, which is a relatively straightforward procedure. Our number one task is to develop the best strategy for structuring your international business. Developing custom strategies for a variety of businesses is IBCC’s focus.
ON: How do you work with customers? What information do you need before you can offer an effective business structuring and migration strategy?
IP: Once we understand that a company wants to break new ground and is considering business migration as a significant factor to further its international development, we have to look at key parameters of the business. First of all, the industry, as I have mentioned, has a direct effect on the “geography” of a relocation. Second, we look at your financials: profitability, turnover, forecasts. Based on this data and our own analysis, we will offer two or three options in different European countries or in the US.
Your company’s turnover is an exceptionally important indicator while choosing the right location for future development. Modest revenues will not enable global expansion in a stable environment – they might be insufficient in order to break even. A business with EUR 1-2 million in turnover will work best starting out in Latvia, while a turnover of 10 million would fit more naturally in Austria, a country known for offering sophisticated international trading structures. Maintaining a high-revenue business in Austria means higher maintenance costs. For me, this is like comparing a mid-range car like Volkswagen to a Mercedes. A Mercedes is expensive and maintenance will cost more, but a Volkswagen will be more comfortable, convenient and come at a significantly lower cost.
Therefore, I would not recommend Austria as a country for companies with modest turnover, as it comes with somewhat expensive maintenance costs. Latvia or Ireland may be more solid choices in this regard. Nevertheless, regardless of what jurisdiction you choose, the potential of conducting business in a solid, legally sound European country means greater political and economic stability, with the opportunity to hand the family business over to your children.
When we compile a migration plan, we consider all these different factors, and our experience lets us say, with confidence, that we can offer the optimum solution for developing your international business.
ON: One personal question before we conclude this interview. Where did you get your education, and how did you start working in international business?
IP: My parents emigrated to the U.S. from Latvia, but I was born in Boston, Massachusetts. My father was in international sales, so he often took business trips to India, China, Pakistan, Latin America and so on – it would be easier to name the countries he didn’t travel to. We often would have international guests from all over the world. I always knew I wanted to be in international business. Before my Masters in Business Administration (M.B.A.) in International Management, I finished an undergraduate degree in the US liberal arts educational tradition, which gave me a much wider view of the world and helped me develop valuable analytical and writing skills. I also play the viola in a string quartet here in Latvia. Music is a wonderful world that gives me respite from the daily world of business.
I am confident that together with my colleagues, our knowledge, expertise and more than 20 years of combined experience, will help our customers take their business to the next level. In today’s business, only a reliable, professionally developed strategy for entering the international market can guarantee you success in business.
Interview with Indra Priede originally published on www.e-xecutive.ru on January 23, 2017.