Understanding Companies and Their Benefits for Digital Nomads

For digital nomads and expats working abroad, running a business across borders comes with unique challenges and opportunities. Setting up a company can provide a solid foundation for managing clients, securing contracts, and accessing financial benefits like tax optimisation and liability protection.

What Is a Company?

A company is a legally recognised business entity formed by one or more individuals to conduct business. It is separate from its owners in terms of legal rights and responsibilities, which means it can own property, enter into contracts, and be liable for its debts and obligations independently of its founders. Companies come in various forms, including sole proprietorships, partnerships, limited liability companies (LLCs), and corporations.

Why Digital Nomads and Expats Might Need a Company

Digital nomads often work remotely across different countries, taking advantage of location independence. Establishing a company can offer numerous benefits including:

Legal Protection

Forming a company separates personal assets from business liabilities, which is especially important for digital nomads who work and travel overseas frequently. Operating without a formal business structure can expose personal savings, property, or other assets to potential risks, such as lawsuits or business debts wherever you travel.

A registered company creates a legal boundary in which you are essentially an employee of, ensuring that any liabilities arising from business activities remain confined to the company itself. For digital nomads, this can be crucial, as your business dealings otherwise (assets, transactions, earnings) could be treated as your’s personally which can be a huge nightmare if crossing many jurisdictions.

Professional Image

Operating under a company can enhance credibility with clients, other companies such as suppliers and can assist obtaining visas when working or traveling abroad..

Many countries offer business or entrepreneur visas that are specifically designed for individuals running a registered company. These visas often require proof of business registration, financial activity, or an economic contribution to the local market—criteria that a formal company structure can help meet more easily.

An example of such programs include the APEC Business Travel Card (ABTC), for those who live which allows for easier travel across 21 Asia-Pacific countries. The card provides benefits like visa-free or expedited entry and priority immigration processing.

Additionally, operating under a company can demonstrate professional legitimacy and financial stability, which are often key factors in visa approvals. For nomads working internationally, having a company can simplify the process of applying for long-term visas or residency permits, as it showcases a structured and sustainable approach to working abroad as opposed to being a ‘freelancer’ which may be looked down upon.

Tax Efficiency

Companies can offer potential tax advantages depending on the jurisdiction. By establishing a company, digital nomads can simplify and consolidate their personal and business tax obligations, especially when traveling abroad.

Many countries offer favorable corporate tax rates, often lower than personal income tax rates, with some jurisdictions even offering corporate tax rates as low as 0%. This can significantly reduce the overall tax obligations, making it more efficient for business owners to manage their finances while maintaining a location-independent lifestyle.

Additionally, having a company structure allows for more flexibility in structuring income and expenses, further optimizing tax savings.

Ease of Scaling

While not the priority of all Digital Nomads and more relevant for those trying to build a product. A company structure tends to make it easier to scale. It simplifies adding employees, purchasing assets, expanding into new markets, and securing funding by being able to issue shares.

A formal business structure with good bookkeeping can assist gaining investments by showing credible earnings and the ability for the company structure to issue ‘shares’ representing part ownership.

Access to Banking:

Having a registered company can greatly simplify access to banking services, both locally and internationally. With a company structure, you can open business accounts that offer more features than regular personal accounts, such as higher transaction limits, easier access to credit, and the ability to process payments from clients globally or transact in different currencies .

If starting an online business, having a registered company or business and bank account in the same name is often a requirement when applying for a payment processor to accept card payment (Stripe, Paypal etc).

Key Misconceptions About Forming a Company

When forming a company, there are several common misconceptions that can discourage or confuse prospective entrepreneurs.

Here are a few key misunderstandings:

1. You Need to Be a Resident of the Country
   Many people assume that they must be a legal resident of the country where they plan to establish their company (ie a Singaporean Citizen to open a Singaporean Company).
   
   This is untrue, in most jurisdictions, non-residents can form and own companies with many international countries fighting for your business.
   
2. You Need to Live in the Country
   Another common myth is that you must physically reside in the country where your company is registered.
   
   In reality, many countries allow business owners to manage their companies remotely with assistance of a local agent and mailing address. This flexibility has grown significantly with the rise of digital tools, enabling entrepreneurs to operate from virtually anywhere in the world.
   
3. You Need a Local Partner
   Some believe that forming a company always requires you to know a local partner. While this is true in a few jurisdictions like Singapore, many agencies can place a local Director or secretary on your behalf.
   
4. It’s Too Complicated or Expensive
   The idea that company formation is a costly or overly complex process deters many potential business owners.
   However, in recent years many countries offer streamlined 100% digital processes, low initial capital requirements and have agents who can hold you’re hand through the entire journey.
   
