Myths and reality of starting a business abroad

Myth №1: company registration in one day

You often see headlines like “Register a Company with Us in One Day” in Google searches. However, the reality is more complex.

It’s important to understand that such registrars usually offer to apply for company registration. However, the registration process typically takes several days to several weeks.

Each country has unique requirements that can affect the timeframe and process of registration. In addition to the registration itself, the time needed to gather necessary documents should also be considered.

Market analysis and understanding of the country’s legal framework, tax system, and other procedures are crucial to a successful business launch. Thorough research of these aspects allows for effective strategy formulation for company formation, helps avoid potential difficulties, and creates a solid foundation for stable business operations in a new environment.

Moreover, after successfully opening a company, it’s essential to consider additional procedures, such as obtaining licenses and other regulatory approvals necessary for legal business operations in the country. This ensures the legitimacy and compliance of the business in the new jurisdiction.

Transitioning to the next section of the article on opening a bank account becomes a logical continuation of this process and a vital step in establishing a stable financial foundation for the business.

Myth №2: Opening a bank account in a few days is easy

Opening a bank account is one of the simplest parts of starting a business, especially compared to Ukraine. However, in practice, it is a complex process that varies significantly in each country.

Each bank has its own rules and compliance procedures for opening accounts. You need to provide a set of documents, including proof of identity, proof of residence, company information, verification of the company’s operational address, the source of funds, and other relevant data.

Another common myth is that thanks to digitalization, opening a bank account is possible remotely, without the client’s presence. In reality, most banks worldwide require a face-to-face meeting with a bank representative during the account opening process. This is due to compliance with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations.

Furthermore, opening a company account is only possible under certain conditions. The bank may require you to conduct business with local partners and understand your operations. Opening an account can be a real challenge for IT companies without an office, employees, a registered trademark, and precise website documentation.

In such cases, payment systems can assist entrepreneurs. They often allow companies to open electronic accounts and offer flexibility in financial transactions for those who do not meet the stringent requirements of traditional banks.

Myth №3: Focus on low taxes

There’s a common myth that leveraging tax benefits always leads to significant cost reductions and is advantageous for business. However, this is only sometimes true, as such jurisdictions often restrict turnover or founder presence.

It’s also important to consider that the costs of maintaining a company abroad, such as accounting services, legal fees, mandatory audits, employee salaries, and office rental expenses, can offset any tax benefits.

When choosing the optimal jurisdiction for a business, it is crucial to maintain a balanced approach and consider not only tax advantages but also associated restrictions and additional costs. A broad range of limitations and extra expenses related to maintaining a company abroad can significantly impact the overall effectiveness of the tax strategy.

Myth №4: It’s better to do everything yourself without locals

This claim is not always accurate, as the requirement for a local representative varies by country and state.

For instance, U.S. law may require companies to have a registered agent who receives lawsuits and other legal documents on behalf of the company. Similar requirements exist in Estonia and several other jurisdictions. This person acts as a liaison between the company and government agencies.

Other examples include local lawyers, accountants, AML and GDPR officers, and other professionals responsible for your operations. It may be mandatory, depending on the nature of your business.

Myth №5: Remote company formation

While the idea of forming a remote company seems convenient and efficient at first glance, it’s important to understand that this concept is somewhat conditional.

In many countries, the company registration process can include offline stages, such as undergoing identification procedures at a bank, as mentioned earlier, or obtaining a visa.

For example, in the UAE, you can register a company online. However, the company’s founder typically needs to obtain a visa for ongoing operations. Subsequently, they must visit the UAE regularly every six months to maintain the validity of this visa.

This can be an unexpected challenge for those who planned solely on “remote formation.” Therefore, before starting the company formation process, it’s essential to research the jurisdiction and consider possible offline stages for registration and subsequent business activities.

Conclusion

Starting a company abroad is a process often surrounded by myths and stereotypes. In this article, we explored and debunked some of these, highlighting the real aspects of establishing a business overseas. Focusing on quick registration and low taxes can mislead owners, leading to time-consuming restructuring of operations later on.

Instead, a proper approach, a clear action plan, jurisdiction analysis before registration, and support from qualified professionals can save time and simplify the registration process. Evaluating all potential aspects, from choosing the type of company to understanding banking requirements, helps avoid potential difficulties and ensures a successful business launch in the modern business environment.