Where to open an IT company: best places and tips

The IT market consistently maintains a leading position in the list of the most promising investment options. Moreover, everything indicates that the market will only grow. If traditionally it covered the development and implementation of software, including SaaS, mobile applications, cybersecurity measures, now the IT segment has been supplemented by projects related to blockchain technology, artificial intelligence, virtual reality, augmented reality, the Internet of things, etc. The market is huge in terms of volume and provides very flexible conditions for doing business around the world.

That is why many states are adapting their legislation, including tax laws, in order to attract more projects from the IT sector. In this vein, the following can be safely considered the most profitable countries for IT business.

TOP 5 jurisdictions where to register an IT company

The choice of jurisdiction for registering an IT business is always determined by the initial data and tasks of the project. Among all the available options, the following can be considered the most profitable:

1. USA

One of the most popular countries for the development of information technology. Within this jurisdiction, there is a huge domestic market and support for the IT sector. The United States is also known for its high level of protection of intellectual property and business in general.

Investors usually choose California or Delaware to register IT companies. California is known for Silicon Valley, a leading hub for startups. But this coin also has a downside – the level of competition in Silicon Valley is well above average.

Delaware is primarily attractive due to the absence of taxation and the ease of registering a local company. You can open an IT company and accounts for it here even remotely. Out-of-state income is not taxed in Delaware. In other regions of the United States, business taxation always depends on the peculiarities of local legislation.

2. UK

The UK is one of the jurisdictions where it is most profitable to develop an IT business. There is a very developed infrastructure here, including many accelerators, incubators, business parks, venture funds, etc. In addition, the UK has a very developed domestic market, and IT business can be run here even remotely.

Standard tax rates apply by default to any technology business, from April 1, 2023 for profits this is the main rate of 25%. It applies if the profit from the project exceeds £250 000. If the company’s profit does not exceed £50 000, then a 19% tax rate will apply. If the company’s profits range from £50 000 to
£250 000, then the company will pay income tax at the basic rate of 25%, while having a marginal exemption depending on the amount of profit and type of activity (in fact, the tax rate will vary from 19% to 25%). The UK also has a special tax on the provision of services using online services (digital service tax), its rate is 2%.

Despite the seemingly high tax burden, the local government still provides IT companies with a number of tax incentives and deductions under special programs that relate to investments in small businesses and start-ups, as well as R&D work. In terms of taxation, a clear advantage of the UK is the availability of a special tax regime for profits received from the use of patented intellectual property objects – the Patent Box. Under this regime, a reduced corporate tax rate of 10% is applied to the company’s qualified profits, which is especially noticeable for businesses against the backdrop of the latest increase in the standard rate to 25%.

As an advantage of jurisdiction, it should be noted that British law also provides for a special form of doing business – a limited liability partnership (Limited Liability Partnership). This form of business is completely exempt from paying taxes if the activity is carried out outside the United Kingdom. It should be noted that the UK is attractive for doing IT business not so much from the standpoint of taxation, but from the standpoint of respectability and access to a huge capital market.

3. Cyprus

The jurisdiction has long established itself as a reliable place to start and develop an IT business in Europe and will maintain this status. Among other things, Cyprus issues start-up visas and also provides preferential taxation conditions (IP Box program). It is possible to register a company and an account for a Cypriot company even remotely.

The preferential treatment of the IP box for IT involves a reduction in the corporate tax rate from the standard 12,5% to 2,5%. This happens due to a decrease in the base for taxation by income tax (by a maximum of 80%). The condition for this is the receipt of such profits from qualified intellectual property assets. IP Box is a popular tax planning tool that offers great opportunities for the development of innovation and information technology.

4. UAE

The Emirates, in principle, are suitable for doing any business, including IT. The jurisdiction is focused on developing technologies and attracting foreign investment. In particular, non-resident entrepreneurs can apply for investor visas and set up a company remotely.