5. All Companies Are Taxed Equally
   Another misconception is that all companies in a country face the same tax rates. This is simply untrue. Many governments offer incentives, such as tax holidays or lower rates, for foreign investors or companies in specific industries.

Costs Associated with Establishing and Maintaining a Company

While the benefits of setting up a company are attractive, it does involve costs, including:

Initial Setup Costs

• Registration Fees & Licences: Fees for registering the business name and structure paid to the government
• Legal Assistance: Costs for consulting lawyers to draft incorporation documents.
• Branding: Purchasing a domain name and setting up a website and email.

Ongoing Costs

• Taxes: Corporate income tax, VAT, or other local taxes.
• Compliance: Costs for maintaining legal compliance, such as annual filings or audits.
• Accounting: Fees for bookkeeping, payroll services, financial reporting
• Agent Fees: Acting as a directory and or secretary, acting as a ‘virtual mailroom’ and mailing address
• Business Insurance: Policies to cover liability, property, or employees.

Common Jurisdictions for Digital Nomads to Establish Companies

There is no best place to set-up a company and many countries are actively competing for your business. Digital nomads often choose jurisdictions based on tax advantages, ease of setup, and operational flexibility.

Some of the common countries to form a company include:

1. Estonia

Estonia is a small country in Northern Europe, located along the Baltic Sea, bordered by Finland to the north, Russia to the east, and Latvia to the south. It is a member of the European Union making it an attractive destination for entrepreneurs looking to establish a business in Europe.

Positives:

• E-Residency Program: Estonia offers an innovative E-Residency program, which allows entrepreneurs from anywhere in the world to remotely establish and manage a business or company in Estonia. This program provides digital access to a range of services such as company registration, banking, and taxation, making it a very attractive choice for global entrepreneurs.
• Low Corporate Tax Rates: Estonia has one of the most business-friendly tax systems in Europe. The corporate tax rate is 20%, but it only applies to distributed profits (i.e., dividends). Reinvested profits are tax-exempt, which encourages growth and reinvestment within the company.
• Digital Infrastructure: Estonia is known for its advanced digital infrastructure and e-government services. This makes managing a company from anywhere in the world relatively seamless and efficient.
• EU Member State: As an EU member, Estonia offers access to the European single market, which provides businesses with a wide-reaching customer base and allows for relatively easy trade and operations within the EU.

Negatives:

• Limited Access to Banking Services for Non-Residents: While Estonia offers excellent digital infrastructure, non-residents may face challenges when opening a business bank account from outside of the country.
• Small Domestic Market: Estonia has a relatively small population (around 1.3 million people), which could limit opportunities for businesses focused on serving the local market. However, the access to the broader EU market helps mitigate this issue.
• Language Barrier: Although most Estonians speak English, the primary language of business and government is Estonian. This can pose a challenge for non-Estonian speakers, especially when dealing with paperwork, contracts, and other official documents however it quickly is getting better.

2. Singapore

Singapore is a small island city-state located in Southeast Asia. Known for its highly developed economy and strategic location, it serves as a key hub for trade, finance, and business operations across the Asia-Pacific region. With a reputation for political stability, economic prosperity, and a world-class infrastructure.

Positives:

• Low Corporate Tax Rates: Singapore offers one of the lowest corporate tax rates in the region, with a headline rate of 17%. The country also provides various tax exemptions and incentives for startups, such as the Startup Tax Exemption Scheme.
• Robust Legal and Banking Systems: Singapore has a highly transparent and efficient legal system, which adheres to international standards and provides strong intellectual property protection. The country’s banking sector is equally robust, with a wide array of financial services and an established reputation for trustworthiness. The ease of opening and managing a business bank account is a significant draw for entrepreneurs.
• Business-Friendly Environment: The government of Singapore offers a range of support for businesses, including grants, tax incentives, and initiatives to foster innovation and entrepreneurship. The regulatory environment is straightforward and efficient, and the country consistently ranks highly in global ease-of-doing-business indexes.

Negatives:

• Regulatory Complexity for Certain Sectors: While Singapore is known for its business-friendly environment, some sectors (such as financial services, healthcare, and telecommunications) are subject to strict regulations.
• High Cost of Living and Business Operations: Singapore’s reputation comes with high costs, particularly in real estate and labor. Rent and wages are among the highest in the region, which may pose challenges for businesses looking for a physical presence or entrepreneurs wantings to live in the country
• Requirement for a Local Director and Company Secretary: One of the key legal requirements for companies operating in Singapore is that they must appoint a local director who is either a Singaporean citizen, a permanent resident, or a person with an Employment Pass or EntrePass. This requirement can be challenging for foreign entrepreneurs who do not have a local connection in Singapore.
  
