Back when the company was HDR School, we was registry in Hong Kong and when we rebranded, the opportunity presented itself to register the company where we do business, Kansas City. It was just a move that we need to do and having the tax haven is not for every business.
While it did work for us to be based in the special administrative region that is under Chinese rule, it be a challenge as well. This only caused me to have concern. I do not want to put my business at the risk of unstable Chinese legal processes. They have a tendency to change the rules and laws overnight and that is not good for business.
This is not to mention that if there was a major issue, I would have to fly across the world to take care of the problem. How much would I have doing business in a place that I have to fly at a last minute, get a hotel for a few days and everything that is included in that last minute travel. It would quickly add up to several thousand dollars.
In the end, it just makes senses to have a business home closer to what I do the trading that try and save a few dollars.
The IRS and Hong Kong business
The truth is that doing business offshore is getting more and more challenging than it use to be. The time of easy tax havens are off since Mitt Romney ran for President and it became a major issue. This led to some new tax laws that among other things forced all banks globally to report income of Americans to the United States government.
The Foreign Account Tax Compliance Act (FATCA), which was passed as part of the HIRE Act, generally requires that foreign financial Institutions and certain other non-financial foreign entities report on the foreign assets held by their U.S. account holders or be subject to withholding on withholdable payments. The HIRE Act also contained legislation requiring U.S. persons to report, depending on the value, their foreign financial accounts and foreign assets.
What the government is trying to do is encourage Americans to keep business in America by making it more challenging to do business internationally. While many, including myself, I think this is backwards; it is what they are doing and we just have to play their game.
Basically, if you make more than $50,000 in a single year abroad while living in the United States, you are taxable on all the income that you have made throughout the year. This basically means if you are making more than $4,000 a month gross that you are just jumping through extra red tape legally by doing business in Hong Kong or another tax haven.
This is probably the biggest reason that I would re-think moving business out of America.
Benefits of local tax home
One thing that is benefits me is having all the agencies that I have to deal with right within a short drive if I need to meet with them. If I have an issue with my bank, I am just a short drive to see a banker that I know and can talk with face to face. That is not something that I had when working with HSBC in Hong Kong.
Another benefit is I am not trusting some random person that I might not have even met before to do important business matters. You have a company secretary that is also managing a hundred other companies as well. She does not know nor care about your details. In many cases, they are completely clueless to how American business even works.
A third benefit is less information intake is required. Having to stay up to date on one groups of laws is easier than it is two or more. When doing business in Hong Kong, I had to be up to date on US laws about international business, Hong Kong’s local business laws and also watch closely what changes that Beijing was forced on the SAR.
Having the business in Kansas City just requires that I loosely follow the city’s financial developments and making sure that state and federal laws don’t wildly change. (Trump is making this more of a job that I would like!) At the end of the day, doing business in America is just a lot less work!
How to register a business in America
While each city could be a little different, there seems to be a pretty standard process about everywhere to go.
Apply for a business license with the city
Apply for a tax number with IRS
Secure any permits that you need.
Update any licenses you need with the state
While this does sound like several step, it can easily be done is about an hour normally. In fact, a lot of things you have to do with the government in the United States is able to be done online that makes it even easier to do the steps.
When I registered SLR Foundry in Kansas City, Missouri. It took less than an hour including the drive to downtown! It was a quick walk into the offices, fill out the form, and walk to the next one.
The first stop was the Business Office of the city of Kansas City to apply for a business license. The fees connected with this is unnecessary complex and just downright confusing. In most cases, it is just going to be $50 per year for most online businesses though.
The second step for me was across the street to the federal building to get a new TIN which is my business tax number for the IRS. It was to fill out a form and wait a few minutes to get the read out. That was it and I walked back to my car.
As the business is online and operating out of my house, there was no need for permits or state wide licensing.