The UAE has a large number of free economic zones. The country also offers an extremely favorable taxation system, within which there are no taxes on income, personal income, passive income and capital gains. The UAE also does not belong to the classic offshore jurisdictions, has many double taxation treaties, and practically does not exchange tax information with the competent authorities of other jurisdictions.

5. Georgia

The popularity of Georgia in terms of registering an IT business has grown every year. The jurisdiction offers a fairly simple process for establishing new legal entities, and IT industry enterprises receive various benefits here. Georgia also offers flexible immigration rules and the ability to conduct business remotely. In Georgia, IT startups can qualify for full or partial exemption from corporate tax and VAT. In particular, if an IT project is registered as a virtual zone company, then its profits received outside the jurisdiction are not taxed (the rate is 0%). In this case, VAT is also not applied (the rate is 0%), and dividends that are subject to distribution among shareholders are taxed at a rate of 5%. You can register the status of a virtual zone company remotely within a few days.

The final choice of jurisdiction is always determined by the initial data on the project, as well as its objectives. Azola Legal Services lawyers are ready to consider your case and provide the most suitable options for consideration.

Creating your own IT company: what nuances are important to consider

The IT industry offers numerous benefits, including financial ones. But you can use them if important nuances are taken into account, among other things:

• type of business (what ideas do you want to implement, will it be a universal software product or a specialized one);
• availability of infrastructure (the more complex the business idea, the more complex infrastructure will be needed to implement it);
• opportunities for obtaining external financing (availability of access to capital markets, government programs, financing from investors, etc.);
• level of competition (who are your competitors and what products do they promote);
• hiring employees (do you plan to attract specialists and do business in the country of its registration or outside it);
• the level of requirements for registration in general, as well as for residency and physical presence in particular;
• availability of unhindered access to the services of international banks and payment systems;
• guarantees for the protection of assets, in particular IP objects;
• taxation (what tax liabilities will arise, whether benefits and other preferences for IT are available in the selected country).

Support for the launch of an IT project is never limited to the listed nuances. Azola Legal Services lawyers will help with the correct assessment of your future business project, including choosing the most suitable jurisdiction for it.

How to register an IT company: brief instructions

Registration of an IT company is not fraught with any difficulties if the package of documents is executed correctly, and the registrar has received all the information required by local business incorporation rules. The creation of a limited liability company is the most common and preferred option, since the liability of the participants is limited solely to the amounts of their investments in the enterprise. Even a non-resident can establish an LLC in most jurisdictions without any problems.

To register a new IT company, you will need a unique name, which ideally should reflect the essence of the business. It is recommended to formulate at least 3 options and submit them for consideration in order of preference. Even if information about the founders and beneficiaries is not disclosed, it must be provided at the time of registration and kept up to date thereafter.

It is necessary to draw up corporate documents taking into account the requirements of local legislation, as well as business objectives. Conducting international IT projects with the involvement of foreign partners, for example, requires the introduction of effective business management mechanisms, the distribution of risks and profits, the resolution of potential disputes, etc. These items are prescribed in the company’s charter. Particular attention should be paid to the choice of codes for the types of activities that the future company plans to carry out.

In some countries, there may be a requirement to pay the authorized capital before the registration of the company in whole or in part. In case of a positive decision on the issue, information about the new company will be entered in the appropriate register (judicial or register of legal entities), and applicants will be issued certificates of establishment of a new enterprise. In the future, registration takes place for the purpose of paying mandatory payments (tax and social), as well as opening a corporate bank account. An additional stage for IT companies is the registration of a special status (for example, a virtual zone company) or participation in specialized government and / or investment programs. For IT companies, it may also be necessary to formalize intellectual property rights, for example, through the registration of trademarks and patents.

Azola Legal Services lawyers will provide individual advice on where to open your IT company and how to do it, observing all legal formalities. Provide information about your business priorities and wishes for individual advice on registering a new business in IT.