  In addition, all companies in Singapore are required to appoint a qualified company secretary within six months of incorporation. While many firms provide professional services to meet these obligations, the cost and effort to engage a qualified company secretary adds to the administrative burden for businesses. It also means foreign entrepreneurs or companies may need to rely on third-party services to fulfill this requirement, further raising costs for startup businesses.

3. United Arab Emirates (UAE)

The UAE, located on the southeastern coast of the Arabian Peninsula, is a rapidly growing business hub known for its modern infrastructure and tax incentives, especially in its free zones. It’s an attractive destination for entrepreneurs looking to access markets in the Middle East, Africa, and nearby parts of Asia.

Positives:

• Zero Corporate Tax in Free Zones: Businesses operating in the UAE’s free zones can benefit from no corporate tax for extended periods (often 15-50 years), making it a very attractive option for foreign entrepreneurs.
• No Personal Income Tax: The UAE does not impose personal income tax for UAE tax residents who reside in the country, which is beneficial for employees and business owners alike.
• Simplified Registration: Setting up a business in the UAE is relatively simple, especially in free zones where paperwork is minimal and the process is fast.
• Strategic Location: The UAE offers easy access to a large market in the MENA (Middle East and North Africa) region, with top-notch infrastructure for international trade.

Negatives:

• Restrictions on Local Business Activity: If you’re outside of a free zone, you’ll need a local sponsor to conduct business in the UAE market, and free zone companies can’t directly deal with the local market without partnerships.
• Corporate Tax: A federal corporate tax of 9% was introduced in 2023 on profits over AED 375,000. While still low, it means that businesses outside free zones will be taxed.
• High Costs: The cost of living and doing business in the UAE, particularly in cities like Dubai, can be high, which may pose challenges for smaller businesses if you want to reside in the country.
• Cultural and Legal Challenges: Foreign entrepreneurs may find it challenging to navigate local regulations and business customs.

4. Portugal

Portugal, located in Southern Europe, is a member of the European Union and has become an increasingly popular destination for entrepreneurs, especially those looking to establish a business with access to the broader EU market. Known for its beautiful landscapes, rich history, and growing tech scene, Portugal offers a variety of advantages for both local and international business owners.

Positives:

• Access to the EU Market: As part of the European Union, Portugal provides easy access to over 450 million consumers, making it a strong base for businesses looking to expand within the EU.
• Digital Nomad-Friendly Visas: Portugal offers a special visa for digital nomads, which allows remote workers and entrepreneurs to live and work in the country for up to a year (with the option to extend). This makes it a popular destination for those wanting to visit the country.
• Relatively Straightforward Incorporation Processes: Setting up a business in Portugal is relatively simple compared to other European countries. The process is straightforward, with clear steps and online registration systems. Many entrepreneurs can start their business in a matter of weeks.
• Favorable Tax Incentives: Portugal offers attractive tax benefits, especially through the Non-Habitual Resident (NHR) tax regime, which provides tax exemptions or reductions for foreign income and professionals working in high-value-added activities.

Negatives:

• Bureaucracy Can Be Slow and Challenging: One of the main drawbacks of doing business in Portugal is the bureaucracy. Despite recent improvements, processes can still be slow, and dealing with government departments can be challenging at times. Paperwork and approvals may take longer than in countries with more streamlined instantaneous systems, which can be frustrating for entrepreneurs.
• Higher Taxes on Business Profits: While Portugal offers tax benefits for certain individuals and activities, the overall corporate tax rate is relatively high compared to countries like Estonia. The standard corporate tax rate is 21%, which is higher than Estonia’s 20% (on distributed profits). This may be a consideration for businesses looking to reinvest profits, as reinvested profits in Estonia are tax-exempt.
• Cost of Living: While lower than in many Western European countries, the cost of living in Portugal can still be higher than in countries like Estonia, especially in cities like Lisbon or Porto, where housing prices and daily expenses can add up.

5. Hong Kong

Hong Kong is a global financial hub known for its vibrant economy, low taxes, and strategic location as a gateway to China. The city combines Eastern and Western business practices, making it an ideal destination for entrepreneurs looking to tap into international markets, particularly China.

Positives:

• Low Taxes: Hong Kong offers a highly competitive tax regime, with a corporate tax rate of just 16.5% on profits. Additionally, there is no sales tax or value-added tax (VAT). One of the key benefits is that Hong Kong does not tax income generated outside of the region. This makes it an attractive option for companies operating internationally, as they are not taxed on profits earned from operations outside of Hong Kong.
• Strong Financial Infrastructure: Hong Kong is one of the world’s leading financial centers, offering access to strong reputable international banking services.
• Gateway to China: Hong Kong provides an advantageous position for businesses looking to enter the Chinese market.

