Moving halfway around the world to start a new life is daunting, even more so if you’re moving without a job and plan to start your own business. The good news is that the world has never been so connected, and with the right strategy, you can make a success of a startup anywhere. But before you jet off to another country expecting overnight success, it’s time for a quick reality check. Below, we’ve rounded up some common misconceptions about starting a business overseas, and offer some advice to ensure your venture has legs.
You won’t need to pay any tax
Although some countries don’t levy income tax - including Bermuda, Monaco, the Bahamas and the United Arab Emirates - that doesn’t mean you get to keep every penny you earn. It is important that you fully understand the tax laws in the country you’re considering moving to before you do so, or you could be burned and find that your venture doesn’t work out.
What’s perhaps most important to note is that most countries have a lengthy and expensive citizenship process, with high barriers to entry to only attract the top talent. You’ll need to go through the process of applying for and moving to your new country, having enough coffers in the bank to pay for the application, your move, and accommodation in the short-term. It’s common for countries to refuse applications from those without a fixed income, so it’s often worth building your business in your home country and moving it to a new country later on.
Investing in the help of an accountant or financial advisor is also something to consider. The tax system in the United Arab Emirates, for example, might seem straightforward, but it’s easy to be caught out. Though there’s no income tax to pay, you’ll need to pay 17.5% tax to a social security regime, with nationals paying 5% and their employers paying 12.5%. As an expat, you’ll need to decide whether you want to enrol in the UAE social security program. If you’re starting a business, you’ll only pay corporate tax if you’re forming a foreign bank or an oil company, and there are double taxation agreements for multinational organisations.
You will pay tax when you buy or sell a property, currently at 4%, and you’ll need to pay VAT on most goods and services. There’s no VAT on international transport, precious metals, new-build properties, exports to outside of the GCC, and some educational and healthcare services. Tenants in Dubai must also pay 5% of their annual rent in rental tax, and 10% is added to commercial tenants’ rents. In Abu Dhabi, expats are taxed 3% on their properties.
You’ll need to pay tax in two countries
If you’re a resident in the UK and have income abroad, or you’re non-resident in the UK and have income in the UK, you’ll need to pay taxes in both countries. However, most countries have a double taxation agreement with the UK, and thus you’ll likely only need to pay tax in one country, or pay tax in the UK for your UK income, and tax in your new resident country for the rest of your income. It is always advisable to speak to an accountant about your exacting circumstances before you make the move. It might be recommended that you dispose of your UK-based assets like properties and investments to reduce your tax burden.
Things become trickier if you’re not from the UK, and you’ll need to revert to your country of origin’s official documentation. For example, if you live in the United States and want to move overseas, you won’t pay expat taxes because of the Foreign Earned Income Exclusion and Foreign Tax Credit benefits unless you earn over the filing threshold, and in that case, you’ll still need to file taxes annually in the United States, which can make life complicated.
It’s impossible to apply for funding
In today’s globalised world, governments and official bodies are increasingly looking to attract expat talent to grow their economies. As a result, it might be possible for you to apply for a startup grant or funding as part of your move to a new territory. Of course, you’ll need to be able to prove that you’re a successful entrepreneur, so the more you can do in your home country before you move, the more likely you are to receive grants or business funding.
Things become more complex when you’re looking to take out a business loan as an expat, and costs and specifics depend from country to country. Typically, expats will pay more for business loans than natives, but there are specialist international banks that will lend to expats at lower rates, provided they can prove their business model works. Again, racking up experience in your home country is a surefire way of boosting your funding chances.
Depending on where in the world you move to, you might be entitled to investment from Western accelerators. In Africa, for example, Westerners are more likely to receive funding than local entrepreneurs. Do your research and see what options are available to you.
You need to be rich to start a business overseas
It’s a common myth that all expats are living the high life and have millions of dollars to play around with. It’s possible to emigrate to another country with relatively low savings and start a business from scratch. Granted, having a buffer will give you peace of mind and more time to make your venture work, but you certainly don’t need to be rich to start a foreign business.
What you must have to make your venture work, however, is time and patience. Consider starting a business overseas as if you were starting your very first business. Sure, you have the experience now, but you’ll be promoting products and services to an entirely different audience with different cultural behaviours, and you’ll need to learn how to adapt what you do to make it work. If you’re not prepared to start from the bottom and work your way up, expat entrepreneurship is not for you. You’ll have to work very hard to make a success of it.
You can sustain a business with expat customers alone
Another common misconception about starting a business as an expat is that you can rely on the expat community in your new country alone. That might be true in some European tourist hotspots where you can open a restaurant or a sight-seeing business, but more often than not, you’ll need to immerse yourself into the local culture and target local residents.
It’s possible to build a business around your expat lifestyle and reach other expats, but relying on expats exclusively can be dangerous. Don’t expect to run an expat business without learning the language or localising your services. What you offered in the West might need to change a great deal if you want it to work in the Middle East, for example.
International business laws are prohibitive
If you’ve been a successful entrepreneur in one country, making the decision to start again in another can be unsettling. It’s natural to assume that the government and local residents will be “against” you if were to set-up shop in their home town, but as we’ve already touched upon, most countries welcome investment and entrepreneurship and make it easy for you to get started, especially if it means offering local jobs. In India, for example, it takes 18 days to incorporate a business, as the government has incorporated many application forms into one standard questionnaire. China, too, is an attractive choice for international investors, as it’s now possible to register a new company online and start trading within nine days. US News ranks Thailand as the best place for expats to start a business, as it has fixed registration fees, low barriers to entry for relocating, and a streamlined business registration process.
Speak to expat entrepreneurs about their experiences and look at the local government website for an idea on how you’d be treated and the potential help and support available.
Starting a business abroad can be challenging, even more so without the support of a reputable accounting firm. Let the team at Profezo help you find an independent, regulated accountant to help you as you grow your business. Click here to start your search today.