Negatives:

• Requires a Local Company Secretary: While a foreigner can serve as the sole director of a company, a local company secretary is required. The secretary must either be a Hong Kong resident or a corporate service provider based in Hong Kong, which adds an additional cost to maintaining the business.
• Yearly Audit Requirement: Hong Kong businesses must submit a yearly audit to the Inland Revenue Department. This requirement can be burdensome for smaller companies, as it means incurring the cost of hiring an auditor to prepare and submit the necessary reports. While the audit requirement helps ensure transparency and compliance, it adds an extra layer of administrative responsibility for businesses.
• Political Uncertainty: Hong Kong has experienced increasing political tensions in recent years, particularly in its relationship with mainland China. This has led to concerns about the long-term stability of the region’s legal and political systems, which may affect business confidence and the security of operations.
• High Operating Costs: Hong Kong is one of the most expensive cities in the world to live, with high costs for office space, rent, and labor. While the city offers a low-tax environment, those wanting to live or have a physical presence within the country could be surprised at the high costs.

6. United States (Delaware)

Delaware is one of the most popular states for business incorporation due to its simple process, business-friendly environment, and strong legal protections. It offers global access to banking and investment, making it an attractive choice for both U.S. and international entrepreneurs.

Positives:

• Easy Registration: Delaware offers a fast and simple company registration process, typically completed online within a day or two.
• Strong Legal Framework: Delaware’s is highly regarded as having a business friendly legal system, providing a stable and predictable legal environment.
• Access to Global Banking and Capital: Being in the U.S., Delaware companies benefit from strong financial services and easier access to capital.
• U.S. Market Access: Incorporating in Delaware offers direct access to the U.S. market, which is one of the largest and most diverse consumer markets in the world.

Negatives:

• High Compliance Costs: Maintaining a business in Delaware comes with annual franchise taxes, fees, and the need for legal services, which can be costly, particularly for complex operations.
• Tax Complexities: While Delaware has no state income tax for corporations, non-residents face additional challenges with U.S. federal taxes, which can be complicated
• Regulatory Burden: Delaware businesses must comply with both state and federal regulations, which can be burdensome, especially for foreigners.

Choosing the Right Jurisdiction

Selecting the best jurisdiction to incorporate a company is an important decision and involves a lot of consideration!

Some of the main factors to evaluate when choosing where to incorporate include:

• Your Tax Residency and Obligations: The jurisdiction you choose affects your personal and corporate tax liabilities. Some countries offer favorable tax rates or exemptions for international income.
• Nature of Your Business: Different jurisdictions may offer varying benefits depending on your business model. For example, tech startups may benefit from favorable IP laws, while e-commerce businesses might find better VAT rules. Some types of businesses may be prohibited or heavily regulated.
• Clients’ Locations: Incorporating in a jurisdiction that is close to your main clients or markets can help reduce costs and align operations with local laws. Some jurisdictions also offer access to free trade agreements and large consumer markets.
• Ease of Compliance and Banking Options: Jurisdictions vary in compliance complexity, including reporting, audits, and business laws. For many Digital Nomad, an easy to deal system is very valuable.

Company Formation Agents & Corporate Service Providers

Starting and managing a foreign company on your own can be incredibly difficult and time consuming, especially if you are not familiar with the jurisdiction, speak their language and have a Masters in Business.

Recruiting the help of an offshore ‘Company Formation Agent’ or ‘Corporate Service Provider’ is invaluable and worth every cent.

Some of the services these agents and providers commonly offer include

• Assistance forming the company and dealing with the governments
• Ensuring the required documents are completed and submitted on time
• Ability to place a local director or secretary on your company
• Bookkeeping, Auditing and Compliance
• Answering questions you may have on tax or the structure
• Assistance opening a local bank account
• Virtual Address & Mailroom

For my Hong Kong company, I use SLEEK who assist entrepreneurs around the world in forming and managing their companies. My experience with them so far has been exceptional from getting the company registered, completing paperwork that I wouldn’t know where to start and chasing me up to keep my banking records in order.

If you’re are thinking of creating a company in Australia, Singapore, Hong Kong or the United Kingdom certainly check them out.

*Promo Alert* If you use my personal referral code you will get HK$500 off if you sign up to Sleek!
Sleek Referral Code: REFIIEM

Final Thoughts

Setting up a company as a digital nomad is a big deal and something that shouldn’t be taken lightly. It can enhance professional opportunities, provide legal protection and access to banking, as well as open new immigration pathways.

It’s crucial to weigh the costs and carefully choose a jurisdiction that aligns with both your business goals and personal situation. Consulting with legal and financial experts and finding a good partner to assist you can be valuable.

Where do you think is the best place to register a company? Leave a comment below